[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 327 Introduced in Senate (IS)]







109th CONGRESS
  1st Session
                                 S. 327

To amend the Internal Revenue Code of 1986 to expand the tip credit to 
            certain employers and to promote tax compliance.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 9, 2005

 Mr. Santorum (for himself and Mrs. Lincoln) 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 expand the tip credit to 
            certain employers and to promote tax compliance.

    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 ``Small Business Tax Equalization and 
Compliance Act of 2005''.

SEC. 2. EXPANSION OF CREDIT FOR PORTION OF SOCIAL SECURITY TAXES PAID 
              WITH RESPECT TO EMPLOYEE TIPS.

    (a) Expansion of Credit to Other Lines of Business.--Paragraph (2) 
of section 45B(b) of the Internal Revenue Code of 1986 is amended to 
read as follows:
            ``(2) Application only to certain lines of business.--In 
        applying paragraph (1), there shall be taken into account only 
        tips received from customers or clients in connection with--
                    ``(A) the providing, delivering, or serving of food 
                or beverages for consumption if the tipping of 
                employees delivering or serving food or beverages by 
                customers is customary, or
                    ``(B) the providing of any cosmetology service for 
                customers or clients at a facility licensed to provide 
                such service if the tipping of employees providing such 
                service is customary.''.
    (b) Definition of Cosmetology Service.--Section 45B of such Code is 
amended by redesignating subsections (c) and (d) as subsections (d) and 
(e), respectively, and by inserting after subsection (b) the following 
new subsection:
    ``(c) Cosmetology Service.--For purposes of this section, the term 
`cosmetology service' means--
            ``(1) hairdressing,
            ``(2) haircutting,
            ``(3) manicures and pedicures,
            ``(4) body waxing, facials, mud packs, wraps, and other 
        similar skin treatments, and
            ``(5) any other beauty related service provided at a 
        facility at which a majority of the services provided (as 
        determined on the basis of gross revenue) are described in 
        paragraphs (1) through (4).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to tips received for services performed after December 31, 2004.

SEC. 3. INFORMATION REPORTING AND TAXPAYER EDUCATION FOR PROVIDERS OF 
              COSMETOLOGY SERVICES.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 of the Internal Revenue Code of 1986 is amended by inserting after 
section 6050T the following new section:

``SEC. 6050U. RETURNS RELATING TO COSMETOLOGY SERVICES AND INFORMATION 
              TO BE PROVIDED TO COSMETOLOGISTS.

