[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1525 Introduced in House (IH)]







106th CONGRESS
  1st Session
                                H. R. 1525

   To amend the Internal Revenue Code of 1986 to provide simplified 
 criteria, in lieu of the common law rules, for determining whether an 
  individual is an employee or an independent contractor and to limit 
             retroactive employment tax reclassifications.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 22, 1999

  Mr. Kleczka (for himself, Mr. Houghton, Mr. Stark, Mrs. Johnson of 
Connecticut, Mr. Matsui, Mr. English, Mr. Levin, Mr. Weller, Mr. Coyne, 
   Mr. Foley, Mr. McDermott, Mr. Lewis of Georgia, Mr. Boehlert, Mr. 
 Evans, Mr. King, Mr. Barrett of Wisconsin, Mr. Quinn, and Mr. Forbes) 
 introduced the following bill; which was referred to the Committee on 
                             Ways and Means

_______________________________________________________________________

                                 A BILL


 
   To amend the Internal Revenue Code of 1986 to provide simplified 
 criteria, in lieu of the common law rules, for determining whether an 
  individual is an employee or an independent contractor and to limit 
             retroactive employment tax reclassifications.

    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 Clarification 
Act of 1999''.

SEC. 2. DETERMINATION OF EMPLOYEE AND EMPLOYER STATUS.

    (a) In General.--Subsection (c) of section 7701 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(c) Employee and Employer.--
            ``(1) In general.--For purposes of this title, except as 
        otherwise expressly provided in this title--
                    ``(A) an individual (hereinafter in this subsection 
                referred to as the `service provider') performing 
                services for another person (hereinafter in this 
                subsection referred to as the `service recipient') 
                shall be treated as an employee of the service 
                recipient, and
                    ``(B) the service recipient shall be treated as the 
                employer of such service provider,
        unless the requirements of each of the subparagraphs of 
        paragraph (3) have been satisfied.
            ``(2) Repeal of common law tests.--The rules of this 
        subsection shall apply in lieu of any common law rules which 
        would otherwise apply.
            ``(3) Requirements.--
                    ``(A) Lack of control by service recipient.--The 
                requirements of this subparagraph are met only if the 
                service provider has the right, to the exclusion of the 
                service recipient, to control and direct the manner of, 
                and the means used in, the service provider's 
                performance of services for the service recipient.
                    ``(B) Availability of service to others.--The 
                requirements of this subparagraph are met only if the 
                service provider--
                            ``(i) makes substantially similar services 
                        available to others, and
                            ``(ii) is not precluded by the service 
                        recipient from soliciting business 
                        opportunities that involve providing 
                        substantially similar services for other 
                        persons during the period that the service 
                        provider is providing services for the service 
                        recipient.
                    ``(C) Entrepreneurial risk.--The requirements of 
                this subparagraph are met only if--
                            ``(i) in the service provider's overall 
                        business activities, the service provider has 
                        the potential to generate profit and bears risk 
                        of loss and the extent to which profit is 
                        generated or loss is sustained depends on the 
                        service provider's efforts and decisions other 
                        than as to the amount of work performed, and
                            ``(ii) in the event the service provider 
                        fails to perform the work in accordance with 
                        the service recipient's requirements, the 
                        service provider is either subject to liability 
                        to the service recipient for damages arising 
                        from claims sounding in contract or would be 
                        subject to such liability but for a waiver by 
                        the service recipient.
            ``(4) Person.--For purposes of this subsection, the term 
        `person' includes any governmental unit (and any agency or 
        instrumentality thereof).''
    (b) Repeal of Section 530 of Revenue Act of 1978.--Section 530 of 
the Revenue Act of 1978 is hereby repealed.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 3121(d) of such Code is 
        amended to read as follows:
            ``(2) any individual who is treated as an employee under 
        section 7701(c); or''.
            (2) Paragraph (2) of section 210(j) of the Social Security 
        Act is amended to read as follows:
            ``(2) any individual who is treated as an employee under 
        section 7701(c) of the Internal Revenue Code of 1986; or''.
            (3) Subsection (a) of section 7701 of such Code is amended 
        by inserting after paragraph (33) the following new paragraph:
            ``(34) Includes and including.--The terms `includes' and 
        `including' when used in a definition contained in this title 
        shall not be deemed to exclude other things otherwise within 
        the meaning of the term defined.''
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to services 
        performed after December 31, 2000.
            (2) Repeal of limitations on regulations and rulings.--The 
        repeal made by subsection (b), insofar as it relates to section 
        530(b) of the Revenue Act of 1978, shall take effect on the 
        date of the enactment of this Act; except that regulations and 
        Revenue Rulings permitted to be issued by reason of such repeal 
        may not apply to services performed before January 1, 2001.

SEC. 3. LIMITATIONS ON RETROACTIVE EMPLOYMENT TAX RECLASSIFICATIONS.

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

``SEC. 3511. LIMITATIONS ON RETROACTIVE EMPLOYMENT TAX 
              RECLASSIFICATIONS.

