4.23.6  Classification Settlement Program (CSP)

Manual Transmittal

March 20, 2012

Purpose

(1) This transmits a revision to IRM 4.23.6, renamed Employment Tax, Classification Settlement Program (CSP).

Material Changes

(1) 4.23.6. Editorial and technical changes and updates have been made throughout this Section. References to LMSB changed to LB&I. References to changes below refer to new paragraphs. Paragraphs within sections are renumbered as required to reflect additions and deletions.

(2) 4.23.6.1(1). Removed wording that CSP is an optional classification settlement program.

(3) 4.23.6.6. Clarifications and edits added. Deleted former (2) as repetitive.

(4) 4.23.6.6.1. Added new subsection, Forms 1099 Not Filed for All Years.

(5) 4.23.6.7(1). Listed the examples as bullets and moved (6) to (1). Clarified that 1099's must be timely filed, and that Governmental Employers are eligible for a CSP offer.

(6) 4.23.6.7.(2) Added paragraph to inform examiners that the use of full rates under IRC 3509(c) to compute the tax in worker classification adjustments does not exclude the taxpayer from a CSP offer.

(7) 4.23.6.7(3). Added a paragraph to inform examiners that the assessment of penalties in worker classification adjustments does not exclude the taxpayer from a CSP offer except for the fraud penalty.

(8) 4.23.6.7.1. Added new subsection, CSP & Entity Change. Provides guidance on the preparation of a CSP when covering a change in business entity.

(9) 4.23.6.8. Deleted (11) on Claims, as it no longer applies. Various edits and clarification made throughout the subsection.

(10) 4.23.6.9. New subsection added, CSP & Officer Compensation Procedures. Five examples provided. All subsequent subsections renumbered.

(11) 4.23.6.11. Formerly 4.23.6.10. Added reference to intranet link.

(12) 4.23.6.14. Former 4.23.6.13. Clarification added to Example.

(13) 4.23.6.14.1. Formerly 4.23.6.13.1. Clarifications added and "100% CSP Offer" and "25% CSP Offer" defined.

(14) 4.23.6.14.3. Formerly 4.23.6.13.3. "CSP ANALYSIS CHART" changed for Item 2, deleting "N/A" and substituting "No" for the question "Is TP Entitled to 530 Relief."

(15) 4.23.6.14.4. Formerly 13.4. Added fifth example "e." Clarifications added to subsection.

(16) 4.23.6.14.5. Formerly 13.5. Removed reference to Training Document, Basic Employment Tax. Clarifications added to subsection.

(17) 4.23.6.14.8. Formerly 13.8. Added reference to IRM 4.23.6.7.1, CSP & Entity Change.

(18) 4.23.6.17. Formerly 16.6. Address change for submission of CSP Agreements changed, per IGM SBSE-04-0311-031, "Address Change for CSP Agreements." Also, information required to be included in the case file provided.

(19) 4.23.6.18. Formerly 6.17. Moved paragraph (4) to IRM 4.23.6.18.1(1).

(20) 4.23.6.18(4). New paragraph describing Indian Tribal Governments CSP monitoring procedures.

(21) 4.23.6.18.1. Added new subsection, CSP Non-Compliance Procedures.

(22) 4.23.6.19. Added new subsection, Voluntary Classification Settlement Program (VCSP), a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees outside of an audit.

(23) 4.23.6.19.1. Added new subsection, VCSP Eligibility.

(24) 4.23.6.19.2. Added new subsection, VCSP Terms.

(25) 4.23.6.19.3. Added new subsection, VCSP Procedures.

(26) Exhibit 4.23.6-2. Clarifications added on completing the CSP agreements.

(27) Exhibit 4.23.6-3. Exhibit name changed to, Sample of Completed CSP Closing Agreement (CLOSEWC).

Effect on Other Documents

This transmittal supersedes IRM 4.23.6 dated October 30, 2009. Internal Guidance Memorandum SBSE-04-0311-031, dated March 14, 2011, entitled Address Change for CSP Agreements, is incorporated into this revision.

Audience

This section contains instructions and guidelines for all LB&I, TE/GE, and SB/SE employees dealing with employment tax issues.

Effective Date

(03-20-2012)

John H. Imhoff, Jr.
Director, Specialty Programs
Small Business/Self-Employed Division

4.23.6.1  (03-20-2012)
Overview

  1. This section explains the Classification Settlement Program (CSP).

  2. The Classification Settlement Program, "CSP" , allows taxpayers and tax examiners to resolve worker classification cases as early in the administrative process as possible, reducing taxpayer burden. The procedures also ensure that the taxpayer relief provisions under Section 530 of the Revenue Act of 1978 are properly applied. Under the CSP, Internal Revenue Service (IRS) examiners are able to offer taxpayers under examination a worker classification settlement using a standard closing agreement.

  3. Except as otherwise provided herein, in situations listed under IRM 4.23.6.6, Eligible CSP Employment Tax Cases, and IRM 4.23.6.7, Cases Included in the CSP, it is mandatory that the examiner present a CSP offer to a taxpayer. The taxpayer has the option of either accepting or rejecting the offer.

  4. CSP agreements are closing agreements that bind the Service and the taxpayer to prospective tax treatment for future tax periods. Therefore, it is important that CSP agreements be reviewed and approved by employment tax specialists who have the necessary expertise in dealing with worker classification issues.

4.23.6.2  (10-30-2009)
Introduction

  1. When an IRS examiner initiates an employment tax exam of a taxpayer involving the treatment of certain workers as independent contractors, the examiner must first determine whether the taxpayer is entitled to relief from retroactive and prospective liability for employment taxes under Section 530 of the Revenue Act of 1978. To qualify for relief, the taxpayer must meet three requirements:

    1. Reporting Consistency: All Federal tax returns (including information returns) required to be filed by the taxpayer with respect to the individual for the period must have been filed by the taxpayer on a basis consistent with the taxpayer's treatment of the individual as not being an employee. This test must be applied to each worker separately, since the taxpayer may have filed a Form 1099-MISC for one worker in a class, but not for another worker in the same class.

    2. Substantive Consistency: The taxpayer must have consistently treated similarly situated workers as independent contractors. That is, if the taxpayer (or a predecessor) treated a similarly situated worker as an employee, there is no Section 530 relief. This test must be applied to the class of workers having substantially similar job responsibilities and working under substantially similar conditions (i.e., supervisors vs. workers being supervised).

    3. Reasonable Basis: The taxpayer must have had some reasonable basis for not treating the worker as an employee. This may consist of reasonable reliance on: a judicial precedent, a published ruling, a private letter ruling or technical advice memorandum issued to the taxpayer; the results of a past audit of the taxpayer; or a long-standing recognized practice of a significant segment of the industry in which the worker is engaged. Any other reasonable basis could also suffice.

  2. Requirements "b" and "c" above are applied separately to each class of worker.

  3. Refer to IRM 4.23.5.2, Section 530 of the Revenue Act of 1978, for additional instructions.

  4. In cases where the taxpayer clearly meets the reporting and substantive consistency requirements and satisfies the reasonable basis test, the requirements of Section 530 are fully met. As a result, no assessment will be made and the taxpayer may choose to continue treating its workers as independent contractors, as long as the facts remain the same and the taxpayer continues to meet the reporting requirement.

  5. If the taxpayer does not satisfy the requirements of Section 530, the IRS examiner will determine whether the workers in question are independent contractors or employees under the usual common law rules, as provided by IRC 3121(d)(2) and Treas. Reg. 31.3121(d)-1(c).

  6. Because IRS administrative procedures do not permit examiners to weigh the chances of success in court when proposing adjustments, taxpayers seeking to negotiate a settlement of the issue, including relief under Section 530, will generally take their cases to IRS Appeals or to the courts. This increases costs for both taxpayers and the government.

4.23.6.3  (10-30-2009)
Area Responsibilities

  1. Chief, Employment Tax Operations: The Chief, Employment Tax Operations, is responsible for overall direction, coordination, and communication for policies and procedures concerning the administration of employment tax programs, including the over-all operation of the Classification Settlement Program. The LB&I Employment Tax Territory Manager and TE/GE Program Manager(s) are responsible for the operation of the CSP in their respective operations and are responsible for ensuring CSP requirements and procedures are communicated to their compliance staff, as appropriate.

  2. Compliance Group Managers: All compliance group managers are designated authority to execute CSP agreements (Delegation Order 7-13, formerly DO-248, Rev.1. See IRM 1.2.46.14). This includes SB/SE, TE/GE, and International group managers as well as LB&I team managers with employment tax cases dealing with worker classification issues under their jurisdiction. For the role of the compliance group manager, see IRM 4.23.6.4 below.

  3. Specialty Employment Tax Centralized Workload Selection and Delivery (SET-CWSD): The Specialty Employment Tax Centralized Workload Selection and Delivery Unit is responsible for receiving all executed CSP agreements, CSP memorandums, and executed Employment Tax Examiner's Report (ETER). The agreements will be filed for annual follow up to determine if taxpayers are adhering to the provisions of their respective CSP agreements. In those cases where it appears the taxpayer is not following the provisions of the CSP agreement, the SET-CWSD office will forward a copy of the agreement, the CSP memorandum, and the ETER to the field for necessary actions. See IRM 4.23.6.17, Monitoring CSP Agreements, for documents required to be sent.

4.23.6.4  (10-30-2009)
Role of the Compliance Group Manager

  1. Compliance Group managers are delegated the authority to sign the CSP closing agreements originating in their respective group. This authority should be exercised with care to ensure correct and consistent determinations are made. As used in IRM 4.23.6, the term "compliance group manager" means any group manager whose group conducts employment tax return examinations, regardless of operating division.

