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It is easy for small Southern California businesses to incur payroll tax debt. Many small businesses slip into payroll tax debt issues in these hard economic times and many business owners find themselves overwhelmed by the interest and penalties associated with unpaid payroll taxes. An experienced California tax attorney can bargain with the IRS to reduce payment terms, extend payment arrangements and make arrangements so that a business can remain open while repaying its tax liability.

An IRS audit can determine that a business’ employees were improperly classified as nonemployees or contractors, and the resulting payroll tax obligation associated with such a reclassification may be significant. The IRS recently launched a new Voluntary Classification Settlement Program (VCSP) that will help some California businesses with payroll tax debts associated with worker reclassification. Under the VCSP a business will have to pay a nominal amount that is the equivalent of one percent of the wages paid to the reclassified employees for the last year.

Significantly, the IRS has also said that it will not charge interest or penalties and that it will not audit an employer for payroll taxes related to the newly reclassified employees for prior years.

“This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations.”

To qualify, a California business must have consistently treated workers as nonemployees, filed all required Forms 1099 for the past three years, and not currently be under audit concerning the workers in question.

Source:, IR-2011-95, Sept. 21, 2011