taxation law services

Voluntary Classification Settlement Program

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On September 21, 2011, the IRS announced and explained its new Voluntary Classification Settlement Program (VCSP) that provides partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers as employees (see Announcement 2011-64). In essence, eligible employers may voluntary elect to participate in the VCSP in order to limit federal employment tax liability for the past non-employee treatment of workers who should have been classified as employees.

In order to participate in the program, the taxpayer must meet certain eligibility requirements, apply to participate in VCSP, and enter into a closing agreement with the IRS.

Background Information

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 already under the IRS examination, the current CSP may be available to resolve federal employment tax issues related to worker misclassification, if certain criteria are met. The examination CSP permits the prospective reclassification of workers as employees, with reduced federal employment tax liabilities for past nonemployee treatment. The CSP allows business 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 resulting benefits of increased tax compliance and certainty for taxpayers, workers and the government, the IRS has 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.

Effect of VCSP

A taxpayer who participates in the VCSP will agree to prospectively treat the class of workers as employees for the future tax periods. Additionally, a taxpayer participating in the VCSP will agree to extend the period of limitations on assessment of employment taxes for three years for the first, second and third calendar years beginning after the date on which the taxpayer has agreed under the VCSP closing agreement to begin treating the workers as employees.

In exchange, the taxpayer will pay ten (10) percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509 of the Internal Revenue Code. Moreover, the taxpayer will not be liable for any interest and penalties on the liability; and will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years.

Contact Sherayzen Law Office NOW to Resolve Your Employment Tax Issues

If you wish to find out whether you are eligible to participate in the VCSP and whether this is the best option for you, you should contact Sherayzen Law Office immediately. Our experienced tax attorneys will guide you through the complex process of Voluntary Classification Settlement Program and strive to achieve the most satisfactory and efficient resolution of your case.

Estimated Tax Payments are due on September 15, 2011

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Estimated tax payments for the third-quarter (June 1-August 31) of 2011 are due on September 15, 2010. The estimated tax payments should be made using Form 1040-ES. Note, if the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be considered on time if it is made on the next business day.

Non-Resident Indians Face High Exposure to the FBAR Reporting Requirements

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Non-Resident Indian (NRI) is an Indian citizen who has migrated to another country, a person of Indian origin who is born outside India, or a person of Indian origin who resides permanently outside India. A large number of the NRIs left India as a result of a job offer, for example as a software engineer or an IT consultant.

In spite of leaving their country, most NRIs maintain close ties with their homeland and their families. There is a trend among NRIs to purchase rural and semi-rural non-income producing land in India as a retirement investment. A minority of the NRIs also rent out their homes and apartments.

As a result of all of this personal and economic activity, the NRIs have a constant source of foreign income, which is usually deposited either in an NRO bank account. In order to purchase real property in India or help their families, NRIs often open and maintain NRE accounts as well.

Unfortunately, most of the NRIs residing in the United States are completely unaware that these NRO, NRE, and other bank and financial accounts must be reported on FBAR (the Report on Foreign Bank and Financial Accounts).

This problem is further exacerbated by the fact that a lot of NRIs think that paying taxes in India means that you do not need to report their Indian income in the United States. As a result of this misunderstanding, a lot of NRIs end up in a situation where they are in violation of both FBAR and income tax requirements.

This is an extremely dangerous combination which may result in the imposition of substantial FBAR penalties as well as additional income tax penalties. In the worse case scenarios, where the IRS finds that the violation is willful, a criminal prosecution may be initiated.

Contact Sherayzen Law Office NOW For FBAR Help

If you an NRI who has not disclosed his bank and financial accounts in India, contact Sherayzen Law Office as soon as possible. Eugene Sherayzen is an experienced voluntary disclosure attorney who will guide you through the complex and dangerous maze of U.S. tax compliance laws and regulations, and help you find the right solution to your FBAR problems.

One-Week Filing Extension to Taxpayers Whose Preparers Were Affected by Hurricane Irene

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On September 1, 2011, the Internal Revenue Service announced that it is granting taxpayers whose preparers were affected by Hurricane Irene until September 22, 2011 to file returns normally due September 15.  The taxpayer’s preparer must be located in an area that was under an evacuation order or a severe weather warning because of Hurricane Irene, even if the preparer is located outside of the federally declared disaster areas.

This relief, which primarily applies to corporations, partnerships and trusts that previously obtained a tax filing extension, is available to taxpayers regardless of their location.

It is important to note that this relief does not apply to any tax payment requirements.

Underpayment and Overpayment Interest Rates for the Fourth Quarter of 2011

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On August 18, 2011, the Internal Revenue Service announced that interest rates will decrease for the calendar quarter beginning October 1, 2011. The rates will be:

  • three (3) percent for overpayments (two (2) percent in the case of a corporation);
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • zero and one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. These rates determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Rev. Rul. 2011-18. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. Pursuant to I.R.C. section 6621(c), the rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. See section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 567, and 571. Interest factors for daily compound interest for an annual rate of 0.5 percent are published in Appendix A of Revenue Ruling 2010-31, 2010-52 IRB 898, 899. 3.

Contact Sherayzen Law Office

If you have any questions with respect to IRS interest rates and any other tax-related concerns, you should contact our experienced tax firm to discuss your case.