Houston C-Corp, 34 workers misclassified as 1099 for 3 years. VCSP filed. Penalty reduced from $380K to $42K. IRS notice closed.
01The Situation
This Houston construction C-Corp had classified 34 field workers as 1099 contractors for 3 years. The standard IRS penalty calculation came to $380,000. The VCSP offered a dramatically better outcome, but only if filed before the audit formally commenced. He had 60 days.
02What We Did
We completed a worker-by-worker classification analysis. All 34 met the W-2 standard. VCSP filed in 45 days. Simultaneously rebuilt 3 years of payroll records and an amended job costing system allocating labor by project for the first time. IRS accepted and closed the notice.
Breakdown
| Worker Category | Count | Prior Class. | Correct Class. | Annual Payroll | Status |
|---|---|---|---|---|---|
| Site Supervisors | 8 | 1099 | W-2 | $420K | |
| Equipment Operators | 12 | 1099 | W-2 | $580K | |
| General Laborers | 14 | 1099 | W-2 | $490K | |
| Office Admin | 6 | W-2 correct | W-2 | $180K | |
| Verified Subcontractors | 11 | 1099 correct | 1099 | $320K |
The corrected job costing revealed two projects that looked profitable were actually break-even once labor was properly allocated. That changed how the owner bids every job.
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