Are exempt organizations eligible for the VCSP

Yes, exempt organizations are eligible for the Voluntary Classification Settlement Program (VCSP) if all eligibility requirements are met.

The VCSP allows taxpayers, including exempt organizations, to voluntarily reclassify their workers as employees for future tax periods for employment tax purposes. Under the VCSP, a taxpayer will pay 10 percent of the amount of employment taxes that would have been due on compensation paid to the workers being reclassified for the most recent tax year, calculated under the reduced rates of section 3509(a) of the Internal Revenue Code. Additionally, the taxpayer will not be liable for any interest and penalties on the payment under the VCSP and will not be audited for employment tax purposes for prior years with respect to the worker classification of the workers.

To participate in the VCSP, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS. The eligibility requirements include:

1. The taxpayer must want to voluntarily reclassify certain workers as employees for federal income tax withholding, Federal Insurance Contributions Act (FICA), and Federal Unemployment Tax Act (FUTA) taxes for future tax periods.
2. The taxpayer must be presently treating the workers as nonemployees.
3. The taxpayer must have filed all required Forms 1099 for each of the workers to be reclassified for the three preceding calendar years ending before the date Form 8952 is filed.
4. The taxpayer must have consistently treated the workers as nonemployees.
5. The taxpayer must have no current dispute with the IRS as to whether the workers are nonemployees or employees for federal employment tax purposes.
6. The taxpayer must not be under employment tax examination by the IRS.
7. The taxpayer must not be under examination by the Department of Labor or any state agency concerning the proper classification of the class or classes of workers.
8. If the taxpayer has been examined previously by the IRS or the Department of Labor concerning the proper classification of the class or classes of workers, the taxpayer must have complied with the results of the prior examination and not be currently contesting the classification in court.

Exempt organizations that meet these requirements can apply for the VCSP and benefit from the program's provisions.

Sources:
Notice 2012-69
Instructions for Form 8952 (11/2023)
IRM Part 4. Examining Process. Chapter 23. Employment Tax. Section 20. Voluntary Classification Settlement Program (VCSP) Procedures
IRM Part 21. Customer Account Services. Chapter 7. Business Tax Returns and Non-Master File Accounts. Section 2. Employment and Railroad Tax Returns