  2. CSP settlements are intended to simulate the results that would be obtained under current law if the taxpayers accepting those offers had instead exercised their right to an administrative and/or judicial appeal. In addition, all group managers must ensure that settlement offers are not made in an effort to induce taxpayers to change worker status when independent contractor status is correct or when the taxpayer is clearly entitled to Section 530 relief.

  3. Group managers must ensure that the evaluation of whether the taxpayer was entitled to Section 530 relief and the examination of the worker classification issue for a year was completed and fully developed to support the change in classification. An offer should not be made if additional audit work is needed for the year.

  4. The examination of the worker classification issue for the year must be completed before a settlement offer can be approved. This situation may require group manager communication with the taxpayer, if an offer has already been discussed by the examiner. It is important that the group managers work with examiners to assure that examiners do not make premature offers.

  5. It is crucial that taxpayers are treated consistently under CSP. Group managers are responsible for assuring that examiners make offers in appropriate cases, explain the terms and conditions clearly to taxpayers and correctly apply the settlement provisions so that taxpayers who are similarly situated receive the same CSP offer. Group managers should also work with examiners to explain the benefits of CSP to taxpayers.

4.23.6.5  (10-30-2009)
Role of the Examiner

  1. The IRS examiner will first determine whether the taxpayer is eligible for relief under Section 530 for the examination year. Where the taxpayer is not eligible for relief under Section 530, the examiner will initiate a single year examination. Generally, this will be the most recent filed year.

  2. If the examiner determines that no worker reclassification issue exists, the CSP procedures will not apply. The examiner should explain this determination on the appropriate administrative lead sheet in the examination workpapers.

  3. If a worker reclassification issue does exist, examiners will then consider whether CSP applies. If the examination includes a proposal to reclassify workers as employees and the taxpayer has timely filed required Forms 1099, a CSP offer should generally be made. See IRM 4.23.6.8, Cases Excluded from CSP, for exclusions from CSP.

  4. To determine which CSP offer, if any, is appropriate, examiners should follow the procedures in IRM 4.23.6.14, Procedures for CSP. The examiner will need to consider the facts and circumstances of each case and make a CSP recommendation to their group manager for approval. The recommendation will be made on a Settlement Memorandum. See IRM 4.23.6.15.1. If the examiner is still unsure of which offer to propose to the taxpayer, the examiner should discuss the issues with the group manager and/or contact the CSP Policy analyst for advice and assistance.

  5. Before offering a CSP agreement to a taxpayer, the examiner and group manager will take the following steps:

    1. The examiner must discuss the case with the group manager, and record the discussion on the case activity record or in the workpapers.

    2. If the group manager agrees with the reclassification of workers, the examiner will prepare the CSP memorandum as described in IRM 4.23.6.15.1 below. The examiner will also prepare an ETER on Form 4667, Examination Changes - Federal Unemployment Tax, and Form 4668, Employment Tax Examination Changes Report, and a draft CSP agreement on the appropriate agreement form ("Close530," "CloseWC," or "CloseCC" ). See Exhibit 4.23.6-1, Instructions for Completing the Classification Settlement Program Closing Agreements, for definitions and instructions for completing the three standard closing agreements under the Classification Settlement Program (CSP).

  6. The final decision regarding whether a CSP offer is appropriate will be made by the compliance group manager after a discussion with the examiner and a thorough review of the case. Where necessary, the compliance group manager should consult with the CSP Policy analyst or an employment tax group manager. The compliance group manager indicates final approval of the CSP settlement by signing the CSP agreement after the agreement has been signed by the taxpayer or an authorized representative. The compliance group manager is the only Service representative who is required to sign the agreements. A power of attorney does not authorize a taxpayer representative to sign a CSP agreement for the taxpayer unless the CSP agreement is specifically listed on the Form 2848, Power of Attorney and Declaration of Representative. See IRM 4.23.6.15.3, CSP Standard Closing Agreement.

4.23.6.6  (03-20-2012)
Eligible CSP Employment Tax Cases

  1. The CSP Agreement is available to taxpayers with an open employment tax examination in either SB/SE, TE/GE, LB&I, or Appeals on or after March 5, 1996. As described in IRM 4.23.6.7, if a taxpayer has timely filed all required Forms 1099, and satisfies other requirements described herein, it is mandatory that the examiner present a CSP offer to a taxpayer. The taxpayer has the option of either accepting or rejecting the offer. Taxpayers that have not timely filed the required information returns are not entitled to participate in the CSP with respect to any years for which such returns were not timely filed (See IRM 4.23.6.6.1).

  2. The requirement to timely file required information returns is applied separately to each class of workers for each period.

  3. If the taxpayer is not entitled to participate in the CSP, the IRS will follow traditional methods of seeking compliance. These taxpayers will be able to use the traditional administrative and judicial appeal processes.

4.23.6.6.1  (03-20-2012)
Forms 1099 Not Filed for All Years

  1. Examiners may encounter situations where the taxpayer timely filed Forms 1099 for some years but not others. CSP is only available for years in which the taxpayer timely filed Forms 1099. The year in which the taxpayer did not timely file Forms 1099 should not be included in the CSP agreement.

  2. Examiners should discuss these situations with their group manager to determine how to proceed. For additional guidance, examiners and group managers should contact the Employment Tax Policy Analyst responsible for CSP.

4.23.6.7  (03-20-2012)
Cases Included in the CSP

  1. If a taxpayer has timely filed all required Forms 1099, it is mandatory that the examiner present a CSP offer to the taxpayer in the situations listed below. The taxpayer has the option of either accepting or rejecting the offer.

    • Form 940/941 Non-filers: Taxpayers who have not filed a Form 940 or a Form 941 are eligible for a CSP offer. Often, the non-filing of the forms is consistent with the taxpayer’s reasonable basis argument.

    • Statutory Employees: If a taxpayer treated workers as independent contractors and the examiner determines the workers are statutory employees, as defined in IRC 3121(d)(3), the taxpayer is eligible for a CSP offer.

    • Household Employees: Most household employers are not required to file Forms 1099; however, they are still eligible for a CSP offer.

    • Certain Government Employers: The CSP program is available to federal government employers and to state and local government employers whose employees are not covered under a section 218 agreement.

    • Corporate Officers: If a taxpayer treated a corporate officer as an independent contractor and timely filed a Form 1099, the taxpayer is eligible for a CSP offer. This is true except in cases where IRM 4.23.6.8(7) (re: wage issues) applies. Also, see IRM 4.23.6.9, CSP & Officer Compensation Procedures, for additional guidance on addressing corporate officer compensation issues for CSP purposes.

  2. Use of full rates under IRC 3509(c) to compute the tax in worker classification adjustments does not exclude the taxpayer from a CSP offer.

  3. The assessment of penalties in worker classification adjustments, other than the fraud penalty, does not exclude the taxpayer from a CSP.

4.23.6.7.1  (03-20-2012)
CSP & Entity Change

  1. CSP is not available where the taxpayer is no longer in business - meaning that the business is no longer operating.

  2. Where the taxpayer has merely changed the form of the business entity, CSP is available to the taxpayer and the new entity. An example of a change in the form of the business entity is where the taxpayer previously operated the business as a sole proprietorship and converted the sole proprietorship into a corporation in a subsequent year to operate the business.

  3. A CSP agreement will be prepared to include both the taxpayer and the new entity. Special modifications are required to prepare this type of CSP agreement. Since the examiner is prohibited from modifying the CSP agreement, the examiner must contact TE/GE Counsel to prepare this type of CSP agreement.

  4. The examiner will prepare a memo to TE/GE Counsel requesting approval to make a CSP offer to both business entities and explaining and/or identifying:

    • the facts,

    • the two business entities,

    • the year of the entity change, and

    • the CSP offer year.

  5. If approved, TE/GE Counsel will prepare a modified CSP agreement to include both entities and provide it to the examiner for completion.

4.23.6.8  (03-20-2012)
Cases Excluded from CSP

  1. Other Issues: The CSP program is not available for issues other than worker classification. This includes cases in which a threshold issue, such as the nature of a payment as dividends or wages, has not been resolved at the examination level. In addition, the CSP program is available only if the taxpayer timely filed required Forms 1099. Thus, if the taxpayer did not timely file required Forms 1099, CSP is not available even if other forms were timely filed. Also, the CSP program is not available for worker classification issues that are the subject of a prior closing agreement. Specific cases excluded from CSP and certain exceptions are provided below.

  2. Prior Closing Agreement: A taxpayer that has previously entered into a closing agreement to resolve classification of the workers at issue in the year under examination is not eligible for CSP. The prior closing agreement provides the final resolution regarding treatment of these workers.

  3. CSP Non-Compliance: A taxpayer that is not in compliance with the terms of an existing closing agreement relating to worker classification issues is not eligible for CSP. Inasmuch as the CSP program is designed to encourage compliance, it is not appropriate to extend its benefits to taxpayers that have demonstrated noncompliance with closing agreements. See IRM 4.23.6.18.1, CSP Non-Compliance Procedures, for CSP follow-up procedures.

  4. Prior Coverage: The CSP program is not available if the misclassified workers are employed by a business that is owned, operated or controlled by a business, or the principals of a business, that previously entered into a closing agreement resolving the classification of the workers if the newer business was incorporated or established after the closing agreement was signed. Ownership for purposes of CSP will mean that at least 80 percent of the value of the new business is directly or indirectly owned or controlled by the business or the principals of the business that previously entered into a closing agreement resolving the classification of workers.

