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Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

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VCSP CPA discusses Cooperation between the IRS and Department of Labor | Section 530 Worker Classification and Form 8952

VCSP CPA Wilmington NC Form 8952

Gary Bode, CPA: before filing Form 8952, let’s make sure you have to. For a free phone consult call 399-2705.

Hi, I’m Gary Bode, a VCSP CPA with a virtual office to serve clients beyond our Wilmington, NC base.  We’re fielding inquiries about how and when clients with Worker Classification issues should use the new Voluntary Classification Settlement Program (VCSP). One question we’re asked concerns whether the IRS can actually catch worker classifications.

Worker Classification Error is easy to Spot on a Tax Return

Some clients are dubious about the IRS’ ability to catch worker mis-classification. But I think most VCSP CPAs would disagree. Why?

  • First, businesses don’t want to pass up the tax deduction for subcontractor fees. And once it’s on the tax return, internal indicators make some offenders easy to red flag. I think the IRS just doesn’t have the resources to audit all offenders.
  • Second, as any CPA knows, the IRS and the Department of Labor are now sharing information. Ouch.
  • The IRS uses revenue matching. To take the deduction for subcontractor fees, generally you must 1099 these folks. If your subs are shifty on their taxes, it can come back and bite your company.

Update

Here’s a post on VCSP and Form 982 discussing recent developments.

Section 530 Safe Haven: Maybe you’re OK with your current worker classification?

Before filing Form 8952, check all the pertinent issues. Part of your VCSP CPA’s job is determining if you’re actually in error with your present worker classification. Section 530 basically says that if your company has a reasonable basis for considering workers as subcontractors, instead of as employees, it may do so and avoid employment taxes. Each case is different. The basic two IRS guidelines for distinguishing subcontractors and employees have a lot of gray areas. A number of lesser IRS factors exist as well

“Sometimes just proactively documenting why you classify workers as subcontractors prevents the IRS from re-classifying them on an audit.”
– Gary Bode, VCSP CPA and payroll accountant

When to File Form 8952

  • The IRS answer is 60 days before you want to re-classify your subs and employees.
  • The penalty is based on calendar year subcontractor payments. When would the penalty be lowest?
  • If your company hasn’t had to pay employees until now, another consideration is the new payroll reporting requirements. Many VCSP CPAs also handle payroll. I think most of us would consider making this change at the beginning of a calendar quarter, to provide time to develop new internal payroll processes, before the first Form 941 is due.
  • The ethical answer as to when to File Form 8952? Now, if you are in noncompliance.
  • Remember, once the IRS audits you, the company can’t utilize VCSP.
  • Even though the IRS is not seeking to punish past offenders who do apply under VCSP, they will make an example out of few companies who don’t, and then publicize it well. So, your risk tolerance factors into the decision.
  • Payroll taxes are a major factor in cash flow management. So, sometimes your cash flow might dictate the timing for Filing Form 8952. Remember, you have to pay the penalty and then treat subcontractors as employees in the future.

For more info, please see our other VCSP and Form 8952 postings via the Form list on the right and/or the Category drop down box on the left.

Is Form 8952 something your company can handle in-house? Maybe. But if you’re uncomfortable in doing so, please give us a call for a free phone consult at (910) 399-2705.

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