The Voluntary Classification Settlement Program (VCSP) is an optional program that provides taxpayers that meet the program’s criteria with an opportunity to voluntarily reclassify their workers as employees. The settlement offers limited federal employment tax liability for past non-employee treatment. This program is meant to be easy, quick, and inclusive for taxpayers to provide for future compliance with employment tax laws, while remaining consistent with the program’s objectives and constraints.

VCSP allows taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes. It gives eligible taxpayers that agree to prospectively treat workers as employees’ relief from a federal employment tax audit for past years for those workers being reclassified and gives them partial relief from federal employment taxes owed related to those workers. To participate, the taxpayer must submit an application to participate in the program, meet certain eligibility requirements, and enter into a closing agreement with the IRS.

Employment tax provisions are found at Internal Revenue Code Subtitle C:

The Employment Tax Program is governed by Policy Statements and other internal guidance that apply to all Service personnel regardless of operating division. The Policy Statements found in IRM 1.2.1, Servicewide Policies and Authorities, Servicewide Policy Statements, apply to all employment tax issues and examinations. Examiners should review these Policy Statements to properly perform their examination duties.

A website, Search Servicewide Delegation Orders, located at https://irm.web.irs.gov/imd/del/search.aspx provides a searchable list of Servicewide Delegation Orders issued by the Commissioner of the Internal Revenue, or on his or her behalf by either of the deputy commissioners. Delegation Orders pertaining to each IRS business process can be found in IRM 1.2.2, Servicewide Policies and Authorities, Servicewide Delegations of Authority.

IRM 4.23 provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. By providing one source of authority for all operating divisions, the Service greatly reduces philosophical and procedural inconsistencies.

Director, Specialty Examination Policy, is responsible for the procedures and updates addressed in this IRM.

Director, Specialty Examination, is responsible for examination operational compliance.

Chief, Employment Tax Examination, is responsible for ensuring general information about basic employment tax examiner responsibilities.

Program Goals: The processes and procedures provided in this IRM are consistent with the objectives or goals for Employment Tax - Examination that are addressed in IRM 1.1.16.5.3.3, Employment Tax Examination and for Employment Tax Policy, found in IRM 1.1.16.3.3.1.5, Employment Tax Policy.

Annual Review: Employment Tax Policy - Program Manager, is responsible for reviewing the information in this IRM annually to ensure accuracy and promote consistent tax administration.

The following table lists commonly used acronyms and their definitions:

Helpful information sources include:

The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS), led by the National Taxpayer Advocate. Its job is to protect taxpayers’ rights by striving to ensure that every taxpayer is treated fairly and knows and understands their rights under the TBOR. TAS offers free help to taxpayers, including when taxpayers face financial difficulties due to an IRS problem, when they are unable to resolve tax problems they have not been able to resolve on their own, or when they need assistance to address an IRS system, process, or procedure that is not functioning as it should. TAS has at least one taxpayer advocate office located in every state, the District of Columbia, and Puerto Rico.

The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3). For additional information about the TBOR, see www.irs.gov/taxpayer-bill-of-rights or https://irsgov.sharepoint.com/sites/IRSSource/SitePages/Taxpayer-Bill-of-Rights.aspx.

Employment tax examiners should consider the disclosure provisions when preparing agreed and unagreed case reports. For further information, see the Privacy, Government Liaison and Disclosure (PGLD) maintained knowledge base at https://irsgov.sharepoint.com/sites/ETD-KMT-KB003.

To facilitate review, all documents located in the paper case file must be saved to the appropriate taxpayer within RCCMS.

Each document saved within RCCMS will use the following naming convention:

Each document name will contain a description of the file content.

The following example is for taxpayer Birch, Inc. (EIN 00-XXXXXXX, Name Control "BIRC" ). The TE made phone contact with the taxpayer to secure copies of Form(s) 1099 and the application met all other criteria. The TE prepared and issued the agreement to the taxpayer, which the taxpayer signed and returned with the proper payment.

Each case file will be different and some will require more documents than others. The TE must use the naming convention to make finding documents easier and to assist in the review of the case.

Upon receipt of the application package, the VCSP Assignment Desk will enter the information into the SharePoint VCSP Application Log and perform a review of the Form 8952 to ensure it is complete and processable. See IRM 4.23.20.4.2, Complete Applications, to determine if the application is complete. The VCSP Assignment Desk will document all findings and actions taken on Form 9984 for all VCSP applications received, whether an application is complete or incomplete.

