Determination of worker classification

(a)

In general

Chapter 79 of the Internal Revenue code of 1986 is amended by adding at the end the following new section:

7706.

Determination of worker classification

(a)

In general

For purposes of this title (and notwithstanding any provision of this title not contained in this section to the contrary), if the requirements of subsections (b), (c), and (d) are met with respect to any service performed by a service provider, then with respect to such service— (1)the service provider shall not be treated as an employee, (2)the service recipient shall not be treated as an employer, (3)any payor shall not be treated as an employer, and (4)the compensation paid or received for such service shall not be treated as paid or received with respect to employment. (b)

General service provider requirements

(1)

In general

The requirements of this subsection are met with respect to any service if the service provider either— (A)meets the requirements of paragraph (2) with respect to such service, or (B)in the case a service provider engaged in the trade or business of selling (or soliciting the sale of) goods or services, meets the requirements of paragraph (3) with respect to such service. (2)

General requirements

The requirements of this paragraph are met with respect to any service if the service provider, in connection with performing the service— (A)either— (i)incurs significant unreimbursed expenses as it relates to total expense, or (ii)risks income fluctuations because remuneration with respect to such service is not related to the expenses incurred, (B)agrees to perform the service for a particular amount of time, to achieve a specific result, or to complete a specific task, and (C)at least one of the following: (i)has an significant unreimbursed expenses as it relates to total expense in assets or training, (ii)is not required to perform services exclusively for the service recipient, or (iii)has not performed services for the service recipient as an employee during the 1-year period ending with the date of the commencement of services under the contract described in subsection (d). (3)

Alternative requirements with respect to sales persons

In the case of a service provider engaged in the trade or business of selling (or soliciting the sale of) goods or services, the requirements of this paragraph are met with respect to any service if— (A)the service provider is compensated primarily on a commission basis, and (B)substantially all the compensation for such service is directly related to sales of goods or services rather than to the number of hours worked to a certain level or limit of highly compensated individuals. (c)

Place of business or own equipment requirement

The requirement of this subsection is met with respect to any service if the service provider— (1)has a principal place of business, which can be home or mobile-based, or, (2)provides the service primarily using equipment for which the service provider bears the ultimate financial responsibility. (d)

Written contract requirement

The requirements of this subsection are met with respect to any service if such service is performed pursuant to a written contract between the service provider and the service recipient (or payor) which meets the following requirements: (1)The contract includes each of the following: (A)The service provider’s name and address. (B)A statement that the service provider will not be treated as an employee with respect to the services provided pursuant to the contract for purposes of this title. (C)A statement that the service recipient (or the payor) will report to the Internal Revenue Service the compensation payable pursuant to the contract consistent with the requirements of this title. (D)A statement that the service provider is responsible for payment of Federal, State, and local taxes, including self-employment taxes, on compensation payable pursuant to the contract. (E)A statement that the contract is intended to be considered a contract described in this subsection. (2)The term of the contract does not exceed 1 year. The preceding sentence shall not prevent one or more subsequent written renewals of the contract from satisfying the requirements of this subsection if the term of each such renewal does not exceed 1 year and if the information required under paragraph (1)(A) is updated as needed in connection with each such renewal. (3)The contract (or renewal) is signed by both the service recipient (or payor) and the service provider not later than the date on which the aggregate payments made by the service recipient to the service provider exceeds $600 for the year covered by the contract (or renewal). (e)

Reporting requirements

If any service recipient or payor fails to meet the applicable reporting requirements of section 6041(a) or 6041A(a) for any taxable year with respect to any service provider, this section shall not apply for purposes of making any determination with respect to the liability of such service recipient or payor for any tax with respect to such service provider for such period. For purposes of the preceding sentence, such reporting requirements shall be treated as met if the failure to satisfy such requirements is due to reasonable cause and not willful neglect. (f)

Exception for services provided by owner

This section shall not apply with respect to any service provided by a service provider to a service recipient if the service provider owns any interest in the service recipient or any payor with respect to the service provided. The preceding sentence shall not apply in the case of a service recipient the stock of which is regularly traded on an established securities market. (g)

Limitation on reclassification by secretary

For purposes of this title— (1)

