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of any asset, but the taxpayer fails to provide sufficient
information for the IRS to determine the value, the taxpayer
is presumed to own specified foreign assets with a value of
more than the applicable reporting threshold.
Draft Form 8938 and instructions can be obtained from the
following links
http://www.irs.gov/pub/irs-dft/f8938--dft.pdf
http://www.irs.gov/pub/irs-dft/i8938--dft.pdf
For more information please contact:
Leo Parmegiani, CPA
Tax Partner in Charge
PKF LLP
Certified Public Accountants
T: +1 (212) 867-8000 x 426
F: +1 (212) 687-4346
E: LParmegiani@PKFNY.COM
W: www.pkfnewyork.com
IRS Announces 2011 Voluntary
Compliance Program Focused
on Employee vs. Independent
Contractor Exposure
On 21 September 2011, the Internal Revenue Service (IRS)
unveiled a Voluntary Compliance Program (VCP) that offers
relief for businesses which may have misclassified workers
as independent contractors, rather than employees, and so
are potentially liable for significant additional taxes, penalties,
and interest.
Background
Prior to announcement of the VCP, the IRS and the
Department of Labor (DOL)stepped up joint enforcement
efforts by signing a new memorandum of understanding to
strengthen information sharing on enforcement actions aimed
at misclassified workers. Several states are parties to the
agreement including, inter alia, New York and Connecticut.
Observation: This enforcement issue has become more urgent
as both federal and state authorities seek additional tax
revenues to close large current and projected budget deficits.
VCP Summary
The VCP is available for employers which are currently treating
(perhaps incorrectly) workers or a class of workers as
independent contractors, but want to prospectively reclassify
the workers as employees for federal employment tax
purposes. The IRS retains discretion over whether to accept
an employer into the VCP.
VCP Consequences
Under the VCP, eligible taxpayers will generally be entitled
to settle their employment tax liability under a single-year
assessment of employment taxes of 10% of the Internal
Revenue Code Section 3509 rates applicable to the most
recently closed tax year. A 10.68% effective rate applies
under the VCP in 2011, since the most recently closed tax
year is 2010, and a 10.28% effective rate will apply in 2012.
A rate of 3.24% also applies to compensation above the
Social Security wage base in both years. These rates
include federal income tax withholding and employer/
employee social security and medicare tax.
Observation: Employers in the program will generally pay
an amount equal to just over 1% of the wages paid to
reclassified workers for the most recent tax year and will
eliminate the potential exposure for all prior years. It is
unclear how states will react to the VCP program.
VCP Qualifications
The VCP is open to businesses, including exempt
organisations, which have treated workers as independent
contractors in the past, have filed Forms 1099 for the
previous three years, and are not currently under a worker
classification audit by the IRS, the DOL, or a state agency.
An employer previously audited by the IRS or DOL
concerning worker classification is eligible for this Program
if it has complied with the results of such an audit.
Under the Program, an employer does not have to reclassify
all of its workers who are currently treated as non-employees.
However, once an employer chooses to reclassify certain of
its workers as employees, all workers in the same class –
i.e., workers who perform the same or similar services –
must be reclassified as employees.
50 // PKF International Tax Alert All Regions
Issue 8 November 2011