[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 510 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 510

To amend the Internal Revenue Code of 1986 and the Revenue Act of 1978 
to revise the procedures applicable to the determination of employment 
                                status.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 13, 1995

 Mr. Lantos (for himself and Mr. Shays) introduced the following bill; 
         which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 and the Revenue Act of 1978 
to revise the procedures applicable to the determination of employment 
                                status.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Misclassification of Employees 
Act''.

SEC. 2. PROCEDURES APPLICABLE TO DETERMINATIONS OF EMPLOYMENT STATUS.

    (a) Waiver of Employment Tax Liability for Reasonable Good Faith 
Misclassification Based on Common Law Rules.--
            (1) In general.--Section 3509 of the Internal Revenue Code 
        of 1986 (relating to determination of employer's liability for 
        certain employment taxes) is amended by adding at the end the 
        following new subsection:
    ``(e) Waiver of Employment Tax Liability for Reasonable Good Faith 
Misclassification Based on Common Law Rules.--
            ``(1) In general.--For purposes of determining the 
        liability of any taxpayer for employment taxes with respect to 
        any individual for any period, such individual shall be deemed 
        not to have been an employee of the taxpayer for such period 
        if--
                    ``(A) the taxpayer did not treat such individual as 
                an employee for purposes of the employment taxes for 
                such period,
                    ``(B) the taxpayer's treatment of such individual 
                as not being an employee was based on a reasonable good 
                faith misapplication of the common law rules used for 
                determining the employer-employee relationship,
                    ``(C) all Federal tax returns (including 
                information returns) required to be filed by the 
                taxpayer with respect to such individual for such 
                period were filed on a basis consistent with the 
                taxpayer's treatment of such individual as not being an 
                employee,
                    ``(D) the taxpayer (and any predecessor) did not 
                treat any other individual holding a substantially 
                similar position as an employee for purposes of the 
                employment taxes for any period beginning after 
                December 31, 1977, and
                    ``(E) the taxpayer enters into a closing agreement 
                under section 7121 with the Secretary (in the time and 
                manner determined by the Secretary) agreeing to treat 
                such individual, and any other individual holding a 
                substantially similar position, as employees and to 
                file all Federal employment tax returns with respect to 
                such individuals on a basis consistent with the 
                taxpayer's treatment of such individuals as employees.
            ``(2) Definitions and special rules.--
                    ``(A) Employment tax.--For purposes of this 
                subsection, the term `employment tax' means any tax 
                imposed by subtitle C, including any interest, penalty, 
                or additional amount with respect to such tax.
                    ``(B) No refund or credit of overpayment.--No 
                refund or credit of any overpayment of an employment 
                tax resulting from the application of paragraph (1) 
                shall be allowed, notwithstanding that the period for 
                filing a claim for refund or credit of such overpayment 
                is not barred on the effective date of this subsection.
            ``(3) Termination.--This subsection shall not apply if the 
        closing agreement referred to in paragraph (1)(E) is entered 
        into more than 1 year after the date of the enactment of this 
        subsection.''
            (2) Monitoring of closing agreement required.--The 
        Secretary of the Treasury or his delegate shall monitor 
        compliance with each closing agreement referred to in section 
        3509(e)(1)(E) of the Internal Revenue Code of 1986 (as added by 
        this section) for not less than 5 years after the date such 
        agreement is entered into. Such monitoring shall include not 
        only monitoring the payments made to the individuals specified 
        in the agreement but also the aggregate wages paid to employees 
        and the aggregate payments to independent contractors for 
        services.
    (b) Modifications to Safe Harbor for Classifications of Individuals 
as Nonemployees.--
            (1) Requirement of reasonable basis.--Paragraph (1) of 
        section 530(a) of the Revenue Act of 1978 (relating to 
        controversies involving whether individuals are employees for 
        purposes of the employment taxes) is amended by striking 
        ``unless the taxpayer had no reasonable basis'' and inserting 
        the following: ``if the taxpayer had a reasonable basis''.
            (2) Only recent employment tax audit is reasonable basis.--
        Paragraph (2) of section 530(a) of the Revenue Act of 1978 is 
        amended--
                    (A) by striking the paragraph caption and inserting 