Effect of reclassification on service recipients and payors

A determination by the Secretary that a service recipient or a payor should have treated a service provider as an employee shall be effective with respect to the service recipient or payor no earlier than the notice date if— (A)the service recipient or the payor entered into a written contract with the service provider which meets the requirements of subsection (d), (B)the service recipient or the payor satisfied the applicable reporting requirements of section (a) or 6041A(a) for all relevant taxable years with respect to the service provider, and (C)the service recipient or the payor demonstrates a reasonable basis for having determined that the service provider should not be treated as an employee under this section and that such determination was made in good faith. (2)

Burden of proof

(A)

In general

If— (i)a taxpayer establishes a prima facie case that it was reasonable not to treat an individual as an employee for purposes of this section, and (ii)the taxpayer has fully cooperated with reasonable requests from the Secretary of the Treasury or his delegate,

then the burden of proof with respect to such treatment shall be on the Secretary.

(B)

Exception for other reasonable basis

In the case of any issue involving whether the taxpayer had a reasonable basis not to treat an individual as an employee for purposes of this section, subparagraph (A) shall only apply for purposes of determining whether the taxpayer meets the requirements of subparagraph (A), (B), or (C) of subsection (a)(2). (3)

Effect of reclassification on service providers

A determination by the Secretary that a service provider should have been treated as an employee shall be effective with respect to the service provider no earlier than the notice date if— (A)the service provider entered into a written contract with the service recipient or payor which meets the requirements of subsection (d), (B)the service recipient or payor satisfied the applicable reporting requirements of sections 6012(a) and 6017 for all relevant taxable years with respect to the service provider, or (C)the service recipient demonstrates a basis for determining that the service provider is not an employee under this section and that such determination was made in good faith. (4)

Notice date

For purposes of this subsection, the term notice date means the 30th day after the earliest of— (A)the date on which the first letter of proposed deficiency which allows the service provider, the service recipient, or the payor an opportunity for administrative review in the Internal Revenue Service Office of Appeals is sent, (B)the date on which a deficiency notice under section 6212 is sent, or (C)the date on which a notice of determination under section 7436(b)(2) is sent. (5)

No restriction on administrative or judicial review

Nothing in this subsection shall be construed as limiting any provision of law which provides an opportunity for administrative or judicial review of a determination by the Secretary. (h)

Definitions

For purposes of this section— (1)

Service provider

(A)

In general

The term service provider means any qualified person who performs service for another qualified person. (B)

Qualified person

The term qualified person means— (i)any natural person, or (ii)any entity. (2)

Service recipient

The term service recipient means the person or entity for whom the service provider performs such Service pursuant to a written contract. (3)

Payor

The term payor means any person or entity who pays the service provider for performing such service. (i)

Regulations

Notwithstanding section 530(d) of the Revenue Act of 1978, the Secretary may issue regulations only to the extent that the Secretary determines are necessary to carry out the provisions of this section. (j)

Rule of construction

No provision of this section may be construed to expand the circumstances under which a service provider may be treated as an employee or a service recipient may be treated as an employer. (k)

Application in ordinary course of trade or business

This section shall apply regardless of whether such service is performed in the ordinary or related course of a trade or business of the service recipient.

(b)

Reporting

Section 6041A of such Code is amended by adding at the end the following new subsection:

(g)

Special rules for certain persons classified as not employees

In the case of any service recipient required to make a return under subsection (a) with respect to compensation to which section 7706(a) applies— (1)such return shall include— (A)the aggregate amount of such compensation paid to each person or entity whose name is required to be included on such return, (B)the aggregate amount deducted and withheld under section 3402(s) with respect to such compensation, and (C)an indication of whether a copy of the contract described in section 7706(d) is on file with the service recipient or payor, and (2)the statement required to be furnished under subsection (e) shall include the information described in paragraph (1) with respect to the service provider to whom such statement is furnished.

Terms used in this subsection which are also used in section 7706 shall have the same meaning as when used in such section.

(c)

Clerical amendment

The table of sections for chapter 79 of such Code is amended by adding at the end the following new item:

Sec. 7706. Determination of worker classification.

(d)

Effective date

The amendments made by this section shall apply to services performed after December 31, 2016.