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Wednesday, October 26, 2011
"Cue Ball Bald" for Manna: Before and After!
Last Thursday, our own Frank Riehle promised to go "Cue Ball Bald" for Manna Food Bank if the employees of Saltmarsh raised $1,000 in one day. Here are the results of his promise! You're a great sport, Frank!
2011 Saltmarsh Mexican Fiesta Cook-off for Manna Food Bank
Sheldon Bernau headed up the fundraising effort, and through generous donations by the staff, $2,135 was raised to help Manna. Frank Riehle challenged the firm to raise $1,000 in one day by promising to go "Cue Ball Bald" for Manna. Pictures of his haircut to come shortly!
Many delicious dishes were tasted, and after voting by the judges and staff, these dishes reigned supreme!
Savory category - Carnitas Verde (pork)- Beth Varhalla
Sweet category - Cuervo Margarita Cupcakes- Allison Jones
Judges' Choice:
Savory, Most Original and Judges Choice - Chipolte Chicken Tostados- Lisa Fairbanks
Savory, Spiciest -Mexican Casserole - Angelika Cope
Sweet, Most Original - Cuervo Margarita Cupcakes - Allison Jones
Sweet, Judges Choice - Chocoflan Bundt Cake- Whitney Harrington
Sweet, Spiciest - Chili Chocolate Cupcakes- Angelika Cope
Thanks so much to our Judges, Ted Gund, Kevin Jones, Philip DeBoer, Cederic Durre, and Brian Fulk!
Monday, October 24, 2011
Saltmarsh Wins 1st Place for Small Business at YMCA Corporate Cup Games
Saltmarsh won 1st place in the small business division at the 2011 YMCA Corporate Cup games which were held at the University of West Florida on October 22, 2011.
Members of the winning team included:
Aimee Brady, Angelika Cope, Cedric Durre, Christina Maslen, Christopher Stark, Danny Brady, Diane Martinez, Jared Tyler, Kate Tyler, Leslie Jackson, Lisa Fairbanks, Rob Harms, Robby Hinson, Robin Larrieu, Ron Jackson, Stephanie Hirst, Stephen Hirst, Stephen Reyes
1st place events:
Obstacle course
Crazy Raft Relay
4x50 Quick Change Relay
2nd place events:
Eggesecutive Toss
3rd place events:
One-Mile Run
Closet to the Pin
Pumpkin Swim Relay
Go Team Saltmarsh! We can't wait to participate again next year!
Members of the winning team included:
Aimee Brady, Angelika Cope, Cedric Durre, Christina Maslen, Christopher Stark, Danny Brady, Diane Martinez, Jared Tyler, Kate Tyler, Leslie Jackson, Lisa Fairbanks, Rob Harms, Robby Hinson, Robin Larrieu, Ron Jackson, Stephanie Hirst, Stephen Hirst, Stephen Reyes
1st place events:
Obstacle course
Crazy Raft Relay
4x50 Quick Change Relay
2nd place events:
Eggesecutive Toss
3rd place events:
One-Mile Run
Closet to the Pin
Pumpkin Swim Relay
Go Team Saltmarsh! We can't wait to participate again next year!
Thursday, October 20, 2011
QuickBooks Tips & Tricks: What is the best backup to use and how often should I backup?
Most people do not think about backup files until they need one in an emergency. That is when they discover whether they have done backups frequently enough.
The best way to determine how often to backup is to think of a system crash. How much data entry do you want to have to redo? If you process many transactions in one day then a daily backup is in order. If you go several days without processing then a weekly or biweekly schedule is appropriate. Make sure that you backup often enough that any data entry needed after restoring from your most recent backup is minimal.
QuickBooks 2011 offers several types of backups. Under File>Create Backup on the Menu Bar you can select to create a full backup. This includes all program and data files. The first screen gives you the option to create a local (on your system) backup or if you have purchased the on-line backup you can backup to Intuit’s server. Most often you will be selecting the local backup.
