Announcement 2012-46

the results of that audit and is not currently
contesting the classification in court.

Don Parkinson at 202–622–6040 (not a
toll-free call).

IV. EFFECT OF THE VCSP
A taxpayer who participates in the
VCSP agrees to prospectively treat the
class or classes of workers identified in
the application as employees for future tax
periods. In exchange, the taxpayer pays
10 percent of the employment tax liability
that would have been due on compensation paid to the workers being reclassified
for the most recent tax year if those workers were classified as employees for such
year, determined under the reduced rates
of section 3509(a); is not liable for any
interest and penalties on the liability; and
is not subject to an employment tax audit
with respect to the worker classification
of the class or classes of workers for prior
years.
V. APPLICATION PROCESS
Eligible taxpayers who wish to participate in the VCSP must submit an
application for participation in the program using Form 8952, Application for
Voluntary Classification Settlement Program (VCSP). Information about the
VCSP and the application is available on
www.irs.gov. Along with the application,
the taxpayer may provide the name of a
contact or an authorized representative
with a valid Power of Attorney (Form
2848). The IRS retains discretion whether
to accept a taxpayer’s application for the
VCSP. The IRS will contact the taxpayer
or authorized representative to complete
the process once it has reviewed the application and verified the taxpayer’s eligibility. Taxpayers whose application has been
accepted enter into a closing agreement
with the IRS to finalize the terms of the
VCSP and must simultaneously make full
and complete payment of any amount due
under the closing agreement.
VI. DRAFTING INFORMATION
The principal author of this announcement is Ligeia M. Donis of the Office
of the Division Counsel/Associate Chief
Counsel (Tax Exempt & Government
Entities).
For further information
regarding this announcement, contact

December 17, 2012

Voluntary Classification
Settlement Program
— Temporary Eligibility
Expansion
Announcement 2012–46
This document provides notice and information regarding a temporary expansion of eligibility for the Voluntary Classification Settlement Program (VCSP) that
will be available through June 30, 2013.
The temporary eligibility expansion makes
a modified VCSP available to taxpayers
who would otherwise be eligible for the
current VCSP but have not filed all required Forms 1099 for the previous three
years with respect to the workers to be reclassified. Eligible taxpayers that take advantage of this limited, temporary eligibility expansion agree to prospectively treat
workers as employees and will receive partial relief from federal employment taxes.
I. PURPOSE
The Internal Revenue Service (IRS) has
developed a new, temporary initiative to
permit taxpayers who are otherwise eligible for the VCSP, but have not filed all required Forms 1099 for the previous three
years with respect to the workers to be reclassified, to apply for a modified version
of the VCSP, the VCSP Temporary Eligibility Expansion. The VCSP Temporary
Eligibility Expansion is available through
June 30, 2013.
Like the VCSP, the VCSP Temporary
Eligibility Expansion permits eligible taxpayers to voluntarily reclassify their workers as employees for federal employment
tax purposes and obtain relief similar to
that obtained through the current Classification Settlement Program (CSP). The
VCSP Temporary Eligibility Expansion is
optional and provides taxpayers with an
opportunity to voluntarily reclassify their
workers as employees for future tax periods with limited federal employment tax
liability for the past nonemployee treatment. Payment under the VCSP Temporary Eligibility Expansion is higher than
the payment under the VCSP, but the benefits are otherwise the same for taxpay-

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ers that want to voluntarily reclassify their
workers but have not filed all required
Forms 1099 for those workers. To participate, the taxpayer must meet certain eligibility requirements, apply to participate
in the VCSP Temporary Eligibility Expansion, and enter into a closing agreement
with the IRS.
II. BACKGROUND
Whether a worker is performing services as an employee or as an independent contractor depends upon the facts and
circumstances and is generally determined
under the common law test of whether the
service recipient has the right to direct and
control the worker as to how to perform the
services. In some factual situations, the determination of the proper worker classification status under the common law may
not be clear. For taxpayers under IRS
examination, the current CSP is available
to resolve federal employment tax issues
related to worker misclassification if certain criteria are met. The CSP permits the
prospective reclassification of workers as
employees, with reduced federal employment tax liabilities for past nonemployee
treatment. The CSP allows businesses and
tax examiners to resolve the worker classification issues as early in the administrative process as possible, thereby reducing
taxpayer burden and providing efficiencies
for both the taxpayer and the government.
In order to facilitate voluntary resolution of worker classification issues
and achieve the benefits of increased tax
compliance and certainty for taxpayers,
workers, and the government, the IRS
determined that it would be beneficial to
provide taxpayers with a program that
allows for voluntary reclassification of
workers as employees outside of the examination context and without the need to
go through normal administrative correction procedures applicable to employment
taxes. Accordingly, the VCSP was established on September 21, 2011, through
Announcement 2011–64, 2011–41 I.R.B.
503. In response to feedback from taxpayers and taxpayer representatives, the
VCSP is modified under Announcement
2012–45, 2012–51 I.R.B. 724, to (1) permit a taxpayer under IRS audit, other than
an employment tax audit, to be eligible to
participate in the VCSP; (2) clarify the current eligibility requirement that a taxpayer

2012–51 I.R.B.