If a check was erroneously submitted with the initial application, the VCSP Assignment Desk will return the check to the taxpayer using Letter 5210, Voluntary Classification Settlement Program Receipt Payment Return, using certified mail with return receipt service.

Only Forms 8952 that provide sufficient information to establish a case will be accepted by CETO. The VCSP Assignment Desk will review the application and accept only those that:

When the VCSP Assignment Desk determines the application is complete, they will:

When the VCSP Assignment Desk determines that Form 8952 is incomplete (does not meet one of the criteria listed in IRM 4.23.20.4.2(1)), they will contact the taxpayer in an attempt to obtain correct information or a corrected application. In most cases the VCSP Assignment Desk can make changes to the information contained on the Form 8952 with verbal consent from the taxpayer unless the form is not properly signed. If the form is not signed by an authorized person, a corrected Form 8952 must be obtained. Refer to IRM 4.23.20.6.2, Making Changes to Form 8952, for information on making changes to Form 8952.

If the VCSP Assignment Desk obtains information that makes the Form 8952 complete or they receive a corrected application from the taxpayer, they will follow the steps outlined in IRM 4.23.20.4.2(2). If corrected information is not received, the VCSP Assignment Desk will prepare Letter 5252, Essentials Rejection Letter, marking the box indicating the reason the application cannot be processed and mail it to the taxpayer with the original Form 8952 attached. Enter the date rejected and a short reason for the rejection into the SharePoint VCSP Application Log.

Incomplete applications will not be entered into RCCMS, but a copy will be maintained in a paper case file and filed with rejected applications. An activity record should be maintained in the paper case file to document all actions taken and the date the Letter 5252 was mailed.

VCSP applications may have effective dates as far as a year in advance. For Form 941 quarterly filers, an effective date before the beginning of the calendar quarter in which the Form 8952 is received is never acceptable. If the taxpayer is a yearly employment tax filer, (in other words, Form 943 agricultural employer, Form 944 required annual filer, or Schedule H, household employer), the effective date can never be before January 1 of the year in which the application is received.

Before assigning a case to a TE, the VCSP Assignment Desk will take steps to ensure the application is complete. For more information refer to IRM 4.23.20.4.2, Complete Applications. It is assumed that any case assigned to the TE from the VCSP Assignment Desk is a complete application that can be worked to determine eligibility.

The first step taken by the TE is to review the application for accuracy and take steps to get it corrected, if necessary. Upon completion, the TE will begin the eligibility review to make the final determination as to whether or not the taxpayer should be offered a VCSP agreement. Follow paragraphs (3) through (7) to determine if the application is accurate and can be worked to determine eligibility.

Compare the address on INOLES to the application. If they do not match, the TE will contact the taxpayer to ascertain the correct address. If the Form 8952 is the correct address, the TE will ask the taxpayer if they wish to change the entity address on INOLES to the one reflected on the application. To correct IRS records, send Form 8822-B, Change of Address or Responsible Party - Business , to the taxpayer for return to the TE for processing. If the taxpayer does not want to change the address on IRS records, the TE will document that the taxpayer was asked and record their response on the activity record.

Ensure that "Part II - Contact Person" on the Form 8952 is complete with name, title, and contact information of the person the taxpayer wants CETO to work with during the VCSP process. Refer to the Instructions for Form 8952 for more information on the contact person. This contact person may be a designated POA. If so, the TE should verify that the Form 2848, Power of Attorney and Declaration of Representative, has been properly completed. If not, the TE should not discuss any issues with the POA until corrected. See IRM 4.23.20.6.3, Review of Form 2848, for specific steps when reviewing the Form 2848.

Review "Part III - General Information about Workers to Be Reclassified" :

Review "Part IV - Payment Calculation Using Section 3509(a) Rates" to ensure the amount on line 24 is correct. Contact the taxpayer to resolve any discrepancies.

Review "Part V - Taxpayer Representations" for proper signature. Eligible signers are described on page 2 in the Instructions for Form 8952 under "Who Must Sign."

Form 8952 cannot be used for any issue other than the VCSP process. If the taxpayer asks for other uses or attaches other forms (for example, Form 941, Form 941–X, and so on), contact the taxpayer and explain that the VCSP program does not address these matters. The taxpayer must re-submit the Form 8952 deleting the references or attachments relating to other issues.

Changes to any field on Form 8952 may be made by CETO with the taxpayer’s or the properly designated POA’s verbal consent, except when the Form 8952 is not signed by an authorized person. In those situations, the application must be resubmitted with a valid signature. These corrected forms can be resubmitted via fax.