Use the browse button to select the place to store your backup. You can select your hard drive but this won’t help in the event you have a system crash. The best option is to save to an external drive; a thumb drive, CD or other external hard drive.
You can then setup the other options on the screen and save them for future backups. The next screen allows you to backup right then, or save the backup schedule and also do a backup, or just schedule future backups. Remember that this backup file will be big; it includes program files and data files.
Other backup options are available under File>Create Copy on the Menu Bar.
The full backup option is available here as well but one of the best options is the Portable Company file. It is named portable because it is a smaller file that just backups the data files. This means you can sometimes email a portable file if the original file is not too big. You can save it easily to a thumb drive and work on it from another location as long as no one will access the original file and make changes. You can’t merge portable or backup files into the original file. You would have to overwrite the original with these backups.
The other option is to make an Accountant’s Copy which can be merged back into the original file. This is used to send the file to your accountant for review which will keep transactions in the review period from changing in the original file. It sets a closing date that will not allow changes to be made before that date. When we send the transfer file back you can import all changes that were made while you continued to work in the original file and the closing date restrictions will be lifted.
Please call any of our QuickBooks ProAdvisors if you would like more detail on these tips or if you have any other QuickBooks questions. (850) 435-8300
**These tips are based on the 2011 version of QuickBooks.
The best way to determine how often to backup is to think of a system crash. How much data entry do you want to have to redo? If you process many transactions in one day then a daily backup is in order. If you go several days without processing then a weekly or biweekly schedule is appropriate. Make sure that you backup often enough that any data entry needed after restoring from your most recent backup is minimal.
QuickBooks 2011 offers several types of backups. Under File>Create Backup on the Menu Bar you can select to create a full backup. This includes all program and data files. The first screen gives you the option to create a local (on your system) backup or if you have purchased the on-line backup you can backup to Intuit’s server. Most often you will be selecting the local backup.
The options button allows you to select where to save the backup file as shown below.
You can then setup the other options on the screen and save them for future backups. The next screen allows you to backup right then, or save the backup schedule and also do a backup, or just schedule future backups. Remember that this backup file will be big; it includes program files and data files.
Other backup options are available under File>Create Copy on the Menu Bar.
The full backup option is available here as well but one of the best options is the Portable Company file. It is named portable because it is a smaller file that just backups the data files. This means you can sometimes email a portable file if the original file is not too big. You can save it easily to a thumb drive and work on it from another location as long as no one will access the original file and make changes. You can’t merge portable or backup files into the original file. You would have to overwrite the original with these backups.
The other option is to make an Accountant’s Copy which can be merged back into the original file. This is used to send the file to your accountant for review which will keep transactions in the review period from changing in the original file. It sets a closing date that will not allow changes to be made before that date. When we send the transfer file back you can import all changes that were made while you continued to work in the original file and the closing date restrictions will be lifted.
Please call any of our QuickBooks ProAdvisors if you would like more detail on these tips or if you have any other QuickBooks questions. (850) 435-8300
**These tips are based on the 2011 version of QuickBooks.
Friday, October 14, 2011
Treasury Issues Proposed Regulations Addressing Tax Treatment of Credit Default Swaps
On September 15, 2011, the Treasury issued proposed regulations which would include Credit Default Swaps (“CDS”) in the definition of a Notional Principal Contract (“NPC”) under Treas. Regulation 1-446.3. The proposed regulations also confirm that swaps, including a CDS, would not fall under the Section 1256 regime and proposes significant changes to the existing NPC regulations. The proposals also provide conforming revisions to other relevant regulations.
What is a Credit Default Swap?
Seven years ago, the Treasury issued Notice 2004-52 seeking comments from users and their advisors on how a CDS should be treated for tax purposes. The popular view was that a CDS should be considered an NPC while others suggested treatment as option, or an insurance product, or a guarantee. These new proposed regulations have ended this debate. The proposed regulations, when finalized, will treat most CDS contracts as NPCs.
What changes have been made to the existing NPC regulations?