  5. Three-Party Arrangements: If the examination requires identifying the correct employer, the taxpayer is not eligible for a CSP offer unless this issue is agreed at the examination level. If the identity of the employer cannot be resolved at the examination level, any settlement of worker classification issues must occur through normal appeals procedures. Examples include cases in which the issue is whether the worker was employed by the taxpayer or by the worker’s corporation as well as cases in which one business "leases" workers to another.

  6. Information Returns Other Than Forms 1099: Worker classification cases in which only information returns other than Forms 1099 were timely filed will not be included in CSP. Thus, if only Schedule K-1s (Form 1120S) were filed treating the workers as non-employees and Forms 1099 were not timely filed, CSP does not apply.

  7. Wage Issues: Cases which involve recharacterizing officer/shareholder distributions as wages or other types of compensatory payments will not be included in CSP. This is most often seen in S Corporations. Also, see IRM 4.23.6.9, CSP & Officer Compensation Procedures, for additional guidance on addressing corporate officer compensation issues for CSP purposes.

  8. Administrative or Judicial Proceeding: If prior year employment tax returns are the subject of an ongoing administrative or judicial proceeding, the taxpayer will not be eligible for a CSP offer. For example, if prior year returns are in litigation for the misclassification issue, the CSP offer should not be made without consultation with the Department of Justice or Counsel attorney handling the case.

  9. Litigation: A CSP offer should not be made in subsequent year examinations of taxpayers for which the worker classification issue has been resolved through litigation.

  10. Criminal Investigation: If an income tax or other related return is part of an on-going criminal investigation, the CSP offer should not be made without consulting the Special Agent assigned to the investigation.

    1. Fraud Cases: Cases which have assessments that include either the Civil Fraud or Criminal Fraud penalty will not be eligible for CSP.

    2. Cases which have assessments that reasonably have the potential to include either the Civil Fraud or Criminal Fraud penalty should be developed in full before any decision is made regarding CSP.

  11. Certain Government Employers: The CSP program is not available to state and local government employers whose employees are covered under a section 218 agreement.

  12. Taxpayer No Longer in Business: By its very nature, CSP agreements apply only to taxpayers still in existence. Therefore, if the taxpayer is no longer in business, a CSP agreement cannot be offered to the taxpayer, as there can be no prospective treatment. However, see IRM 4.23.6.7.1, CSP & Entity Change, for procedures where there has only been a change in the form of the business (i.e., change from sole proprietorship to corporation).

4.23.6.9  (03-20-2012)
CSP & Officer Compensation Procedures

  1. Cases involving recharacterization of officer/shareholder distributions or other types of compensatory payments as wages are not included in CSP. See IRM 4.23.6.8(7). However, reclassification cases, where the officer was treated as an independent contractor and a Form 1099 was timely filed, are included in CSP. See IRM 4.23.6.7(1).

  2. Examiners may encounter cases in which Form 1099 was timely filed, but the officer also received additional payments such as distributions, loans, or personal expenses that the examiner determines to be additional compensation. Since CSP eligibility is determined based on the requirements of section 530, these cases are eligible for CSP since a Form 1099 was timely filed, even though the amount reported on Form 1099 was understated.

  3. The following examples illustrate the application of CSP to cases involving officer compensation issues:

    • Example 1: You are examining a taxpayer for 2010 where officer compensation of $100,000 was reported on Form 1099 for 2008, 2009, and 2010. You determine that the $100,000 reported on Form 1099 is reasonable compensation for the officer’s services. No other payments (distributions, loans, personal expenses) were made to officer.
      This scenario is the same as any other worker classification adjustment. A CSP agreement must be offered for 2010; 2008 and 2009 would not be examined. The tax would be computed on $100,000 for 2010. IRC 3509(a) rates would be applicable unless you determined there was intentional disregard under IRC 3509(c). The use of full rates under IRC § 3509(c) would not exclude the taxpayer from a CSP offer.

    • Example 2: You are examining a taxpayer for 2010 where officer compensation of $10,000 was reported for each year on Forms 1099 for 2008, 2009, and 2010. You determine that the $10,000 reported on Form 1099 is not reasonable compensation for the officer’s services. Distributions of $90,000 were paid to the officer in each year.
      Similar to Example 1, CSP would apply since the officer was treated as an independent contractor and issued Form 1099. A CSP agreement must be offered for 2010; 2008 and 2009 would not be examined (even for the additional compensation that would make up a reasonable wage). The tax would be computed on $100,000 for 2010. IRC 3509(a) rates would be applicable unless you determined there was intentional disregard under IRC 3509(c). The use of full rates under IRC 3509(c) would not exclude the taxpayer from a CSP offer.

    • Example 3: You are examining a taxpayer where officer compensation of $100,000 was reported on Form 1099 for 2010. Officer compensation reported on Forms 1099 for 2008 and 2009 was only $10,000. You determine that the $100,000 reported on Form 1099 for 2010 is reasonable compensation for the officer’s services, but the $10,000 reported on Forms 1099 for 2008 and 2009 is not. The taxpayer paid an additional $90,000 per year (which it characterized as distributions) to the officer in 2008 and 2009. No distributions were paid in 2010.
      This situation would be handled similar to Example 1. A CSP agreement must be offered for 2010; 2008 and 2009 would not be examined even though a reasonable salary was not paid in those years. The tax would be computed on $100,000 for 2010. IRC 3509(a) rates would be applicable unless you determined there was intentional disregard under IRC 3509(c). The use of full rates under IRC 3509(c) would not exclude the taxpayer from a CSP offer.

    • Example 4 : You are examining a taxpayer that reported officer compensation of $100,000 on Form 1099 for 2010. No officer compensation was reported on Forms 1099 for 2008 and 2009. The taxpayer paid $125,000 (which it characterized as a distribution) to the officer in 2008 and 2009. No distributions were paid in 2010. You determine that the $100,000 reported on Form 1099 for 2010 is reasonable compensation for the officer’s services. You also determine that reasonable compensation for 2008 and 2009 is also $100,000 for each year. (The $25,000 difference between the total distribution and the amount recharacterized as wages remains as a distribution.)
      A CSP offer would be applicable for 2010, but would not be for 2008 and 2009 since no Forms 1099 were filed for those years. A CSP agreement would be completed for 2010 only. You would examine 2008 and 2009 to re-characterize the distributions as wages. The CSP agreement for 2010 does not prevent 2008 and 2009 from being examined in this situation since no Forms 1099 were filed for those years and CSP is therefore not available. The tax would be computed on $100,000 for 2008, 2009, and 2010. IRC 3509(a) rates would be applicable unless you determined there was intentional disregard under IRC 3509(c). The use of full rates under IRC 3509(c) would not exclude the taxpayer from a CSP offer.

    • Example 5: You are examining a taxpayer that reported officer compensation of $100,000 on Form 1099 for 2010. Taxpayer reported officer compensation of $10,000 on Forms W-2 for 2008 and 2009. Taxpayer paid $125,000 (which it characterized as a distribution) to the officer in 2008 and 2009. No distributions were paid in 2010. You determine that the $100,000 reported on Form 1099 for 2010 is reasonable compensation for the officer’s services. You also determine that reasonable compensation for 2008 and 2009 is also $100,000 for each year.
      This situation would be similar to Example 4, but 2008 and 2009 would not be worker classification adjustments. A CSP offer would be applicable for 2010, but not for 2008 and 2009 since the officer was already treated as an employee for those years. A CSP agreement would be completed for 2010 only. You would examine 2008 and 2009 to re-characterize the distribution as wages. The CSP agreement for 2010 does not prevent 2008 and 2009 from being examined in this situation since those years do not involve worker reclassification. The 2010 tax would be computed on $100,000 for 2010. IRC 3509(a) rates would be applicable unless you determined there was intentional disregard under IRC 3509(c). The use of full rates under IRC 3509(c) would not exclude the taxpayer from a CSP offer. The tax would be computed on $90,000 ($100,000 reasonable compensation less $10,000 already reported on Forms W-2) for 2008 and 2009. Since the adjustments for 2008 and 2009 are not a worker classification adjustments, IRC 3509 would not be applicable and full rates would be used.

4.23.6.10  (04-21-1999)
Eligible for Relief under Section 530

  1. In cases where the taxpayer clearly meets the reporting and substantive consistency requirements and satisfies the reasonable basis test, the requirements of Section 530 are fully met. As a result, no assessment will be made and the taxpayer may continue treating its workers as independent contractors.

  2. However, a taxpayer may prefer to begin treating its workers as employees. In this case, the examiner should determine whether the workers are employees. If so, an agreement for prospective treatment will be made with the taxpayer. A taxpayer that enters into such an agreement may begin treating the workers as employees currently or at the beginning of the next year. By doing so, the taxpayer will not give up its Section 530 relief for prior years.

4.23.6.11  (03-20-2012)
Not Eligible for Section 530 Relief

  1. Where the taxpayer is not eligible for Section 530 relief and it appears that the taxpayer may have erroneously treated a worker as an independent contractor rather than an employee, the IRS examiner will gather the facts necessary to determine whether improper classification has occurred.

  2. The examiner will then consult with the examination group manager. After thoroughly reviewing the facts and circumstances of the case, the group manager will confirm the taxpayer's eligibility for a CSP settlement offer. If an offer is made and accepted by the taxpayer, the parties will sign a CSP closing agreement based on a standard closing agreement provided on the intranet. See IRM 4.23.6.15.3(2) for link.

