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Technical Information Release

Technical Information Release TIR 09-2: Voluntary Disclosure of Employee Misclassification or Non-filing with Respect to Withholding or Wage and Information Returns

Date: 02/09/2009
Organization: Massachusetts Department of Revenue
Referenced Sources: Massachusetts General Laws

Tax Administration/Withholding

I. Introduction

The purpose of this Technical Information Release (TIR) is to announce a Department of Revenue voluntary compliance and enforcement initiative pertaining to employers that either have failed to file Massachusetts withholding or wage and information returns or have misclassified workers that should have been classified as employees on such returns for past taxable periods. This initiative is an effort to bring affected employers into compliance with their withholding obligations under chapter 62B of the General Laws.

II. Discussion

In 2005, the Commissioner issued TIR 05-11, which explains the applicable rules for classifying workers as employees or independent contractors for Massachusetts wage withholding purposes. In evaluating whether an employer has misclassified its workers, the Commissioner will apply the rules set forth in TIR 05-11.

As indicated in TIR 03-17, when an employer fails to file a required tax return, the Commissioner may make an assessment of tax at any time, without giving notice of his intention to assess for any taxable period for which a return was due. See G.L. c. 62C, § 26(d). The statute does not limit the number of past due returns the Commissioner may assess. However, in any instance involving a failure to file, the Commissioner generally seeks to balance considerations of taxpayer compliance and appropriate agency resource allocation.

In keeping with those considerations, the Commissioner is issuing this TIR regarding time limitation periods applicable to employers that either have failed to file Massachusetts withholding or wage and information returns or have misclassified workers that should have been classified as employees on such returns (applying the rules set forth in TIR 05-11). This TIR modifies TIR 03-17 and the application of the Department's "look-back policy" in these cases only to the extent it is inconsistent with TIR 03-17. When an employer referenced in this TIR voluntarily complies with the terms herein, the Department will apply a limited look-back period for wage amounts required to be reported to the Department on employer withholding or wage and information returns for tax periods beginning on or after January 1, 2008.

If an employer does not come forward voluntarily pursuant to this TIR and the Commissioner discovers from a source other than the employer's voluntary disclosure ( e.g., through audit or information received another source) that a employer has misclassified its employees, the Department will apply a lookback period that is appropriate to the circumstances and will not be bound by the seven year look-back period that was announced in TIR 03-17. A taxpayer that has already been contacted by the Audit Division or is the subject of any other enforcement action is ineligible to participate in this initiative.

The Department is issuing this TIR as it applies to the administration of Massachusetts law governing withholding on wages pursuant G.L. c. 62B. Nothing in this TIR alters or supersedes any initiatives, rules, regulations or other pronouncements issued by any other governmental entity or agency regarding employee misclassification.

In certain instances the Commissioner, notwithstanding the general policy stated above, may require additional returns to be filed, up to and including all past due returns. The Commissioner will consider pertinent facts and circumstances, including:

  1. The degree of flagrancy and history of the employer's noncompliance;
  2. Special circumstances peculiar to the specific employer, or peculiar to the employer's business or industry;
  3. Whether there was a basis for any reasonable doubt on the part of the employer as to its filing obligation;
  4. Failure to file returns of any type, such as 1099s, or failure to remit trust fund monies collected but not paid over;
  5. An attempt in any manner to evade or defeat any tax (including instances punishable pursuant to c. 62C, §§ 73(a) and (b));
  6. Willful neglect to file returns despite reasonable cause to know of a filing responsibility; and
  7. Sporadic filings not justified by objective circumstances.

III. Penalties

In general, penalties are imposed whenever a tax return is filed late and whenever a tax is paid late. G.L. c. 62C, § 33. The Commissioner has authority to waive these late filing or payment penalties under certain circumstances. G.L. c. 62C, § 33(l). The Commissioner will generally waive such penalties when an employer demonstrates that the failure to file or pay resulted from reasonable cause and not willful neglect. See Administrative Procedure 633: Guidelines for the Waiver and Abatement of Penalties. Whoever misclassifies employees in violation of chapter 62B may also be subject to criminal and civil penalties, including debarment from public works projects, as provided in G.L. c. 149, § 27C. See TIR 05-11 and St. 2004, c. 193. Participation in the DOR voluntary disclosure program will have no effect on penalties that may be imposed by other agencies, e.g., Division of Unemployment Assistance. 

IV. Procedure for Voluntary Disclosure under this TIR

Employers [1]that seek to apply the look-back rules as set forth in this TIR can voluntarily disclose employee misclassification and/or non-filing of withholding or wage and information returns by contacting the Department's Wage Enforcement Voluntary Disclosure Unit. The initial contact should be a letter from the employer or the employer's representative naming the employer, giving a brief general description of the employer's activities and stating the proposed application of the Department's reporting rules. The employer must furnish DOR with a list of names and social security numbers of its employees.

This is a time-limited program. To be considered for voluntary disclosure under the provisions of this TIR, the initial contact must be by letter postmarked between February 17, and April 30, 2009 which contains the information described in the preceding paragraph. Payment in full of amounts due on wage and information returns for tax periods beginning on or after January 1, 2008 plus applicable interest must be made no later than April 30, 2009. Regardless of the date of initial contact, the lookback period will commence as described in Section II. The employer will also be required to consent in writing to the Department of Revenue's disclosure of the employer's identity and other information provided in connection with the voluntary disclosure application to other state agencies, including but not limited to the Division of Unemployment Assistance (DUA) and the Division of Industrial Accidents (DIA).

If DOR can verify that the employee paid income tax or made estimated personal income tax payments to the Commonwealth on or before April 15, 2009 relating to the wages received from the employer, the employer will receive credit for such payments (subject to offset for any other taxes due from the employer). To the extent that the Department receives payments from an employer with respect to wages paid to an individual employee, the Department will not seek to collect unpaid tax from the employee with respect to those wages. However, the Department will require that such employees file the appropriate return covering the periods for which such payments were made if they have not already done so.

The Wage Enforcement Unit can be contacted either in writing or by phone as follows:

Massachusetts Department of Revenue
Wage Enforcement Unit/Voluntary Disclosure
200 Arlington Street, Room 4300
Chelsea, MA 02150

PHONE: (617) 887-6925
FAX : (617) 660-0356

/s/Navjeet K. Bal
Navjeek K. Bal
Commissioner of Revenue


February 9, 2009

TIR 09-2

[1] This voluntary disclosure program does not apply to individual employees who have failed to report or underreported taxable wages.

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