Under existing law, an NPC is defined as a financial instrument that provides for the payment of amounts by one party to another at specified intervals, calculated by reference to a specified index upon a notional amount, in exchange for specified consideration or a promise to pay a similar amount. The proposed regulations revise this definition by stating that an NPC requires two or more payments to a counterparty. However, the “fixing” of an amount is treated as a payment even if the actual payment is to be made at a later date. The practical effect of this new definition is to prohibit creating an instrument, such as a “bullet” swap, where all of the anticipated payments are netted and made as one back end payment. Rather than looking at the sole ultimate payment, the proposed regulations require an understanding of the calculation of the expected payment. To the extent the ultimate payment consists of two or more calculations (i.e., dividend payments plus change in value) then the instrument will be considered an NPC.
What are some of the negative tax implications of a NPC?
As more instruments will fall under the expanded definition of an NPC, it is important to understand the potential negative tax treatment that these instruments carry. Under existing regulations most NPC payments, excluding a termination payment (i.e., an unscheduled payment made to extinguish the remaining obligations of any party under the contract), will be considered a Section 212 deduction if the taxpayer is not considered to be engaged in a trade or business. Section 212 deductions are considered miscellaneous itemized deductions at the individual tax level, subject to limitation in part or in full, depending on the taxpayer’s facts and circumstances. In addition, these Section 212 deductions are not deductible in many state jurisdictions.
In addition to taking into account the payments described above, proposed regulations issued in 2004 require taxpayers to adopt a method of accounting to take into account contingent nonperiodic payments (i.e., a final swap payment at end of the contract). Prior to issuance of these 2004 regulations, most taxpayers adopted a “wait and see” method on these payments. Under these proposed regulations, taxpayers are required to utilize the complex noncontingent swap method or, as an alternative, adopt a mark-to-market method. In practice, most taxpayers utilize a mark to market approach. This approach requires a taxpayer to annually include as “other” ordinary income any unrealized appreciation each year. Unrealized depreciation would also need to be taken into account as an expense. However, to the extent the taxpayer was not engaged in a trade or business, this amount would be included as a Section 212 deduction. Significant “whipsaw” can result for any taxpayer not engaged in a trade or business, as a taxpayer may be required to pick up ordinary income in a year of appreciation but not get the benefit of the deduction for a future’s year depreciation.
The newly issued proposed regulations do not address whether or not a CDS would be required to adopt the timing and inclusion rules of contingent nonperiodic payments. Presumably, if a CDS contract is now considered to be a NPC, the argument not to consider these as contingent nonperiodic payments are much weaker than were prior to issuance of the new proposed regulations.
To the extent that a taxpayer has not treated a CDS as a NPC, they may need to consider the application of the change in accounting method rules and filing requirements.
Exclusion of Swaps from Section 1256
The proposed regulations have clarified that “swaps” and “similar arrangements” are excluded from Section 1256. There has been previous uncertainty as to the treatment of swaps under provisions of the Dodd-Frank Act.
When is the effective date of the Proposed Regulation?
A hearing is scheduled on the proposed regulation for January 19, 2012. The regulations are intended to be effective for contracts entered into on or after the date the final regulations are published.
For further questions, please contact Saltmarsh, Cleaveland & Gund (850) 435-8300.
© 2011 EisnerAmper LLP
What is a Credit Default Swap?
Seven years ago, the Treasury issued Notice 2004-52 seeking comments from users and their advisors on how a CDS should be treated for tax purposes. The popular view was that a CDS should be considered an NPC while others suggested treatment as option, or an insurance product, or a guarantee. These new proposed regulations have ended this debate. The proposed regulations, when finalized, will treat most CDS contracts as NPCs.
What changes have been made to the existing NPC regulations?