4.23.6.12  (10-30-2009)
Mandatory CSP Comment

  1. In any case involving a determination that a worker was misclassified, the examiner must comment on CSP. The examiner should fully explain in the workpapers:

    • if a CSP was considered,

    • whether or not an offer was made,

    • what type of offer was made, if any, and

    • why or why not.

4.23.6.13  (03-01-2003)
Effect on TE/GE Programs

  1. CSP applies to worker classification issues that arise in examinations conducted by examiners in LB&I, SB/SE, and TE/GE. CSP does not alter the procedures that apply to the TE/GE Closing Agreement Programs (CAP), as detailed in Rev. Proc. 2002–47. CSP also does not affect the TE/GE Voluntary Compliance Resolution (VCR) program, as detailed in Rev. Proc. 94–62.

4.23.6.14  (03-20-2012)
Procedures for CSP

  1. First, the examiner will analyze the extent to which a taxpayer meets the requirements for Section 530 relief, which is critical to determining whether the taxpayer can continue current classification practices and the appropriate nature of the offer the taxpayer will receive under the CSP. Every settlement offer will be based on a full examination of the facts and circumstances for the year under examination. Only through an examination can the IRS explore whether a worker should be treated as an employee or an independent contractor.

  2. Required Forms 1099: A de minimis failure to timely file Forms 1099 should not affect the taxpayer’s eligibility for CSP.

    Example: Your recent review of a retail outlet revealed the taxpayer had treated one class of 150 workers as independent contractors. You inspected Forms 1099 and determined that all required Forms 1099 were timely filed except for three which were missed by the processing department. The taxpayer’s failure to timely file a de minimis number of Forms 1099 would not indicate that the taxpayer has clearly failed the reporting consistency requirement. You will continue your analysis to determine whether the taxpayer meets the substantive consistency and reasonable basis test for purposes of determining:

    1. whether the taxpayer is entitled to Section 530 relief with respect to the other 147 workers, and

    2. what settlement offer should be made available to the taxpayer.

  3. Full examinations and detailed review should ensure that all taxpayers are provided appropriate settlement offers under the CSP and thus should ensure the consistency and uniformity of the CSP.

4.23.6.14.1  (03-20-2012)
CSP Settlement Offers

  1. Under the CSP, a series of graduated settlement offers will be available:

    1. If the taxpayer meets the Section 530 reporting consistency requirement but either clearly does not meet the Section 530 substantive consistency requirement or clearly cannot meet the Section 530 reasonable basis test, the offer will be a full employment tax assessment for the one taxable year under examination computed using IRC 3509(a), if applicable. (A "100% CSP Offer" .)
      See IRM 4.23.8.5, IRC Section 3509, for explanation of the reduced rates of IRC 3509.

    2. If the taxpayer meets the reporting consistency requirement and has a colorable argument that it meets the substantive consistency requirement and the reasonable basis test, the offer will be an assessment of 25 percent of the employment tax liability for the audit year, computed using IRC 3509(a), if applicable. (A "25% CSP Offer" .)

    3. In each instance, the taxpayer will agree to classify its workers as employees prospectively, thus ensuring future compliance.

  2. A taxpayer may qualify for more than one CSP offer if several classes of workers are at issue. For example, a taxpayer may receive a 25% CSP Offer for one class of workers and a 100% CSP Offer for another class. The same taxpayer may not have timely filed Forms 1099 for another class of workers, and therefore, may not qualify for any CSP offer for this class of workers. On yet another class, the taxpayer may satisfy all the requirements of Section 530 and would therefore be permitted to continue to treat those workers as independent contractors.

4.23.6.14.2  (03-01-2003)
CSP Offer Acceptance is Voluntary

  1. Taxpayer participation in the CSP is entirely voluntary. In addition, a taxpayer may accept a CSP settlement offer at any time during the examination process. A taxpayer’s rejection of a CSP offer will in no way affect the outcome of the examination. Moreover, a taxpayer declining to accept a settlement offer under CSP will retain all rights to an administrative appeal that exist under the IRS current policies and procedures and all existing rights to judicial review.

4.23.6.14.3  (03-20-2012)
CSP Analysis

  1. Before a settlement offer can be considered, the applicability of Section 530 must be evaluated separately for each class of worker. An examination that includes the worker activities and the degree of direction and control by the taxpayer must also be completed. When the worker reclassification issue is reviewed in conjunction with Section 530, there are a number of possible outcomes. The type of CSP offer is based on the results of the examination.

  2. The following chart summarizes the possible outcomes of an examination and the CSP offer applicable to each outcome. It can be used as a guide for reference throughout this text.

    CSP ANALYSIS CHART

    Is TP Entitled to Section 530 Relief? Were Required Forms 1099 Timely Filed? Are the Workers Employees? Type of CSP Offer
    1. Yes Yes Yes TP’s Option
    2. Yes/No No No None
    3. No No Yes None
    4. No Yes Yes "100% CSP Offer"
    5. Maybe Yes Yes "25% CSP Offer"

4.23.6.14.4  (03-20-2012)
CSP Offer Process

  1. The following steps provide a detailed description of the CSP process. When the examination of the worker classification issue of a single year is completed, examiners will follow the process below:

    1. In a case where the taxpayer clearly meets both the reporting and substantive consistency tests and clearly meets the reasonable basis test, Section 530 applies; NO ASSESSMENT SHOULD BE MADE, nor should an examiner request any changes in the taxpayer’s treatment of the workers for employment tax purposes. However, some taxpayers who are eligible for Section 530 relief may prefer to treat workers who are employees under a common-law analysis, as employees. A CSP offer for prospective treatment will be made to the taxpayer. Since this reclassification of the workers is purely at the option of the taxpayer, the taxpayer may begin treating the workers as employees currently or at the beginning of the next year.

      Example:

      A taxpayer was examined in 2007, a prior year, in which workers were holding the same positions and no employment tax assessments were proposed. The taxpayer meets the reporting and substantive consistency tests. Relief provided by Section 530 is therefore available. Such a taxpayer has a prior audit safe haven and no adjustment should be proposed. A CSP offer as described above would be appropriate if the taxpayer prefers to treat the workers as employees.

    2. If an examiner concludes that the workers are independent contractors, no worker classification issue exists. A CSP offer is not appropriate and should not be made. Examiners should remember that engaging the services of an independent contractor is a legitimate business practice. Examiners should not recommend changing a worker’s status or present a CSP offer simply because it might result in a clearer paper trail for follow-up or increase tax collected through withholding.

    3. If the workers are determined to be employees and required Forms 1099 were not timely filed, the taxpayer is not eligible for Section 530 relief. Additionally, these taxpayers are not eligible for a CSP offer. All open years may be examined in accordance with the examination cycle.

    4. If Forms 1099 were timely filed but the taxpayer clearly fails the substantive consistency test or does not have a reasonable basis argument, Section 530 is not applicable. A 100% CSP Offer will be made.

    5. If Forms 1099 were timely filed and the taxpayer has merely a colorable argument for the substantive consistency test or reasonable basis test so that the examiner determines that Section 530 is not applicable, a 25% CSP Offer will be made.

  2. The CSP agreement will provide that the taxpayer begins to treat the workers correctly as employees, and agrees to an employment tax assessment.

    Example 1: You are examining a masonry construction company. Your examination reveals the company makes payments to two brick layers. You find that the two workers perform identical duties. The company timely filed a Form 1099 for one worker and a Form W–2 for the other. Because the company has treated the similarly situated workers inconsistently, the company is not entitled to relief under Section 530. However, a 100% CSP offer would be made.

    Example 2: You examine a painting company that engages the services of college students during the summer months to paint offices. The company timely filed Forms 1099. You ask the owner the reasoning for treating the painters as independent contractors. The owner replies that the students are given an option of being treated as either employees or independent contractors. As you discuss this further, you determine the taxpayer has not established a reasonable basis for treating the workers as independent contractors. Therefore, Section 530 is not applicable. A 100% CSP offer would be appropriate.

    Note:

    Because the taxpayer's reasonable basis argument is not even colorable, a 25% CSP Offer is not appropriate.



    Example 3: You conclude the examination of a computer services firm. Forms 1099 were timely filed. You have determined that the workers are providing computer services under an arrangement as described in Section 530(d). If appropriate, you will propose a 100% CSP offer because the taxpayer is not entitled to relief under Section 530.

  3. An employment tax assessment will be made for the latest audit year, computed using IRC 3509, if applicable. All usual case processing procedures apply.

  4. The taxpayer should begin treating the worker as an employee effective the first day of the quarter following the agreement date. For example: The CSP agreement is signed by the taxpayer and approved by the IRS on March 14, 2012. The quarter ends March 31, 2012. Therefore, the taxpayer should begin treating the workers as employees on April 1, 2012.

  5. However, if a taxpayer is willing to agree but cannot comply until the second or third quarter, then it would not be in the government’s nor taxpayer’s best interest to proceed with opening additional years or preparing an unagreed Employment Tax Examiner's Report (ETER). Examiners should discuss this situation with their group manager.

4.23.6.14.5  (10-30-2009)
Reasonable Basis Argument

  1. If the taxpayer timely filed required Forms 1099, does not clearly fail the substantive consistency test, and has a reasonable basis argument with some merit, Section 530 may apply. In other words, the cases that fall in this category are cases where there may be some flaws in the taxpayer’s substantive consistency and/or reasonable basis argument. The CSP offer in these circumstances includes prospective compliance and agreement to an employment tax assessment equal to 25-percent of the latest audit year deficiency. See Item 5 on the "CSP Analysis Chart" in IRM 4.23.6.14.3, above. As with the 100% CSP Offer described in Item 4 of the "CSP Analysis Chart," the taxpayer should begin treating the worker as an employee effective the first day of the quarter following the agreement date.