                the following: ``Reasonable basis for not treating 
                individual as employee.--'',
                    (B) in the matter preceding subparagraph (A)--
                            (i) by striking ``in any case'', and
                            (ii) by inserting ``only'' before ``if the 
                        taxpayer's'', and
                    (C) by striking subparagraph (B) and inserting the 
                following new subparagraph:
                    ``(B)(i) an Internal Revenue Service audit of the 
                taxpayer--
                            ``(I) was conducted solely for employment 
                        tax purposes not more than 3 years before such 
                        period, and
                            ``(II) included an examination for 
                        employment tax purposes of individuals holding 
                        positions substantially similar to the 
                        positions held by the individual involved,
                    ``(ii) upon completion of such audit the taxpayer 
                was notified in writing by the Internal Revenue Service 
                that the treatment for employment tax purposes of the 
                individuals referred to in clause (i)(II) was correct, 
                and
                    ``(iii) such notification is not revoked before 
                such period; or''.
    (c) Termination of Treatment of Certain Technical Personnel.--
Section 530 of the Revenue Act of 1978 is amended by striking 
subsection (d).
    (d) Authority for Regulations and Rulings on Employment Status.--
Section 530 of the Revenue Act of 1978 is amended by striking 
subsection (b) and by redesignating subsection (c) as subsection (b).
    (e) Payors To Notify Service Providers of Consequences of 
Employment Status.--
            (1) Section 6041 of such Code (relating to information at 
        source) is amended by redesignating subsection (e) as 
        subsection (f) and by inserting after subsection (d) the 
        following new subsection:
    ``(e) Additional Information Required To Be Included on Statements 
Covering Payments for Services.--In the case of a statement required 
under subsection (d) with respect to any payment for services, such 
statement shall be treated as not satisfying the requirements of 
subsection (d) unless such statement includes the following 
information:
            ``(1) The payor is treating the payee as not being an 
        employee and the payee may be liable for self-employment tax.
            ``(2) If the payee believes that she should properly be 
        treated as an employee, an explanation of the procedure for 
        obtaining Internal Revenue Service review of her status.
            ``(3) The payee will not be eligible for any employee 
        fringe benefits and may lose protections or benefits under 
        Federal laws relating to fair labor standards, occupational 
        health and safety, civil rights, unemployment insurance, and 
        worker's compensation.
            ``(4) An explanation of tax benefits to the self-employed 
        such as retirement plans and deduction for a portion of the 
        cost of health insurance.''
            (2) Section 6041A of such Code (relating to returns 
        regarding payments of remuneration for services and direct 
        sales) is amended by redesignating subsection (f) as subsection 
        (g) and by inserting after subsection (e) the following new 
        subsection:
    ``(f) Additional Information Required To Be Included on 
Statements.--In the case of a statement required under subsection (e), 
such statement shall be treated as not satisfying the requirements of 
subsection (e) unless such statement includes the information specified 
in paragraphs (1) through (4) of section 6041(e).''
    (f) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect beginning on 
        the date which is 120 days after the date of the enactment of 
        this Act.
            (2) Modifications to safe harbor; termination of treatment 
        of technical personnel.--The amendments made by subsections (b) 
        and (c) shall apply to periods ending on or after the date 
        which is 120 days after the date of the enactment of this Act.

SEC. 3. CLASSIFICATION OF INDIVIDUALS AS EMPLOYEES FOR PURPOSES OF 
              UNEMPLOYMENT COMPENSATION PROGRAM.

    (a) Uniform Federal and State Definition of Employee.--Subsection 
(a) of section 3304 of the Internal Revenue Code of 1986 (relating to 
requirements for approval of State unemployment compensation laws) is 
amended by striking ``and'' at the end of paragraph (17), by 
redesignating paragraph (18) as paragraph (19), and by inserting after 
paragraph (17) the following new paragraph:
            ``(18) the determination of whether an individual is an 
        employee of another person shall be made in accordance with 
        section 3306(i); and''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on the 180th 
        day after the date of the enactment of this Act.
            (2) Special rule.--In the case of any State the legislature 
        of which has not been in session for at least 30 calendar days 
        (whether or not successive) between the date of the enactment 
        of this Act and such 180th day, the amendments made by this 
        section shall take effect 30 calendar days after the 1st day on 
        which such legislature is in session on or after such 180th 
        day.
                                 <all>