Under existing law, an NPC is defined as a financial instrument that provides for the payment of amounts by one party to another at specified intervals, calculated by reference to a specified index upon a notional amount, in exchange for specified consideration or a promise to pay a similar amount. The proposed regulations revise this definition by stating that an NPC requires two or more payments to a counterparty. However, the “fixing” of an amount is treated as a payment even if the actual payment is to be made at a later date. The practical effect of this new definition is to prohibit creating an instrument, such as a “bullet” swap, where all of the anticipated payments are netted and made as one back end payment. Rather than looking at the sole ultimate payment, the proposed regulations require an understanding of the calculation of the expected payment. To the extent the ultimate payment consists of two or more calculations (i.e., dividend payments plus change in value) then the instrument will be considered an NPC.
What are some of the negative tax implications of a NPC?
As more instruments will fall under the expanded definition of an NPC, it is important to understand the potential negative tax treatment that these instruments carry. Under existing regulations most NPC payments, excluding a termination payment (i.e., an unscheduled payment made to extinguish the remaining obligations of any party under the contract), will be considered a Section 212 deduction if the taxpayer is not considered to be engaged in a trade or business. Section 212 deductions are considered miscellaneous itemized deductions at the individual tax level, subject to limitation in part or in full, depending on the taxpayer’s facts and circumstances. In addition, these Section 212 deductions are not deductible in many state jurisdictions.
In addition to taking into account the payments described above, proposed regulations issued in 2004 require taxpayers to adopt a method of accounting to take into account contingent nonperiodic payments (i.e., a final swap payment at end of the contract). Prior to issuance of these 2004 regulations, most taxpayers adopted a “wait and see” method on these payments. Under these proposed regulations, taxpayers are required to utilize the complex noncontingent swap method or, as an alternative, adopt a mark-to-market method. In practice, most taxpayers utilize a mark to market approach. This approach requires a taxpayer to annually include as “other” ordinary income any unrealized appreciation each year. Unrealized depreciation would also need to be taken into account as an expense. However, to the extent the taxpayer was not engaged in a trade or business, this amount would be included as a Section 212 deduction. Significant “whipsaw” can result for any taxpayer not engaged in a trade or business, as a taxpayer may be required to pick up ordinary income in a year of appreciation but not get the benefit of the deduction for a future’s year depreciation.
The newly issued proposed regulations do not address whether or not a CDS would be required to adopt the timing and inclusion rules of contingent nonperiodic payments. Presumably, if a CDS contract is now considered to be a NPC, the argument not to consider these as contingent nonperiodic payments are much weaker than were prior to issuance of the new proposed regulations.
To the extent that a taxpayer has not treated a CDS as a NPC, they may need to consider the application of the change in accounting method rules and filing requirements.
Exclusion of Swaps from Section 1256
The proposed regulations have clarified that “swaps” and “similar arrangements” are excluded from Section 1256. There has been previous uncertainty as to the treatment of swaps under provisions of the Dodd-Frank Act.
When is the effective date of the Proposed Regulation?
A hearing is scheduled on the proposed regulation for January 19, 2012. The regulations are intended to be effective for contracts entered into on or after the date the final regulations are published.
For further questions, please contact Saltmarsh, Cleaveland & Gund (850) 435-8300.
© 2011 EisnerAmper LLP
Wednesday, October 12, 2011
Saltmarsh Technology Funnel and Community Bank Executive Forum
On Thursday, October 6th and Friday October 7th, Saltmarsh hosted the annual Technology Funnel and Community Bank Executive Forum at the Tampa Club in Tampa, Florida. More than 50 participants heard timely information regarding technology in community banking during the Thursday session, while more than 90 bank executives gathered for Friday's event.
To download notes from both events, visit our website at http://thebankadvisors.com/notes/default.asp
Thanks to all of our participants! We look forward to seeing you again next year!
To download notes from both events, visit our website at http://thebankadvisors.com/notes/default.asp
Our Sign at the Tampa Club ...
Technology Funnel Participants
Friday, October 7, 2011
QuickBooks Tips & Tricks: What’s new in QuickBooks 2012?
In September or October each year Intuit releases a new version of their QuickBooks software. They improve many existing features and add others for the first time. Many of these changes are a direct result of feedback from users like you. That is why it is important to let them know about problems or suggestions you have using the options provided with the “Send Feedback Online” under the “Help” option on the grey menu bar.