  2. These cases are typically the most difficult. They involve significant development and legal research. The CSP offer reflects the hazards in these cases. Examiners will have to very carefully consider the taxpayer’s position and determine if the taxpayer has demonstrated a reasonable basis. Cases in which no valid reasonable basis argument is offered can be settled under Item 4 of the "CSP Analysis Chart."

  3. Section 530(a)(2) provides three safe havens establishing a "reasonable basis" for not treating a worker as an employee. "Reasonable basis" exists if the taxpayer reasonably relies on:

    1. Judicial Precedent: judicial precedent, published ruling, technical advice memorandum or private letter ruling with respect to the individual or specific taxpayer under examination; or

    2. Prior Audit: prior IRS audit of the taxpayer in which employment taxes were not assessed for amounts paid workers holding positions substantially similar to that held by the worker in question. This basis is valid only for examinations of tax years prior to 1/1/1997. For tax years beginning after 12/31/1996, the audit had to be an examination of employment tax returns where worker classification was an issue. See IRM 4.23.5.2.2.5, Safe Haven—Prior Audit; or

    3. Industry Practice: long-standing recognized practice of a significant segment of the industry in which the worker is engaged.

  4. In addition, Section 530 provides that a taxpayer who fails to meet any of the above safe havens may demonstrate some other reasonable basis for not treating the worker as an employee.

  5. The courts have addressed reasonable basis in several cases. The legislative history of Section 530 also indicates that reasonable basis should be construed liberally in favor of the taxpayer. See H.R. Rep. No. 95–1748, 95th Cong., 2d Sess., 5 (1978), 1978–3 C.B. 633.

  6. When reviewing the reasonable basis argument presented by a taxpayer, examiners should first determine if it is one of the safe havens described in Section 530(a)(2). If it is, the taxpayer is entitled to relief (if the other Section 530 requirements are met). No assessment should be made, but an offer under Item 1 of the "CSP Analysis Chart," inIRM 4.23.6.14.3 above, may be considered.

  7. If the taxpayer’s position does not clearly fall within one of the safe harbors of Section 530(a)(2), examiners should consider whether the taxpayer has demonstrated some other reasonable basis. In cases where the taxpayer’s position is without a reasonable basis, an offer under Item 4 of the "CSP Analysis Chart," IRM 4.23.6.14.3, should be made. No Section 530 relief is available if the taxpayer fails to satisfy the reasonable basis requirement of Section 530. Examples of reasons that are not considered reasonable are:

    1. classifying workers as independent contractors based on desire to pay workers less,

    2. a worker’s request, or

    3. the lack of a valid Social Security Number.


    Example 1: If a taxpayer does not meet any of the safe havens in Section 530(a)(2) and claims that treating workers as independent contractors lowers labor costs as a reasonable basis, the taxpayer has not demonstrated even a colorable reasonable basis argument and an offer in Item 4 of the "CSP Analysis Chart," IRM 4.23.6.14.3 above, would be made.

    Example 2: The owner of a lumber company explains that all businesses in the area treat skidders as independent contractors. In fact, the owner worked for two of the other local companies as an independent contractor in the prior year. The owner explained further that duties for work at the other two companies were identical to that of the workers in question. While the taxpayer’s statements do not clearly meet the industry practice safe haven, there may be merit to the taxpayer’s argument. You should explore the taxpayer’s basis for an industry practice safe haven argument. If the taxpayer could reasonably substantiate the statements in a way that you find credible, the taxpayer would be eligible for Section 530 relief (if the other Section 530 requirements are met). If the taxpayer could offer no further substantiation, you would propose a 25% CSP Offer.

    Example 3: The taxpayer states that the advice of an accountant was followed in treating workers as independent contractors. You determine that the accountant gave oral advice and can no longer remember what facts were provided. The taxpayer has a colorable reasonable basis. You would propose a 25% CSP Offer.

  8. If the taxpayer presents a reasonable basis argument that has some merit, the examiner should verify any facts upon which it is based. In determining if a position has merit, examiners should be receptive to any rationale that is genuine. The objective of the CSP is to recognize a taxpayer’s potential reasonable basis argument and efficiently resolve the contention with a settlement. Common arguments which may fall in this category include prior state determinations. Industry practice arguments will also be presented frequently. This applies to cases where the taxpayer does not clearly meet the industry practice safe haven. The safe haven is not clearly met where a survey is not contemporaneous and is insufficient or the percentage of the industry treating workers as independent contractors is more than de minimis but less than 25% and less than what the examiner considers significant.

  9. The settlement offer for taxpayers who have a colorable reasonable basis argument requires prospective treatment of the workers as employees and an employment tax assessment of 25 percent of the latest audit year. The 25 percent will be determined by computing the proposed employment tax assessment with respect to the workers at issue for the entire year, using IRC 3509(a), if applicable, and multiplying it by .25. The assessment will be made for the quarter ending December 31.

    Example 1: You examine a painting company that engages the services of college students during the summer months to paint offices. The company timely filed Forms 1099. You ask the owner the reasoning for treating the painters as independent contractors. The owner replies that previously as a working student, the owner was given an option of being treated as either an employee or an independent contractor. Moreover the owner’s discussions with other business owners at the local building trade meetings and shows indicate some other businesses handle treatment the same way. The taxpayer could not provide specifics, but indicated there were numerous business owners at the meeting and the owner only spoke to a few of them. You determine the taxpayer’s argument may have merit, however, your research indicates that the local painting industry almost always treats painters as employees. The taxpayer is eligible for a 25% CSP Offer.

4.23.6.14.6  (10-30-2009)
Making the CSP Offer

  1. Upon receipt of the approved CSP Settlement Memorandum, examiners will make the settlement offer to the taxpayer, allowing 30 days for acceptance. See IRM 4.23.6.15.1, CSP Settlement Memorandum.

  2. Examiners should remember that the settlement offer is optional for the taxpayer. The examiner should explain the normal audit and appeals process, including the policy to expand examinations to include other open years.

  3. If the examination is expanded to other open years, the taxpayer may not be entitled to the same, if any, CSP offer. For example, an examiner may discover that in a prior year the taxpayer may not have timely filed required Forms 1099, and therefore, would not be eligible for a CSP offer for the prior year.

    Note:

    The taxpayer is still eligible for the CSP offer in the initial offer year.

  4. The taxpayer retains the right to an administrative appeal. The taxpayer should be advised that if the CSP offer is not accepted at the examination level, the CSP offer will remain available throughout the appeal process.

4.23.6.14.7  (04-21-1999)
More Than One Offer

  1. It is possible that the taxpayer will qualify for several CSP offers because several classes of workers may be at issue. In other words, the taxpayer may qualify for one offer on a particular class of workers and for a different offer relative to another class of workers. The same taxpayer would not qualify for any CSP offer on an additional class of workers if required Forms 1099 were not timely filed for such class.

4.23.6.14.8  (03-20-2012)
CSP Offer Accepted

  1. If a taxpayer accepts the offer, the standard closing agreement will be completed in accordance with procedures in IRM 4.23.6.15.3, CSP Standard Closing Agreement. This document must be prepared without any modification of the terms . (However, see IRM 4.23.6.7.1, CSP & Entity Change, for CSP offers in situations where the type of business entity has changed.) The authorized group manager will execute the agreement on behalf of the Commissioner.

4.23.6.14.9  (03-01-2003)
CSP Offer Rejected or not Applicable

  1. If a taxpayer rejects the offer or the taxpayer does not qualify for CSP, normal examination procedures should be followed, the audit completed and an unagreed Employment Tax Examiner's Report (ETER) prepared (if appropriate). This may result in expanding the examination to include all other open tax years in accordance with the examination cycle.

  2. Since the CSP is intended to provide greater consistency in resolving worker classification cases, it is critical that examiners remain consistent in initiating the prior and subsequent years examinations when a CSP offer is not involved.

  3. A taxpayer who rejects the CSP offer when it is initially proposed may reconsider the offer and accept it later in the examination. The original CSP offer will remain open even if later year returns have been examined. The CSP offer will not apply to years in which the taxpayer has not complied with reporting requirements.

4.23.6.14.10  (10-30-2009)
Calculation of CSP Tax Due and Procedures

  1. 100% CSP Offer: Follow regular tax calculation procedures using Form 4668 for a single year calculation, adjusting all four quarters of the CSP year. If there are other periods open, close no-change with a disposal code of "01."

  2. 25% CSP Offer:

    1. First, calculate tax for each of the 4 quarters using Form 4668. The CSP assessment will then be computed by multiplying the total tax (plus penalty, if applicable) by 25 percent. Attach a cover sheet to Form 4668 showing the calculation of the tax and penalties due.

      Example:

      Total Tax and Penalties Due Before CSP
      ( Form 4668)
      $ 1,068.00
      Multiply by 25 percent X .25
        __________
      Total Tax and Penalties Due After CSP $ 267.00

    2. Examiners should note clearly on top of the Form 4668: "25% CSP Offer Applies — Do Not Process." This will alert group secretaries and tax examiners that the cover sheet 25 percent calculation should be used in lieu of Form 4668 items for assessment purposes.

    3. For the year examined, the first three quarters of Form 941 will be closed with the "No Change with Adjustment" Disposal Code "01" for LB&I and SB/SE, and "Regulatory/Revenue Protection" Closing Code "01" for TE/GE.

  3. Special Instructions: In cases involving other returns, such as Form 943 for agricultural employers or Form 944, examiners should follow procedures as stated above for the Form 941. Where appropriate, references to Form 941 should be replaced with the correct form number and the corresponding Master File Tax Code (MFT).

