[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1610 Introduced in Senate (IS)]







104th CONGRESS
  2d Session
                                S. 1610

  To amend the Internal Revenue Code of 1986 to clarify the standards 
      used for determining whether individuals are not employees.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 13, 1996

    Mr. Bond (for himself, Mr. Nickles, Mr. Dole, Mr. D'Amato, Mr. 
 Murkowski, Mr. Inhofe, Mr. Lott, Mr. Gramm, and Mr. Frist) introduced 
the following bill; which was read twice and referred to the Committee 
                               on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to clarify the standards 
      used for determining whether individuals are not employees.

    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 ``Independent Contractor Tax 
Simplification Act of 1996''.

SEC. 2. FINDINGS.

    The Congress finds that:
            (1) Simplifying the tax rules with respect to independent 
        contractors was the top vote-getter at the 1995 White House 
        Conference on Small Business. Conference delegates recommended 
        that Congress ``should recognize the legitimacy of an 
        independent contractor''. The Conference found that the current 
        common law is ``too subjective'' and called upon the Congress 
        to establish ``realistic and consistent guidelines''.
            (2) It is in the best interests of taxpayers and the 
        Federal Government to have fair and objective rules for 
        determining who is an employee and who is an independent 
        contractor.

SEC. 3. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS ARE NOT 
              EMPLOYEES.

    (a) In General.--Chapter 25 of the Internal Revenue Code of 1986 
(general provisions relating to employment taxes) is amended by adding 
after section 3510 the following new section:

``SEC. 3511. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS ARE NOT 
              EMPLOYEES.

    ``(a) General Rule.--For purposes of this title, and 
notwithstanding any provision of this title to the contrary, if the 
requirements of subsections (b), (c), and (d) are met with respect to 
any service performed by any individual, 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) the payor shall not be treated as an employer, and
            ``(4) compensation paid or received for such service shall 
        not be treated as paid or received with respect to employment.
    ``(b) Service Provider Requirements With Regard to Service 
Recipient.--For the purposes of subsection (a), the requirements of 
this subsection are met if the service provider, in connection with 
performing the service--
            ``(1) has a significant investment in assets, training, or 
        both,
            ``(2) incurs significant unreimbursed expenses,
            ``(3) agrees to perform the service for a particular amount 
        of time or to complete a specific result and is liable for 
        damages for early termination without cause,
            ``(4) is paid primarily on a commissioned basis or per unit 
        basis, or
            ``(5) purchases products for resale.
    ``(c) Additional Service Provider Requirements With Regard to 
Others.--For the purposes of subsection (a), the requirements of this 
subsection are met if--
            ``(1) the service provider--
                    ``(A) has a principal place of business,
                    ``(B) does not primarily provide the service at the 
                service recipient's facilities,
                    ``(C) pays a fair market rent for use of the 
                service recipient's facilities, or
                    ``(D) operates primarily from equipment not 
                supplied by the service recipient; or
            ``(2) the service provider--
                    ``(A) is not required to perform service 
                exclusively for the service recipient, and
                    ``(B) in the year involved, or in the preceding or 
                subsequent year--
                            ``(i) has performed a significant amount of 
                        service for other persons,
                            ``(ii) has offered to perform service for 
                        other persons through--
                                    ``(I) advertising,
                                    ``(II) individual written or oral 
                                solicitations,
                                    ``(III) listing with registries, 
                                agencies, brokers, and other persons in 
                                the business of providing referrals to 
                                other service recipients, or
                                    ``(IV) other similar activities, or
                            ``(iii) provides service under a business 
                        name which is registered with (or for which a 
                        license has been obtained from) a State, a 
                        political subdivision of a State, or any agency 
                        or instrumentality of 1 or more States or 
                        political subdivisions.
    ``(d) Written Document Requirements.--For purposes of subsection 
(a), the requirements of this subsection are met if the services 
performed by the individual are performed pursuant to a written 
contract between such individual and the person for whom the services 
are performed, or the payor, and such contract provides that the 
individual will not be treated as an employee with respect to such 
services for purposes of this subtitle.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Failure to meet reporting requirements.--If for any 
        taxable year any service recipient or payor fails to meet the 
        applicable reporting requirements of sections 6041(a), 
        6041A(a), or 6051 with respect to a service provider, then, 
        unless such failure is due to reasonable cause and not willful 
        neglect, this section shall not apply in determining whether 
        such service provider shall not be treated as an employee of 
        such service recipient or payor for such year.
            ``(2) Related entities.--If the service provider is 
        performing services through an entity owned in whole or in part 
        by such service provider, then the references to `service 
        provider' in subsections (b) through (d) may include such 
        entity, provided that the written contract referred to in 
        paragraph (1) of subsection (d) may be with either the service 
        provider or such entity and need not be with both.
    ``(f) Definitions.--For the purposes of this section--
            ``(1) Service provider.--The term `service provider' means 
        any individual who performs service for another person.
            ``(2) Service recipient.--Except as provided in paragraph 
        (5), the term `service recipient' means the person for whom the 
        service provider performs such service.
            ``(3) Payor.--Except as provided in paragraph (5), the term 
        `payor' means the person who pays the service provider for the 
        performance of such service in the event that the service 
        recipients do not pay the service provider.
            ``(4) In connection with performing the service.--The term 
        `in connection with performing the service' means in connection 
        or related to--
                    ``(A) the actual service performed by the service 
                provider for the service recipients or for other 
                persons for whom the service provider has performed 
                similar service, or
                    ``(B) the operation of the service provider's trade 
                or business.
            ``(5) Exceptions.--The terms `service recipient' and 
        `payor' do not include any entity which is owned in whole or in 
        part by the service provider.''
    (b) Clerical Amendment.--The table of sections for chapter 25 of 
such Code is amended by adding at the end the following new item:

                              ``Sec. 3511. Standards for determining 
                                        whether individuals are not 
                                        employees.''
    (c) Effective Date.--The amendments made by this Act shall apply to 
services performed before, on, or after the date of the enactment of 
this Act.
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