The following is a quick rundown of the new features for QuickBooks 2012.
1. There is now a calendar you can access from within QuickBooks. Under the View option you can add a calendar icon to the icon bar. It is also accessible under Company on the menu bar. What do you get with this new feature? The calendar will track the transactions entered and due. You can also add To Do items here and track any appointments. Under the “Show” drop down you can select from every type of transaction QuickBooks processes to refine your view. It is an easy way to get a picture of your daily activity by day.
2. The Excel export now allows you to update existing reports with new data. When you click on the “Excel” button on the report menu bar, you are given the options to either create a new worksheet or update an existing one. If you choose to update, the following screen will appear:
Simply browse out to the report you want to update, select the correct worksheet and click on the Export button. QuickBooks will update the existing report with new data. Be aware that it may take some time for the update to complete depending on the complexity of the report and how much new data there is.
3. If you use memorized transactions to enter your recurring transactions (and you should to save time – ask us how if you’re not sure what to do!) you now have the option which transactions to enter when you open your file and which to postpone until a later time. You also see individual transaction detail so you can decide which transactions to enter at that time as shown below.
4. QuickBooks has upped the technological component with 2012. You can now scan from within the program. When you click on the Docs icon or the Attach button when in an invoice or other form, the pop up window below appears:
After you click on the scan option, the QuickBooks Scan Manager will open. QuickBooks then links to your attached scanner and begins the scan process. When it is completed you can attach the document. In addition to the scan feature, you still have the option to attach files from your computer and the document center.
5. There is a new Lead Center in QuickBooks that helps you track new contacts. You can access this center under “Company>Lead Center” on the menu bar. You can manually enter leads directly in the lead center or import a list from Excel. The center will keep all your leads organized and you can convert a lead to a customer when you land the business.
6. You can now create a credit memo from the original invoice. This saves time and possible errors because it will enter the item data from the original invoice when you click on “Create>Credit Memo” for this Invoice. You can delete or edit lines in the credit memo as needed.
7. There is a new category in the Report Center called Contributed. This section allows you to browse reports created by other users and Intuit that are not included as standard reports. In addition to viewing the reports you can read the details of report set up and any reviews that other users submit. You have the opportunity to rate the report and can add it to your favorites tab in the report center.
Now if you create a report that meets a particular need you have in your business it may also meet the needs of other QuickBooks users and you can share it with them. On the report menu there is a new button “Share Template”. It becomes active after you modify a report. When you click to share the report the window shown below opens.
This first tab is the basic information for the report. Notice that you can share this without using your name if you choose. The email address is for Intuit to contact you if they have any questions.
The second tab in the window is shown below. It allows you to select the category for the report and to indicate what industries might be interested in using it.
Please call any of our QuickBooks ProAdvisors if you would like more detail on these tips or if you have any other QuickBooks questions at (850) 435-8300.
**These tips are based on the 2012 version of QuickBooks.
The following is a quick rundown of the new features for QuickBooks 2012.
1. There is now a calendar you can access from within QuickBooks. Under the View option you can add a calendar icon to the icon bar. It is also accessible under Company on the menu bar. What do you get with this new feature? The calendar will track the transactions entered and due. You can also add To Do items here and track any appointments. Under the “Show” drop down you can select from every type of transaction QuickBooks processes to refine your view. It is an easy way to get a picture of your daily activity by day.
2. The Excel export now allows you to update existing reports with new data. When you click on the “Excel” button on the report menu bar, you are given the options to either create a new worksheet or update an existing one. If you choose to update, the following screen will appear:
Simply browse out to the report you want to update, select the correct worksheet and click on the Export button. QuickBooks will update the existing report with new data. Be aware that it may take some time for the update to complete depending on the complexity of the report and how much new data there is.
3. If you use memorized transactions to enter your recurring transactions (and you should to save time – ask us how if you’re not sure what to do!) you now have the option which transactions to enter when you open your file and which to postpone until a later time. You also see individual transaction detail so you can decide which transactions to enter at that time as shown below.