  4. Federal Unemployment Tax Act (FUTA): FUTA is included in the CSP offer, but will be calculated separately and assessed for a full year under both 100 percent and 25 percent cases.

  5. Household Employment Taxes: May be reported on the Form 1040 using Schedule H. Examiners will need to follow updated procedures for assessing these taxes on the Form 1040. As noted above, form references and MFT's could change. See IRM 4.23.10.12.6, Household Employment Taxes, for more information.

4.23.6.14.11  (03-01-2003)
Information Returns

  1. The information returns will generally not be adjusted for the examination years. Settlements in scenarios 4 and 5 of the "CSP Analysis Chart," IRM 4.23.6.14.3, will satisfy Federal Insurance Contributions Act (FICA) and Income Tax Withholding employment tax liabilities for the periods examined.

  2. Form W–2/W–2c: The section located at the bottom of Form 4668 regarding filing Form W–2/W–2c should be noted "N/A." This pertains to CSP offers with 25-percent assessment and 100-percent assessment.

4.23.6.14.12  (04-21-1999)
Statute Considerations

  1. Usual guidelines regarding the statute of limitations apply to CSP. If a statute is imminent and procedures require an extension, the taxpayer should sign the consent to extend the statute before a CSP agreement is executed.

4.23.6.14.13  (03-01-2003)
Full Payment

  1. Examiners should make every effort to collect the balance due at the time the CSP agreement is executed. If the taxpayer is unable to make full payment, the examiner should follow Accounts Receivable Dollar Inventory (ARDI) procedures to ensure the taxpayer makes payment arrangements.

4.23.6.15  (03-01-2003)
CSP Offer Case Closing Procedures

  1. Generally, regular closing procedures apply. However, closures involving a CSP offer will require the following additions or changes.

  2. A copy of all LB&I CSP agreements along with a copy of the settlement memorandum should be sent to the LB&I Employment Tax Territory Manager after the CSP agreement is signed by all parties.

4.23.6.15.1  (10-30-2009)
CSP Settlement Memorandum

  1. Each case file in which a CSP settlement offer is made must contain a memorandum explaining it. The settlement memorandum is required whether or not the offer was accepted. The settlement memorandum documents the examiners determination and will be used by the group manager, the CSP review teams, a follow-up examiner, and Appeals if the case is not agreed.

  2. The settlement memorandum should contain the following:

    • the facts and the law relative to the taxpayer’s Section 530 claim for relief,

    • the strengths and weaknesses in the taxpayer’s position,

    • the examiner's determination on the type of CSP offer to be made (100% or 25%), and

    • the merits of the taxpayer's position justifying the type of CSP offer being recommended.

  3. The CSP Settlement Memorandum is prepared by the examiner and submitted to the examiner’s group manager.

  4. The settlement memorandum is not part of the ETER and should not be provided to the taxpayer.

4.23.6.15.2  (10-30-2009)
CSP Examination Reports

  1. Form 3198, Special Handling Notice for Examination Case Processing. Note in the "Other" section the appropriate offer:

    1. CSP Offer — 25 percent assessment,

    2. CSP Offer — 100 percent assessment, or

    3. CSP Offer — no assessment.

  2. Form 5344, Examination Closing Record, or Form 5599, TE/GE Examined Closing Record. The Disposal Code "01," No Change with Adjustment, for LB&I, GE, and SB/SE, or Disposal Code "01," Regulatory/Revenue Protection for TE, will be used for any periods that have been examined but accepted as filed as a result of a CSP offer.

  3. The quarters in which the assessments are made will be closed using Disposal Code "03" Agreed for LB&I, SB/SE, and TE/GE. Generally, when the 25% CSP Offer is applied, the assessment will be made on the 4th quarter Form 941 and the most current examination year for Form 940. For the 100% CSP Offer, examiners should follow all usual case processing procedures, adjusting all four quarters of the CSP year. If there are other periods open, they would be closed no-change with a disposal code of "01."

  4. Form 2504-WC, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment in Worker Classification Cases (Employment Tax): When using the 100% CSP Offer, examiners will follow the usual procedures for completing the Form 2504-WC. However, the assessment summary will need to be entered manually when the assessment includes a 25% CSP Offer.

  5. Form 4666, Summary of Employment Tax Examination: When examiners are using the 100% CSP Offer, they will follow the usual procedures for completing the Form 4666. However, the assessment summary will need to be entered manually when the assessment includes a 25% CSP Offer.

  6. Form 4667, Examination Changes - Federal Unemployment Tax: All CSP offers will include a single year 100% assessment for FUTA. Usual processing procedures apply.

  7. Form 4668, Employment Tax Examination Changes Report: For the 100% CSP Offer, usual processing procedures apply. For the 25% CSP Offer, attach a cover sheet to Form 4668 showing the 25% calculation of tax due. See IRM 4.23.6.14.10.

  8. Attach a list of reclassified workers with their SSN's to the Form 4668. Separate the workers by class If more than one class of worker is involved.

4.23.6.15.3  (10-30-2009)
CSP Standard Closing Agreement

  1. A standard closing agreement will be used for CSP. The agreement is available in three versions to cover the following situations:

    1. typical worker classification cases, where the taxpayer is currently treating the workers at issue as independent contractors,

    2. worker classification cases where Section 530 applies, and

    3. cases where the taxpayer is currently treating the workers at issue as employees.

  2. No changes will be made to the terms and conditions of the agreement. Examiners will insert certain taxpayer and return information when preparing the standard closing agreement. The forms can be found in the employment tax library on the LB&I employment tax page of the intranet at: http://lmsb.irs.gov/hq/fs/employment_tax/aspversion/resources_and_information/audit_resources/worker_classification.asp

    1. Exhibit 4.23.6 -1, Instructions for Completing the Classification Settlement Program Closing Agreements: Includes general instructions for completing the three types of agreements,

    2. Exhibit 4.23.6 -2, Closing Agreement on Final Determination Covering Specific CSP Matters: Provides additional instructions for completing the Classification Settlement Program Closing Agreements for each type of CSP agreement.

    3. Exhibit 4.23.6-3, Sample of Completed CSP Closing Agreement (CLOSECC): Provides an example of a completed CSP agreement for a typical worker conversion case.

  3. The standard closing agreement should be prepared in triplicate. Original signatures will be secured on all three copies of the agreement. When the agreements are signed by the approving official, examiners should provide one copy to the taxpayer, the second copy should be forwarded to the Specialty Employment Tax Centralized Workload Selection and Delivery Unit, and one copy should be retained in the case file.

  4. Examiners should exercise caution where authorized representatives wish to execute the closing agreements for the taxpayer. If the authorization form, Form 2848, only authorizes the representative with respect to the tax years under examination, then the taxpayer’s signature should be obtained on the CSP in order to avoid any confusion with respect to future compliance. If the Form 2848 contains appropriate language, then the representative’s signature is acceptable. Language authorizing the representative to represent the taxpayer "with respect to employment tax issues arising in [years under examination] and all related specific items affecting other taxable periods" would be appropriate.

4.23.6.15.4  (03-01-2003)
Examination Referrals to Employee Plans (EP)

  1. Examiners will follow manual procedures contained in IRM 4.23.3.8.2, Referrals to Employee Plans, for EP referrals. If a CSP agreement is entered into and the case meets the referral criteria, examiners should provide the following information in addition to the referral Form 4632, Employee Plans Referral, and Form 4632–A, Employee Plans Referral Checksheet:

    • A copy of the CSP agreement(s).

    • Name and EIN of qualified plan.

    • Name and TIN of reclassified employees. (Where the number of reclassified employees is too large to provide this information, include the class of workers and number of workers reclassified in each.)

4.23.6.16  (10-30-2009)
CSP Quality Control

  1. The CSP includes safeguards to ensure the program is implemented and executed consistently and in accordance with program guidelines. There are three layers of quality control built into the program:

    1. The first safeguard is inherent in the structure of the program. The standard closing agreement provides a uniform settlement offer that was reviewed and approved by the Headquarters Office. Modifications are not permitted. However, see IRM 4.23.6.7.1, CSP & Entity Change, for procedures where there has only been a change in the form of the business (i.e., change from sole proprietorship to corporation).

    2. Employment Tax Policy has an analyst assigned as the program leader for the CSP.

    3. Compliance group manager review and approval of all settlement offers is required. This will ensure a high level of managerial involvement. The authorized compliance group manager has the expertise and the familiarity with other open cases to assure the accuracy and consistency of determinations.

4.23.6.17  (03-20-2012)
Monitoring CSP Agreements

  1. CSP monitoring and follow-up activities will be centralized in the Specialty Employment Tax Centralized Workload Selection and Delivery Unit for agreements secured in SB/SE and Appeals. These CSP agreements and related documents should be sent to:
    IRS Service Center Campus
    201 West River Center Blvd.
    Stop 5702A/Employment Tax
    CSP Follow-up
    Covington, KY 41011

  2. Each CSP Agreement should be in a separate folder and contain all documents required for monitoring. The following documentation must be sent to Employment Tax PSP upon final closure of any case that contains an agreed CSP agreement:

    • Copy of the CSP agreement,

    • Complete copy of the RAR,

    • CSP memorandum,

    • Copy of the Lead Sheets and workpapers for the worker classification and section 530 issues, and

    • Copy of the activity record showing contact information.