    ``(a) General Rule.--If--
            ``(1) for purposes of employment taxes, the taxpayer treats 
        an individual as not being an employee for any period after 
        December 31, 2000, and
            ``(2) for such period, the taxpayer meets--
                    ``(A) the consistency requirements of subsection 
                (b),
                    ``(B) the return filing requirements of subsection 
                (c), and
                    ``(C) the safe harbor requirement of subsection 
                (d),
for purposes of applying this subtitle for such period, the individual 
shall be deemed not to be an employee of the taxpayer for such period. 
The preceding sentence shall cease to apply to periods beginning more 
than 60 days after the date that the Secretary notifies the taxpayer in 
writing of a final administrative determination that the taxpayer 
should treat such individual (or any individual holding a substantially 
similar position) as an employee.
    ``(b) Consistency Requirements.--A taxpayer meets the consistency 
requirements of this subsection with respect to any individual for any 
period if the taxpayer treats such individual (and all other 
individuals holding substantially similar positions) as not being an 
employee for purposes of the employment taxes for such period and all 
prior periods after December 31, 1978.
    ``(c) Return Filing Requirements.--The taxpayer meets the return 
filing requirements of this subsection with respect to any individual 
for any period if all Federal tax returns (including information 
returns) required to be filed by the taxpayer for such period with 
respect to such individual are filed on a basis consistent with the 
taxpayer's treatment of such individual as not being an employee.
    ``(d) Safe Harbors.--
            ``(1) In general.--The taxpayer meets the safe harbor 
        requirement of this subsection with respect to any individual 
        for any period if the taxpayer establishes that its treatment 
        of such individual as not being an employee for such period 
        was--
                    ``(A) in reasonable reliance on a written 
                determination (as defined in section 6110(b)(1)) issued 
                to the taxpayer that addressed the employment status of 
                the individual or an individual holding a substantially 
                similar position with the taxpayer;
                    ``(B) in reasonable reliance on a concluded 
                Internal Revenue Service audit of the taxpayer in which 
                the employment status of the individual or any 
                individual holding a substantially similar position 
                with the taxpayer was examined and the taxpayer was 
                notified in writing that no change would be made to 
                such individual's employment status; or
                    ``(C) supported by substantial authority.
        For purposes of subparagraph (C), the term `substantial 
        authority' has the same meaning as when used in section 
        6662(d)(2)(B)(i); except that such term shall not include (i) 
        any private letter ruling issued to a person other than the 
        taxpayer, and (ii) any authority that does not address the 
        employment status of individuals holding positions 
        substantially similar to that of the individual.
            ``(2) Special rules.--
                    ``(A) Application to pre-2001 determinations, 
                etc.--Paragraph (1) shall apply without regard to 
                whether the determination, audit, or the authority 
                referred to therein was before January 1, 2001.
                    ``(B) Subsequent authority.--The taxpayer shall not 
                be considered to meet the safe harbor requirement of 
paragraph (1) with respect to any individual for any period if the 
treatment of such individual as not being an employee is inconsistent 
with any regulation, Revenue Ruling, Revenue Procedure, or other 
authority--
                            ``(i) which is published by the Secretary 
                        at least 60 days before the beginning of such 
                        period and after the date of the determination, 
                        the conclusion of the audit, or the substantial 
                        authority referred to in paragraph (1), and
                            ``(ii) which applies to the type of 
                        services performed by such individual or the 
                        industry or business in which such services are 
                        performed.
            ``(3) Transitional rule.--Except as provided in paragraph 
        (2)(B), the taxpayer shall be considered to meet the safe 
        harbor requirement of paragraph (1) with respect to services 
        performed by an individual during 2001 or 2002 if the taxpayer 
        would be treated under section 530 of the Revenue Act of 1978 
        (as in effect on the day before the date of the enactment of 
        this section) as having a reasonable basis for not treating 
        such individual as an employee.
    ``(e) Other Special Rules.--
            ``(1) Notice.--An officer or employee of the Internal 
        Revenue Service shall, before or at the commencement of any 
        audit inquiry relating to the employment status of one or more 
        individuals who perform services for the taxpayer, provide the 
        taxpayer with a written notice of the provisions of this 
        section.
            ``(2) Availability of safe harbors.--Nothing in this 
        section shall be construed to provide that this section only 
        applies where the individual involved is otherwise an employee 
        of the taxpayer.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Employment tax.--The term `employment tax' means any 
        tax imposed by this subtitle.
            ``(2) Employment status.--The term `employment status' 
        means the status of an individual as an employee or as an 
        independent contractor (or other individual who is not an 
        employee).
            ``(3) Taxpayer.--The term `taxpayer' includes any person or 
        entity (including a governmental entity) which is (or would be 
        but for this section) liable for any employment tax. Such term 
        includes any predecessor or successor to the taxpayer.
            ``(4) Substantially similar position.--The determination as 
        to whether an individual holds a position substantially similar 
        to a position held by another individual shall include 
        consideration of the relationship between the taxpayer and such 
        individuals.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out the purposes of this section.''
    (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. Limitations on retroactive 
                                        employment tax 
                                        reclassifications.''
    (c) Effective Date.--The amendments made by this section shall 
apply to all periods beginning after December 31, 2000.

SEC. 4. STATUTE OF LIMITATIONS ON ASSESSMENT OF EMPLOYMENT TAXES TO RUN 
              BEGINNING ON DATE CERTAIN INFORMATION RETURNS FILED.

    (a) In General.--Subsection (b) of section 6501 of the Internal 
Revenue Code of 1986 (relating to limitations on assessment and 
collection) is amended by adding at the end the following new 
paragraph:
            ``(5) Certain information returns to begin limitation 
        periods on employment taxes.--For purposes of this section, 
        if--
                    ``(A) a return is filed under section 6041 or 6041A 
                which specifies an amount of payments made to any 
                individual for services performed by such individual, 
                and
                    ``(B) such payments are not taken into account in 
                determining the taxes imposed by chapters 21 and 24,
        then, notwithstanding the last sentence of subsection (a), such 
        return shall be treated as the return referred to in subsection 
        (a) for purposes of determining the period of limitations with 
        respect to such taxes on such services.''
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made after December 31, 2000.
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