that is a member of an affiliated group
within the meaning of section 1504(a) is
not eligible to participate in the VCSP if
any member of the affiliated group is under employment tax audit; (3) clarify that a
taxpayer is not eligible to participate in the
VCSP if the taxpayer is contesting in court
the classification of the class or classes
of workers from a previous audit by the
IRS or the Department of Labor; and (4)
eliminate the requirement that a taxpayer
agree to extend the period of limitations on
assessment of employment taxes as part of
the VCSP closing agreement with the IRS.
To be eligible under the VCSP, a taxpayer must meet certain requirements,
including having consistently treated the
workers as nonemployees and having filed
all required Forms 1099, consistent with
the nonemployee treatment, for the previous three years with respect to the workers
to be reclassified. Taxpayers that do not
qualify under the VCSP because they have
not filed all required Forms 1099 for the
previous three years requested a similar
program. The IRS decided to provide this
limited, temporary eligibility expansion
through June 30, 2013, to permit taxpayers that have not filed all required Forms
1099 to agree to voluntarily reclassify
their workers prospectively and file and
furnish any required Forms 1099 with respect to the workers being reclassified for
the previous three years.
III. ELIGIBILITY
The VCSP Temporary Eligibility Expansion is available for taxpayers who
want to voluntarily change the prospective classification of their workers. The
program applies to taxpayers who are currently treating their workers (or a class
of workers) as independent contractors or
other nonemployees and want to prospectively treat the workers as employees. To
be eligible, a taxpayer must have consistently treated the workers as nonemployees. The taxpayer cannot currently be
under employment tax audit by the IRS.
A taxpayer that is a member of an affiliated group within the meaning of section
1504(a) is considered to be under employment tax audit for purposes of the VCSP
Temporary Eligibility Expansion if any
member of the affiliated group is under
employment tax audit. Furthermore, the
taxpayer cannot be currently under audit

2012–51 I.R.B.

concerning the classification of the class
or classes of workers by the Department
of Labor or by a state government agency.
A taxpayer who was previously audited
by the IRS or the Department of Labor
concerning the classification of the class
or classes of workers is eligible for the
VCSP Temporary Eligibility Expansion if
the taxpayer has complied with the results
of that audit and is not currently contesting
the classification in court.
In addition, in order to be eligible to
participate in the VCSP Temporary Eligibility Expansion, a taxpayer must furnish
to the workers and electronically file all
required Forms 1099, consistent with the
nonemployee treatment, with respect to the
workers being reclassified for the previous
three years prior to executing the VCSP
Temporary Eligibility Expansion closing
agreement with the IRS. Taxpayers must
electronically file such Forms 1099 in accordance with IRS instructions, which will
be provided once the IRS has reviewed the
application and verified that the taxpayer
is otherwise eligible for the VCSP Temporary Eligibility Expansion, as indicated in
Section V, Application Process.
Taxpayers seeking to participate in the
VCSP Temporary Eligibility Expansion
must submit an application, as indicated
below in Section V, Application Process,
on or before June 30, 2013.
IV. EFFECT OF THE VCSP
TEMPORARY ELIGIBILITY
EXPANSION
A taxpayer who participates in the
VCSP Temporary Eligibility Expansion
agrees to prospectively treat the class or
classes of workers identified in the application as employees for future tax periods.
In exchange, the taxpayer pays 25 percent of the employment tax liability that
would have been due on compensation
paid to the workers being reclassified for
the most recent tax year if those workers
were classified as employees for such year,
determined under the reduced rates of section 3509(b); pays a reduced penalty, as
discussed below, for unfiled Forms 1099
for the previous three years with respect to
the workers being reclassified; is not liable
for any interest and penalties on the liability; and is not subject to an employment
tax audit with respect to the worker classification of the class or classes of workers

726

for prior years. The taxpayer must certify
as part of the VCSP Temporary Eligibility
Expansion closing agreement with the IRS
that it has furnished to the workers and
has electronically filed all required Forms
1099 for the previous three years with
respect to the workers being reclassified.
Under the VCSP Temporary Eligibility
Expansion, the penalty for unfiled Forms
1099 is graduated, based on the number of
required Forms 1099 that were not filed for
the previous three years with respect to the
workers being reclassified, up to a maximum amount. The worksheet provided
with this announcement provides further
details regarding how the penalty is calculated.
V. APPLICATION PROCESS
Eligible taxpayers who wish to participate in the VCSP Temporary Eligibility
Expansion must submit an application
on or before June 30, 2013, for participation in the program using Form 8952,
Application for Voluntary Classification
Settlement Program (VCSP). However,
taxpayers seeking to participate in the
VCSP Temporary Eligibility Expansion
should write “VCSP Temporary Eligibility
Expansion” at the top of Form 8952.
Taxpayers seeking to participate in the
VCSP Temporary Eligibility Expansion
must complete all parts of Form 8952,
with the following modifications:
(1) Taxpayers should put a line through
Part V, Line A3, to indicate that Taxpayer
has not satisfied all Form 1099 requirements for each of the workers for the 3
preceding calendar years ending before the
date of the application; and
(2) Taxpayers should not complete Part
IV, Payment Calculation, of Form 8952.
Instead, taxpayers should use the worksheet provided in this announcement to
calculate their payment under the VCSP
Temporary Eligibility Expansion. Taxpayers should attach the completed worksheet
provided in this announcement to Form
8952.
Information about the VCSP Temporary Eligibility Expansion and the application is available on www.irs.gov. Along
with the application, the taxpayer may provide the name of a contact or an authorized representative with a valid Power of
Attorney (Form 2848). The IRS will contact the taxpayer or authorized representa-

December 17, 2012