    ·

  3. LB&I and TE/GE will monitor their own agreements.

4.23.6.18  (03-20-2012)
CSP Compliance Follow-up

  1. The Specialty Employment Tax Centralized Workload Selection and Delivery (SET-CWSD) Unit is responsible for monitoring CSP agreements and for an annual follow up to assess compliance with the agreements for agreements secured by SB/SE and Appeals.

  2. When a case in Appeals results in a CSP settlement, a copy of the Appeals Case Memo, CSP agreement, and Appeals Report are sent to the Specialty Employment Tax Centralized Workload Selection and Delivery Unit (SET-CWSD) for filing and follow up procedures.

  3. The Chief, SB/SE Employment Tax, LB&I Employment Tax Territory Manager, and TE/GE Program Manager will oversee their respective programs for review and follow-up activities and coordinate with other functions, as needed.

  4. In Indian Tribal Governments (ITG), the CSP Coordinator (along with their Manager) is responsible for the operation of the CSP, etc. Also, the CSP Coordinator and the ITG Classifier each keep a copy of the CSP Agreement. The CSP Coordinator keeps a copy of the original agreement, along with a copy of the Memorandum and Report. The Classifier is the person responsible for initiating an examination if it appears that the taxpayer is not treating the individuals as employees per the signed agreement.

4.23.6.18.1  (03-20-2012)
CSP Non-Compliance Procedures

  1. If it appears from internal research that the taxpayer is not following the provisions of the CSP agreement, the SET-CWSD Unit will prepare a memorandum to the field stating that it appears the taxpayer is not honoring the provisions of the agreement and that follow-up actions are necessary. The SET-CWSD office will also send a copy of the CSP agreement, a copy of the examination reports, and a copy of the CSP Settlement Memorandum to the field with the memo.

  2. When conducting a CSP follow-up exam, examiners should:

    1. Determine if the taxpayer is in compliance.

    2. Determine why the taxpayer is not in compliance with the CSP agreement.

    3. Determine if the facts of the relationship between the taxpayer and the workers have materially changed.

    4. If the facts have materially changed, the examiner must address this as a worker classification exam and follow all appropriate procedures.

    5. If the facts have not changed, the examiner should not treat this as a worker classification exam. The CSP agreement is final and binding under IRC 7121 on both the taxpayer and the IRS with respect to the issue of worker classification.

  3. For taxpayers not in compliance with the previously executed CSP:

    1. An adjustment should be made for the tax applicable to treating the workers as employees.

    2. Reduced rates under IRC 3509 are not applicable since the taxpayer is in violation of the CSP agreement and this is not considered a worker classification adjustment.

    3. Adjustments should be made to all years open under the regular statute of limitations.

    4. Adjustments should also be made to any years in which the statute of limitations is open under the CSP agreement.

    5. All applicable penalties should be considered since the taxpayer is in violation of the CSP agreement.

    6. Form 2504-WC, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment in Worker Classification Cases (Employment Tax) should not be used to secure an agreement since this is not a worker classification adjustment. The issue is that the taxpayer failed to comply with the provisions of a closing agreement. Tax Court does not have jurisdiction over this issue under IRC 7436.

4.23.6.19  (03-20-2012)
Voluntary Classification Settlement Program (VCSP)

  1. The Voluntary Classification Settlement Program (VCSP) is a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes. To participate in this new voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.

  2. The VCSP allows eligible taxpayers who are not under examination to obtain relief similar to that currently available through the Classification Settlement Program for taxpayers under examination.

  3. A VCSP does not impact a current examination. Examiners should be familiar with VCSP in order to address any questions taxpayers or authorized representatives might have about the program.

  4. The IRS will not share information about VCSP applicants with the Department of Labor or any state agencies.

4.23.6.19.1  (03-20-2012)
VCSP Eligibility

  1. A taxpayer must have consistently treated the workers as non-employees and must have filed all required Forms 1099 for the previous three years to participate in VCSP. Additionally, the taxpayer cannot currently be under audit by the IRS and the taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency.

  2. If the IRS or the Department of Labor has previously audited a taxpayer concerning the classification of the workers, the taxpayer will be eligible only if the taxpayer has complied with the results of that audit.

  3. An SS-8 determination does not constitute an examination and does not prevent a taxpayer from being eligible for the VCSP. However, the IRS retains discretion whether to accept a taxpayer's application for the VCSP.

  4. Exempt organizations and governmental entities may participate in a VCSP if they meet all of the eligibility requirements.

4.23.6.19.2  (03-20-2012)
VCSP Terms

  1. A taxpayer participating in the VCSP will agree to prospectively treat the class or classes of workers as employees for future tax periods. In exchange, the taxpayer:

    • Will pay 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 IRC 3509(a);

    • Will not be liable for any interest and penalties on the amount; and

    • Will not be subject to an employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years.

  2. In addition, as part of the VCSP program, the taxpayer 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.

4.23.6.19.3  (03-20-2012)
VCSP Procedures

  1. To participate in the VCSP, a taxpayer must apply using Form 8952, Application for Voluntary Classification Settlement Program. The application should be filed at least 60 days from the date the taxpayer wants to begin treating its workers as employees. However, applications received with less than 60 days from the inception date will be considered on a case-by-case basis.

  2. Along with the application, the taxpayer should provide the name of a contact or an authorized representative with a valid Power of Attorney (Form 2848). The IRS will contact the taxpayer or authorized representative to complete the process after reviewing the application and verifying the taxpayer’s eligibility.

  3. Eligible taxpayers accepted into the VCSP will enter into a closing agreement with the IRS to finalize the terms of the VCSP, and will simultaneously make full and complete payment of any amount due under the closing agreement.

  4. Additional information on VCSP can be found in Announcement 2011-64 and on the IRS website at Voluntary Classification Settlement Program and Voluntary Classification Settlement Program (VCSP) Frequently Asked Questions at irs.gov.

  5. Processing instructions for the agreements can be found at IRM 21.7.2.3.11, Voluntary Classification Settlement Program (VCSP).

Exhibit 4.23.6-1 
Instructions for Completing the Classification Settlement Program Closing Agreements

These instructions provide guidance for completing three standard closing agreements under the Classification Settlement Program (CSP). Each agreement is to be titled as shown below. They are:
       
1. CLOSING AGREEMENT ON FINAL DETERMINATION COVERING SPECIFIC MATTERS FOR TAXPAYERS ENTITLED TO SECTION 530 RELIEF (CLOSE530): to be used when taxpayers qualify for relief under Section 530 but choose to treat the workers as employees prospectively.
       
2. CLOSING AGREEMENT ON FINAL DETERMINATION COVERING SPECIFIC MATTERS REGARDING WORKER CLASSIFICATION (CLOSEWC): to be used when taxpayers do not qualify for Section 530, are currently treating the workers as independent contractors, and are eligible for a CSP Offer.
       
3. CLOSING AGREEMENT FINAL DETERMINATION COVERING SPECIFIC MATTERS REGARDING THE CLASSIFICATION OF WORKERS CURRENTLY TREATED AS EMPLOYEES (CLOSECC): to be used when taxpayers are currently treating workers as employees and are eligible for a CSP offer.
       
See Exhibit 4.23.6-2 for specific instructions on completing the three forms.
       
       
       
Additional Instructions:
• Keep at least one determination paragraph on the last signature page. These are the paragraphs numbered (1) through (5).
       
• Draw a diagonal line on pages where there are open spaces at the bottom of a page to avoid any unintended insertions by the parties to the agreement.
       
• Delete all instructions contained in the (parentheses) of this standard closing agreement before transmitting to the taxpayer.
       
• The standard closing agreement should be prepared in triplicate. Original signatures will be secured on all three originals of the agreement. When all three originals of the agreement are signed by the taxpayer, or the taxpayer's representative and the approving official; the examiner should provide one to the taxpayer, the second should be forwarded to the Specialty Employment Tax Centralized Workload Selection and Delivery Unit and the third should be retained in the case file.

Exhibit 4.23.6-2 
Closing Agreement on Final Determination Covering Specific CSP Matters

Note:

See Exhibit 4.23.6–1 for additional instructions for completing the Classification Settlement Program Closing Agreements. Each specific agreement should be titled using one of the three headings.


Under section 7121 of the Internal Revenue Code ("IRC" ), Insert the taxpayer's name , address, and Employer Identification Number (EIN) , ("taxpayer" ), and the Commissioner of Internal Revenue ("Commissioner" ) make the following closing agreement:
   
WHEREAS, there is a dispute between the parties as to whether certain workers classified by taxpayer as Indicate type of worker(s); for example, painter, framer, nurse, dentist, salesperson, etc. (hereinafter workers) are independent contractors or employees of taxpayer for purposes of federal income tax withholding, Federal Insurance Contributions Act (FICA), or Federal Unemployment Tax Act (FUTA) taxes ("federal employment tax" );
   
Select the correct paragraph for the second "WHEREAS" clause:
1.FOR CLOSE530 AND CLOSEWC AGREEMENTS:
(D) WHEREAS, the taxpayer is presently treating the workers as independent contractors;
[OR]
2. FOR CLOSECC AGREEMENTS:
(D) WHEREAS, the taxpayer commenced treating the workers as employees on Enter the date the taxpayer began treating workers as employees .
   
WHEREAS, the taxpayer has timely filed Forms 1099 for each of its Indicate type of worker(s); for example, painter, framer, nurse, dentist, salesperson, etc. for all applicable periods from January 1, 20 XX , through December 31, 20 XX , in accordance with the provisions of paragraph 3.02 of Rev. Proc. 85-18, 1985-1 C.B. 518, and Rev. Rul. 81-224, 1981-2 C.B. 197; and
   
WHEREAS, the parties wish to resolve this dispute for all Indicate type of worker(s); for example, painter, framer, nurse, dentist, salesperson, etc. engaged by the taxpayer after Enter the beginning date (i.e. January 1, 20XX) of the first period in which the statute of limitations is open. (This clause is intended to cover all periods open by statute whether or not an examination is open on those periods.)
   