Any change to Form 8952 that is made with verbal consent will be noted, initialed, and dated on the form by the CETO employee making the correction. The action will also be documented in the activity record with the name and title of the person giving verbal consent, the date, what line(s) are being changed and why.

When contact with the taxpayer cannot be made via telephone to obtain verbal consent to change appropriate information on the Form 8952, Letter 5205, Voluntary Classification Settlement Program Information Request, will be mailed to the taxpayer with the appropriate block(s) completed for the necessary information.

Review Form 2848 for accuracy and to ensure it is being submitted solely for the VCSP program.

Review "Part I - Power of Attorney" to ensure that:

Ensure that in "Part II Declaration of Representative," each POA named on the Form 2848 completes and signs in the designated area.

Form 2848 must designate an individual, not a firm, as POA.

Do NOT fax Forms 2848 to the CAF unit. These documents are for the VCSP application process only and are not recorded on the IRS systems. The document should be scanned and loaded into RCCMS and the hard copy maintained in the case file.

All communications, notices, and correspondence must be sent to a valid POA with a copy to the taxpayer.

Form 8821, Tax Information Authorization, cannot be used to designate a representative for the VCSP process since it does not authorize the representative to advocate the taxpayer’s position with respect to federal tax laws, to execute waivers, consents, or closing agreement or to otherwise represent a taxpayer before the IRS.

Taxpayers are required to provide a list containing the names and SSNs of workers that they want to reclassify when submitting the application. When the list provided does not contain names and SSNs of the individuals, the TE will resolve the omission with the taxpayer. In some instances, the omission may result in the application being rejected.

If Employer Identification Numbers (EINs) are provided instead of SSNs, this indicates the worker is holding themselves out as a business entity (i.e., partnership, sole proprietorship or corporation). If an SSN is not available, the TE must inform the taxpayer that a business entity cannot be an employee. If the taxpayer meets all other eligibility requirements and is given an agreement, they will be required to treat the worker as an employee, withhold all appropriate taxes, and file a Form W-2, Wage and Tax Statement, on the worker. If no SSN is provided before the Form W-2 is due to be filed, the Form W-2 will be filed with all zeroes as the SSN, which may result in contact from the IRS or SSA.

If the list of workers contains names and either an Individual Taxpayer Identification Number (ITIN) or no Taxpayer Identification Number (TIN), the TE will contact the taxpayer to try to obtain an SSN for the worker. If the taxpayer does not provide an SSN, the TE will tell the taxpayer that, if they meet the other eligibility requirements for a VCSP agreement, they will be required to treat the worker as an employee, withhold all appropriate taxes, and file a Form W-2 on the worker. If no SSN is provided before the Form W-2 is due to be filed, the Form W-2 will be filed with all zeroes as the SSN which may result in contact from the IRS or SSA.

The following workers may be excluded from the VCSP Program. If any of these workers are listed, the TE will discuss the issue with the VCSP Assignment Desk or manager to determine if additional information is necessary.

If the TE is uncertain whether a class of worker can be included in the VCSP application, they will contact their manager or the Policy Analyst assigned the VCSP program to discuss the situation.

The application will be rejected using Letter 5225, Voluntary Classification Settlement Program General Rejection, if it contains an ineligible worker and a new list/application cannot be obtained from the taxpayer. In the "Other" section, indicate the application is being rejected because the request includes an ineligible class of workers and list the specific class of worker that excludes the application from the program.

IDRS command codes BMFOLI and AMDISA will be used to determine if the taxpayer, or a member of the taxpayer’s affiliated group, is under an employment tax audit. If BMFOLI reflects an "–L" freeze for any employment tax master file tax (MFT) code for the taxpayer or a member of their affiliated group, use command code AMDISA to determine the status of the examination(s). See (4) to determine the appropriate steps.

Research the following MFT codes to determine if there is an employment tax audit ("-L" Freeze):

The following table provides actions based on the status code reflected on the AMDISA:

Research command code BMFOLZ to determine if there was any previous employment tax audit(s) for the taxpayer. Use results only for the MFT codes listed in IRM 4.23.20.7.2(2) to make this determination. Results under any other MFT code will not affect the VCSP application. Research of any affiliated group is not necessary.

Use the following steps to determine what steps to take when a previous employment tax audit for the taxpayer is indicated on BMFOLZ:

Anytime a taxpayer is involved in a court proceeding with the IRS, the TE must determine if that proceeding will make the taxpayer ineligible for a VCSP agreement. If a "W" freeze is present on the BMFOLI for the MFT modules listed in IRM 4.23.20.7.2(2), the TE must use the following steps to determine if the taxpayer is eligible for the agreement.

