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IRS Launches Voluntary Compliance Program

by Molly O'Connell

In late September the IRS announced a voluntary compliance program for employers (including nonprofit employers) to enable those who have mistakenly classified workers as independent contractors to make a correction, along with a modest payment, and avoid the usual penalties of noncompliance. The IRS has launched a new program that will enable many employers, including tax-exempt employers, to resolve past worker classification issues (such as mistakenly classifying workers as independent contractors) and come back into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.

To be eligible for the new Voluntary Classification Settlement Program an applicant must:

  • Consistently have treated the workers as nonemployees in the past
  • Filed all required Forms 1099 for the workers for the previous three years
  • Not currently be under audit by the IRS, Department of Labor or a state agency concerning the classification of these workers.

Full details, including FAQs, are available on the Employment Tax Pages of IRS.gov and in Announcement 2011-64. One lawfirm put together an information article that explains factors nonprofits should consider before signing up for the new compliance program.

This program’s announcement also offers an opportunity for nonprofits to educate themselves about risks of misclassification.

  • See the National Council on Nonprofit’s website materials on this topic.
  • The Jackson Lewis lawfirm has a free one hour webinar that explains the differences between employee v. independent contractor and the potential ramifications for misclassification.  This webinar was originally broadcast before the amnesty program was announced, but it provides good information that every NFP that has workers it classifies as independent contractors should know.

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