    ``(a) In General.--Every person (referred to in this section as a 
`reporting person') who--
            ``(1) employs 1 or more cosmetologists to provide any 
        cosmetology service,
            ``(2) rents a chair to 1 or more cosmetologists to provide 
        any cosmetology service on at least 5 calendar days during a 
        calendar year, or
            ``(3) in connection with its trade or business or rental 
        activity, otherwise receives compensation from, or pays 
        compensation to, 1 or more cosmetologists for the right to 
        provide cosmetology services to, or for cosmetology services 
        provided to, third-party patrons, shall comply with the return 
        requirements of subsection (b) and the taxpayer education 
        requirements of subsection (c).
    ``(b) Return Requirements.--The return requirements of this 
subsection are met by a reporting person if the requirements of each of 
the following paragraphs applicable to such person are met.
            ``(1) Employees.--In the case of a reporting person who 
        employs 1 or more cosmetologists to provide cosmetology 
        services, the requirements of this paragraph are met if such 
        person meets the requirements of sections 6051 (relating to 
        receipts for employees) and 6053(b) (relating to tip reporting) 
        with respect to each such employee.
            ``(2) Independent contractors.--In the case of a reporting 
        person who pays compensation to 1 or more cosmetologists (other 
        than as employees) for cosmetology services provided to third-
        party patrons, the requirements of this paragraph are met if 
        such person meets the applicable requirements of section 6041 
        (relating to returns filed by persons making payments of $600 
        or more in the course of a trade or business), section 6041A 
        (relating to returns to be filed by service-recipients who pay 
        more than $600 in a calendar year for services from a service 
        provider), and each other provision of this subpart that may be 
        applicable to such compensation.
            ``(3) Chair renters.--
                    ``(A) In general.--In the case of a reporting 
                person who receives rent or other fees or compensation 
                from 1 or more cosmetologists for use of a chair or for 
                rights to provide any cosmetology service at a salon or 
                other similar facility for more than 5 days in a 
                calendar year, the requirements of this paragraph are 
                met if such person--
                            ``(i) makes a return, according to the 
                        forms or regulations prescribed by the 
                        Secretary, setting forth the name, address, and 
                        TIN of each such cosmetologist and the amount 
                        received from each such cosmetologist, and
                            ``(ii) furnishes to each cosmetologist 
                        whose name is required to be set forth on such 
                        return a written statement showing--
                                    ``(I) the name, address, and phone 
                                number of the information contact of 
                                the reporting person,
                                    ``(II) the amount received from 
                                such cosmetologist, and
                                    ``(III) a statement informing such 
                                cosmetologist that (as required by this 
                                section), the reporting person has 
                                advised the Internal Revenue Service 
                                that the cosmetologist provided 
                                cosmetology services during the 
                                calendar year to which the statement 
                                relates.
                    ``(B) Method and time for providing statement.--The 
                written statement required by clause (ii) of 
                subparagraph (A) shall be furnished (either in person 
                or by first-class mail which includes adequate notice 
                that the statement or information is enclosed) to the 
                person on or before January 31 of the year following 
                the calendar year for which the return under clause (i) 
                of subparagraph (A) is to be made.
    ``(c) Taxpayer Education Requirements.--In the case of a reporting 
person who is required to provide a statement pursuant to subsection 
(b), the requirements of this subsection are met if such person 
provides to each such cosmetologist annually a publication, as 
designated by the Secretary, describing--
            ``(1) in the case of an employee, the tax and tip reporting 
        obligations of employees, and
            ``(2) in the case of a cosmetologist who is not an employee 
        of the reporting person, the tax obligations of independent 
        contractors or proprietorships.
The publications shall be furnished either in person or by first-class 
mail which includes adequate notice that the publication is enclosed.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Cosmetologist.--
                    ``(A) In general.--The term `cosmetologist' means 
                an individual who provides any cosmetology service.
                    ``(B) Anti-avoidance rule.--The Secretary may by 
                regulation or ruling expand the term `cosmetologist' to 
                include any entity or arrangement if the Secretary 
                determines that entities are being formed to circumvent 
                the reporting requirements of this section.
            ``(2) Cosmetology service.--The term `cosmetology service' 
        has the meaning given to such term by section 45B(c).
            ``(3) Chair.--The term `chair' includes a chair, booth, or 
        other furniture or equipment from which an individual provides 
        a cosmetology service (determined without regard to whether the 
        cosmetologist is entitled to use a specific chair, booth, or 
        other similar furniture or equipment or has an exclusive right 
        to use any such chair, booth, or other similar furniture or 
        equipment).
    ``(e) Exceptions for Certain Employees.--Subsection (c) shall not 
apply to a reporting person with respect to an employee who is employed 
in a capacity for which tipping (or sharing tips) is not customary.''.
    (b) Conforming Amendments.--
            (1) Section 6724(d)(1)(B) of such Code (relating to the 
        definition of information returns) is amended by redesignating 
        clauses (xiii) through (xviii) as clauses (xiv) through (xix), 
        respectively and by inserting after clause (xii) the following 
        new clause:
                            ``(xiii) section 6050U(a) (relating to 
                        returns by cosmetology service providers).''.
            (2) Section 6724(d)(2) of such Code is amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (AA),
                    (B) by striking the period at the end of 
                subparagraph (BB) and inserting ``, or'', and
                    (C) by inserting after subparagraph (BB) the 
                following new subparagraph:
                    ``(CC) subsections (b)(3)(A)(ii) and (c) of section 
                6050U (relating to cosmetology service providers) even 
                if the recipient is not a payee.''.
            (3) The table of sections for subpart B of part III of 
        subchapter A of chapter 61 of the Internal Revenue Code of 1986 
        is amended by adding after section 6050T the following new 
        item:

``Sec. 6050U. Returns relating to cosmetology services and information 
                            to be provided to cosmetologists.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to calendar years after 2004.
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