To be eligible for the VCSP agreement, the taxpayer must have filed all required Form(s) 1099 for the previous three years (or all years for which the class of worker was being paid by the taxpayer if less than three) for all workers in the class of worker that they are seeking to reclassify.

Command Code PMFOLS will be used to determine if the taxpayer filed Form(s) 1099.

If PMFOLS shows no Form(s) 1099 filed, the TE must take steps to reconcile the discrepancy by:

If PMFOLS from the three most current available years show Form(s) 1099 were filed, but the number or amounts reflected for the Form(s) do not support the amounts on lines 15 and 18 of Form 8952, the TE will take steps to reconcile this discrepancy by researching IDRS to see if the Form(s) 1099 are available on the IRPTRI command code from the most recently complete calendar year. Previous year’s Form(s) 1099 are not available on PMFOLS until sometime during the late spring or early summer of the following year but may be reflected on IRPTRI earlier.

If neither IRPTRI nor PMFOLS information is available to reconcile the amounts on Form 8952, the TE will contact the taxpayer and ask them to provide copies of the forms that were filed for the workers being reclassified.

If the taxpayer does not submit the requested documents or the amounts on the Form 8952 cannot be resolved, reject the application.

A taxpayer that is a member of an affiliated group per IRC 1504(a) is considered to be under employment tax audit for purposes of the VCSP if any of its members are under employment tax audit (Announcement 2012–45).

When Form 8952 indicates that there are related subsidiaries (or when INOLES reflects related entities) and IDRS research shows that any of these entities has an open employment tax audit, reject the VCSP application and close the case off RCCMS. (See IRM 4.23.20.7.7.2, Accounts in Status 03 or 26, for steps in determining whether or not there is an open employment tax audit).

When a taxpayer signs either Form 8952 or the VCSP agreement, they are certifying that there is currently no dispute between the taxpayer and the IRS as to whether the workers involved are non-employees or employees for Federal Employment tax purposes. As discussed previously, any taxpayer (or member of the affiliated group) currently open for an employment tax audit will be rejected.

A taxpayer may also be in dispute with the IRS concerning worker classification if IRS Collection is working on the case. Collection may be attempting to secure delinquent employment tax returns or taxes owed that relate to a worker classification issue. If research indicates involvement by Collection for the taxpayer making the application, the TE must determine what specific issues are involved before proceeding with the eligibility determination.

Upon receipt of the signed agreements, ensure:

If payment is received in an unacceptable form, i.e., a personal or a business check, it will be stamped as non-negotiable and returned to the taxpayer using Letter 5756, VCSP Check Rejection. Use certified mail with return receipt to return all unacceptable payments to the taxpayer.

If payment is received for an incorrect amount (does not match agreement or application), the TE will take the following actions-

Upon receipt of a signed agreement with the correct payment, the TE will complete the case for final closure.

After the TE has received verification that payment was processed appropriately (IRM 4.23.20.13.2.1, Signed Agreement – Review for Acceptance), the TE will place the entire paper case file in the group manager’s in-box. The group manager will review the case file, sign both copies of the agreement, and return them to the TE.

The TE will send one copy of the signed agreement to the taxpayer using Letter 5230, Voluntary Classification Settlement Program Signed Agreement Return, and upload copies of both the agreement and letter to RCCMS.

The TE will prepare the paper case file for final closure, close the case as "accepted" in RCCMS, and forward the paper case file to the manager for final review and closure.

The TE will call the taxpayer to make arrangements to secure a proper agreement and/or payment, and stamp the check as non-negotiable and return it to the taxpayer using Letter 5756 by certified mail and return receipt if the agreement:

The TE will allow the taxpayer or representative 30 days after the initial contact to provide the corrected agreement or payment. If the taxpayer or representative fails to respond by the end of the 30 days, the TE will call the taxpayer or POA to make a final request for a correctly signed agreement or payment. An extension of time, up to 30 days, may be provided if requested.

If the taxpayer has not returned the agreement (or provided full payment) after 30 days (including any extension), the TE will reject the application by sending Letter 5225. In the "Other" section, indicate "The application is being rejected because a properly signed agreement was not received" or "The application is being rejected because proper payment was not received" . Close the case as "Rejected" in RCCMS and forward the case file to the manager for final review and closure.

If the taxpayer sends in the signed agreements after the case was closed, notify the VCSP Assignment Desk or Manager; the case will need to be retrieved and re-assigned to the TE for resolution.