After you click on the scan option, the QuickBooks Scan Manager will open. QuickBooks then links to your attached scanner and begins the scan process. When it is completed you can attach the document. In addition to the scan feature, you still have the option to attach files from your computer and the document center.
5. There is a new Lead Center in QuickBooks that helps you track new contacts. You can access this center under “Company>Lead Center” on the menu bar. You can manually enter leads directly in the lead center or import a list from Excel. The center will keep all your leads organized and you can convert a lead to a customer when you land the business.
6. You can now create a credit memo from the original invoice. This saves time and possible errors because it will enter the item data from the original invoice when you click on “Create>Credit Memo” for this Invoice. You can delete or edit lines in the credit memo as needed.
7. There is a new category in the Report Center called Contributed. This section allows you to browse reports created by other users and Intuit that are not included as standard reports. In addition to viewing the reports you can read the details of report set up and any reviews that other users submit. You have the opportunity to rate the report and can add it to your favorites tab in the report center.
Now if you create a report that meets a particular need you have in your business it may also meet the needs of other QuickBooks users and you can share it with them. On the report menu there is a new button “Share Template”. It becomes active after you modify a report. When you click to share the report the window shown below opens.
This first tab is the basic information for the report. Notice that you can share this without using your name if you choose. The email address is for Intuit to contact you if they have any questions.
The second tab in the window is shown below. It allows you to select the category for the report and to indicate what industries might be interested in using it.
Please call any of our QuickBooks ProAdvisors if you would like more detail on these tips or if you have any other QuickBooks questions at (850) 435-8300.
**These tips are based on the 2012 version of QuickBooks.
Monday, October 3, 2011
IRS Announces 2011 Voluntary Compliance Program Focused on Employee vs. Independent Contractor Exposure
On September 21, 2011, the Internal Revenue Service (IRS) unveiled a Voluntary Compliance Program (VCP) that offers relief for businesses that 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 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.
V SummaryCP
The VCP is available for employers that 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 organizations, 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.
Employers apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program. This form must be filed at least 60 days before the taxpayer wants to begin treating the workers as employees.
Observation: The IRS has indicated that an employer that wants to begin treating a class or classes of workers as employees for the fourth quarter of 2011 may do so, but should file the Form 8952 as soon as possible.
Additional VCP Consequences
In addition to filing Form 8952, employers that participate must sign a closing agreement with the IRS extending the statute of limitations from three years to six years for the first three calendar years beginning after the agreement is signed. The agreement also requires the taxpayer to treat the same class of workers as employees in the future.
Observation: Tax professionals can help businesses and exempt organizations evaluate whether the VCP is feasible, appropriate, and cost effective for recipients of services from workers previously treated as independent contractors. Such a review is appropriate in order to make certain that businesses are not entering the VCP when their contractors are already appropriately classified.
EisnerAmper LLP
This publication is intended to provide general information to our friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.
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 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.
V SummaryCP
The VCP is available for employers that 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 organizations, 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.
Employers apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program. This form must be filed at least 60 days before the taxpayer wants to begin treating the workers as employees.
Observation: The IRS has indicated that an employer that wants to begin treating a class or classes of workers as employees for the fourth quarter of 2011 may do so, but should file the Form 8952 as soon as possible.
Additional VCP Consequences
In addition to filing Form 8952, employers that participate must sign a closing agreement with the IRS extending the statute of limitations from three years to six years for the first three calendar years beginning after the agreement is signed. The agreement also requires the taxpayer to treat the same class of workers as employees in the future.
Observation: Tax professionals can help businesses and exempt organizations evaluate whether the VCP is feasible, appropriate, and cost effective for recipients of services from workers previously treated as independent contractors. Such a review is appropriate in order to make certain that businesses are not entering the VCP when their contractors are already appropriately classified.
EisnerAmper LLP
This publication is intended to provide general information to our friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.
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