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VCSP CPA discusses possible alternative defenses under Section 530 Safe Harbor

I’m a VCSP CPA with a virtual office to accommodate long distance clients. The idea for this article comes from the Tax practice Corner column of the July 2012 Journal of Accountancy. It’s important to understand all the options for any given tax situation.

VCSP (Voluntary Classification Settlement Program) is a great program for employers who worry about the IRS assessing them back employment taxes for paying employees as subcontractors. Click on VCSP from the drop down category list in the right toolbar for more information on this IRS program. This post discusses possible alternative defenses your VCSP CPA might offer to you.

Note that VCSP has the drawbacks of:

  • Admitting your company was wrong.
  • Paying a penalty.
  • Paying workers as employees in the future.

Section 530 Defenses

These alternative defenses for worker misclassification stem from Section 530 of the Revenue Act of 1978. Here, your company handles worker classification directly, despite the IRS not liking it.

  • Did you treat all workers the same?
  • Did you treat all workers the same in all time periods?
  • Did you file the correct paper work like Form 1099-MISC?
  • Did you have a reasonable basis for classifying workers as subcontractors?

Reasonable Basis For Classifying Workers as Subcontractors

  • Judicial precedent. This is why VCSP CPAs keep up with tax court cases.
  • Published rulings.
  • Private letter ruling. These are specific to the taxpayer.
  • Long standing recognized practice with an industry segment.
  • IRS audits of similar companies approved their worker classification.
  • Worker’s Compensation audit is OK with the classification.

For every IRS engagement your VCSP CPA custom crafts a response. Most times that’s a VCSP application. But, sometimes, being aware of the weaknesses in the IRS assertion means no admission of guilt, no penalty and continued employment tax savings in the future.

I’m a VCSP CPA with a virtual office. For a free consult call (910) 399-2705.

 

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