NOW IT IS HEREBY DETERMINED AND AGREED for federal employment tax purposes that:
   
   
   
   
   
   
Page 1 of 3

     
Closing Agreement with Insert the taxpayer's name.
     
Insert the applicable paragraph (1):
     
1. FOR CLOSE 530 AGREEMENTS:
1) During the period Enter the entire time period under examination. Full calendar year examinations will be January 1, 20XX through December 31, 20XX , through Enter the entire time period under examination. Full calendar year examinations will be January 1, 20XX through December 31, 20XX , the taxpayer shall be given relief pursuant to Section 530 of Revenue Act of 1978 and no additional federal employment taxes are due for these periods with respect to such persons.

Note:

Use for agreements where no additional tax is being assessed for filed years because the taxpayer is eligible for relief under Section 530.

     
[OR]
2. FOR CLOSEWC AND CLOSECC AGREEMENTS:
(1) The Internal Revenue Service will assess and the taxpayer will pay the following amounts to the United States Government in full discharge of any federal employment tax liability it may owe for the periods shown below resulting directly or indirectly from its failure to pay and/or withhold federal income tax, FICA, or FUTA taxes on the payments to its Indicate type of worker(s); for example, painter, framer, nurse, dentist, salesperson, etc. :
     
PERIOD TYPE OF TAX AMOUNT TO BE ASSESSED
Insert the tax period corresponding to the agreement. Insert the type of tax corresponding to the agreement. Insert the employment tax amount corresponding to the agreement. For example, 25% of the assessment for one year or a summary total of the assessment of one full year.

Penalties: Insert the amount corresponding to the agreement.
     
(2) The Internal Revenue Service will not disturb taxpayer's classification of such workers for federal employment tax purposes for any period from Enter the beginning date (i.e. January 1, 20XX) of the first period in which the statute of limitations is open. (This clause is intended to cover all periods open by statute whether or not an examination is open on those periods) through Insert the date prior to the first date taxpayer will begin treating workers as employees. i.e., If treatment will begin on April 1, 2012, enter March 31, 2012. (For CLOSECC insert the date prior to the date taxpayer began treating workers as employees. i.e., If treatment began on January 1, 2012, enter December 31, 2011 )
     
(3) Beginning Insert the first day of the period in which the taxpayer is required to treat workers as employees (1. For CLOSEWC agreements, enter the first day of the quarter following the agreement date. 2. For CLOSECC agreements, enter the date the taxpayer began treating the workers as employees. 3. For CLOSE530 agreements, the taxpayer may choose to treat the workers as employees currently or at the beginning of the next year ), and for all periods thereafter, indicate type of worker(s); for example, painter, framer, nurse, dentist, salesperson, etc. and persons performing equivalent duties regardless of taxpayer's job titles will be treated as employees for all federal employment tax purposes.
     
(4) Use the following statement for CLOSEWC and CLOSECC agreements only: For purposes of ensuring that the taxpayer properly discharges its obligations pursuant to paragraph (3) of this agreement, any assessments of taxes due from the taxpayer under the provisions of IRC sections 3101, 3111, 3402, 3509, and 3301, for periods beginning Insert the beginning date (i.e. January 1, 20XX) of the first period in which the statute of limitations is open. (This clause is intended to cover all periods open by statute whether or not an examination is open on those periods) , and ending Insert the date prior to the first date taxpayer will begin treating workers as employees. i.e., If treatment will begin on April 1, 2012, enter March 31, 2012. (For CLOSECC Insert the date prior to the date taxpayer began treating workers as employees. i.e., If treatment began on January 1, 2012, enter December 31, 2011) , together with penalties and interest thereon, may be made at any time on or before the later of Enter date which will provide 3 years from date prospective compliance begins. (I.e. If treatment will begin on April 1, 2010, enter April 1, 2013) or the date on which the statute of limitations for the period would expire without regard to this closing agreement.
     
     
     
     
     
  Page 2 of 3  

       
Closing Agreement with Insert the taxpayer's name.
       
       
(5) Use the following statement for CLOSEWC and CLOSECC agreements only :
IRC section 6205 shall apply to the amounts contained in the paragraph (1) above, except FUTA tax.
       
This agreement is final and conclusive except:
  (1)   the matter it relates to may be reopened in the event of fraud, malfeasance, or misrepresentation of material facts:
       
  (2)   it is subject to the Internal Revenue Code sections that expressly provide that effect be given to their provisions (including any stated exception for Code section 7122) notwithstanding any other law or rule of law; and
       
  (3)   if it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date, that applies to the tax period.
       
  By signing, the above parties certify that they have read and agreed to the terms of this document.
       
Name of Taxpayer
By _____________________
Date Signed_________________
Title_____________________
       
Taxpayer's Representative
NOTE: Special rules may apply. Make sure the representative is authorized to execute closing agreements. If there is doubt, request that the taxpayer execute the closing agreement or consult area counsel. If the Form 2848 only authorizes the representative with respect to the tax years under examination, then the taxpayer's signature should be obtained in order to avoid any issues with respect to prospective compliance. On the other hand, if Form 2848 contains appropriate language, then the representative's signature will suffice. Language authorizing the representative to represent the taxpayer "with respect to employment tax issues arising in (YEARS UNDER EXAMINATION) and all related specific items affecting other taxable periods" would be appropriate. ____________
Date Signed____________________
       
Commissioner of Internal Revenue
By Make sure the IRS official is authorized to sign the CSP agreement. ___________
Date Signed___________________
Title_____________________
 
       
       
       
       
       
Page 3 of 3

Exhibit 4.23.6-3 
Sample of Completed CSP Closing Agreement (CLOSEWC)

Note:

Years under audit are 2010 and 2011. The statute of limitations is open for 2009 but that year was not examined.

   
   
   
CLOSING AGREEMENT ON FINAL DETERMINATION
COVERING SPECIFIC MATTERS
REGARDING WORKER CLASSIFICATION
   
 Under IRC section 7121, XYZ Company, 123 Main Street, Anytown, NY 12111, Taxpayer Identification Number 11-2233445 ("taxpayer " ) and the Commissioner of Internal Revenue ("Commissioner " ) make the following closing agreement:
   
WHEREAS, there is a dispute between the parties as to whether certain workers classified by taxpayer as painters (hereinafter workers) are independent contractors or employees of taxpayer for purposes of federal income tax withholding, Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes ("federal employment tax" );
   
WHEREAS, the taxpayer is presently treating the workers as independent contractors;
   
WHEREAS, the taxpayer has timely filed Forms 1099 for each of its painters for all applicable periods from January 1, 2011, through December 31, 2011, in accordance with the provisions of paragraph 3.02 of Rev. Proc. 85-18, 1985-1 C.B. 518, and Rev. Rul. 81-224, 1981-2 C.B. 197; and
   
WHEREAS, the parties wish to resolve this dispute for all painters engaged by the taxpayer after January 1, 2009.
   
NOW IT IS HEREBY DETERMINED AND AGREED for federal employment tax purposes that:
   
(1) The Internal Revenue Service will assess and the taxpayer will pay the following amounts to the United States Government in full discharge of any federal employment tax liability it may owe for the periods shown below resulting directly or indirectly from its failure to pay and/or withhold federal income tax, FICA, or FUTA taxes on the payments to its painters:
   
   
   
   
Page 1 of 3
       
Closing Agreement with XYZ Company
PERIOD TYPE OF TAX AMOUNT TO BE ASSESSED
    Tax Penalties
2011 Federal Employment Tax $25,000 $1,500
(2) The Internal Revenue Service will not disturb taxpayer's classification of such workers for federal employment tax purposes for any period from January 1, 2009, through September 30, 2012.
 
(3) Beginning October 1, 2012, and for all periods thereafter, painters and persons performing equivalent duties regardless of taxpayer's job titles will be treated as employees for all federal employment tax purposes.
       
(4) For purposes of ensuring that the taxpayer properly discharges its obligations pursuant to paragraph (3) of this agreement, any assessments of taxes due from the taxpayer under the provisions of IRC sections 3101, 3111, 3402, 3509 and 3301 for periods beginning January 1, 2009, and ending September 30, 2012, together with penalties and interest thereon, may be made at any time on or before the later of October 1, 2015 or the date on which the statute of limitations for the period would expire without regard to this closing agreement.
 
       
       
       
       
       
Page 2 of 3
Closing Agreement with XYZ Company
       
(5) IRC section 6205 shall apply to the amounts contained in paragraph (1) above, except FUTA tax.
This agreement is final and conclusive except:
  (1)   the matter it relates to may be reopened in the event of fraud, malfeasance, or misrepresentation of material fact;
  (2)   it is subject to the Internal Revenue Code sections that expressly provide that effect be given to their provisions (including any stated exception for IRC section 7122) notwithstanding any other law or rule of law; and
       
  (3)   if it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date, that applies to the tax period.
       
  By signing, the above parties certify that they have read and agreed to the terms of this document
       
Name of TaxpayerXYZ Company
  By Robert Jones
  Date Signed July 9, 2012
  Title President
       
Taxpayer's Representative
  By______________________
  Date Signed__________________
       
Commissioner of Internal Revenue
  By Jane Smith
  Date Signed July 15, 2012
  Title SB/SE Employment Tax Group Manager
       
       
       
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