The proper classification of workers for federal tax purposes has been a recurring issue between institutions and the IRS for some time. During audits, the IRS generally has favored classifying individuals as employees rather than as independent contractors.
In order to enable employers to resolve past worker classification issues and achieve certainty under the tax law, the IRS just announced (Announcement 2011-64) a new Voluntary Classification Settlement Program (“VCSP”) that permits eligible employers to reclassify certain nonemployees and independent contractors as employees for federal employment tax purposes and simultaneously obtain relief in the form of reduced tax liabilities and protection from interest, penalties, and audits.
