[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2044 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 2044

 To provide procedures for the proper classification of employees and 
            independent contractors, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 12, 2007

   Mr. Obama (for himself, Mr. Durbin, Mr. Kennedy, and Mrs. Murray) 
introduced the following bill; which was read twice and referred to the 
                          Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To provide procedures for the proper classification of employees and 
            independent contractors, and for other purposes.

    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 Proper 
Classification Act of 2007''.

SEC. 2. REFORMATION OF SAFE HARBOR TO CLOSE ITS USE AS A TAX LOOPHOLE.

    (a) Allowance of Prospective Reclassifications.--
            (1) In general.--Section 530(a) of the Revenue Act of 1978, 
        as amended by section 269(c)(1) of the Tax Equity and Fiscal 
        Responsibility Act of 1982, is amended by adding at the end the 
        following new paragraph:
            ``(5) Allowance of reclassifications.--Paragraph (1) shall 
        not apply with respect to the treatment by a taxpayer of any 
        individual for employment tax purposes for any period beginning 
        after a determination by the Secretary of the Treasury that the 
        individual should be treated as an employee of the taxpayer.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to determinations made after the date of the 
        enactment of this Act.
    (b) Elimination of Ban on IRS Issuing Regulations or Revenue 
Rulings on Employee/independent Contractor Status.--
            (1) In general.--Section 530 of the Revenue Act of 1978, as 
        amended by section 269(c)(2) of the Tax Equity and Fiscal 
        Responsibility Act of 1982, section 1706(a) of the Tax Reform 
        Act of 1986, section 1122(a) of the Small Business Job 
        Protection Act of 1996, and section 864(a) of the Pension 
        Protection Act of 2006, is amended by striking subsection (b) 
        and by redesignating subsections (c), (d), (e), and (f) as 
        subsections (b), (c), (d), and (e), respectively.
            (2) Effective date.--The amendments made by this subsection 
        shall take effect on the date of the enactment of this Act.
    (c) Elimination of Ability of Employers To Rely on Industry 
Practice as a Basis for Claiming Safe Harbor.--
            (1) In general.--Section 530(a)(2) of the Revenue Act of 
        1978 is amended--
                    (A) by striking the semicolon at the end of 
                subparagraph (A) and inserting ``; or'',
                    (B) by striking the semicolon at the end of 
                subparagraph (B) and inserting a period, and
                    (C) by striking subparagraph (C).
            (2) Conforming amendments.--
                    (A) Section 530(d)(2) of the Revenue Act of 1978, 
                as redesignated by subsection (b)(1), is amended--
                            (i) by striking the comma at the end of 
                        subparagraph (A) and inserting a period,
                            (ii) by striking subparagraphs (B) and (C), 
                        and
                            (iii) by striking ``subsection (a)(2)'' in 
                        the matter preceding subparagraph (A) and all 
                        that follows through ``a taxpayer'' and 
                        inserting ``subsection (a)(2), a taxpayer''.
                    (B) Section 530(d)(4)(B) of such Act (as so 
                redesignated) is amended by striking ``subparagraph 
                (A), (B), or (C)'' and inserting ``subparagraph (A) or 
                (B)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to periods beginning after the date which is 60 
        days after the date of the enactment of this Act.

SEC. 3. REVIEW OF CLASSIFICATION STATUS.

    (a) In General.--Section 530 of the Revenue Act of 1978, as amended 
by section 2(b)(1), is amended by adding at the end the following new 
subsections:
    ``(f) Petitions for Review of Status.--
            ``(1) In general.--Under procedures established by the 
        Secretary of the Treasury not later than 90 days after the date 
        of the enactment of this subsection, any individual who 
        performs services for a taxpayer may petition (either 
        personally or through a designated representative or attorney) 
        for a determination of the individual's status for employment 
        tax purposes.
            ``(2) Administrative procedures.--The procedures 
        established under paragraph (1) shall provide for--
                    ``(A) a determination of status not later than 90 
                days after the filing of the petition with respect to 
                employment in any industry (such as the construction 
                industry) in which employment is transient, casual, or 
                seasonal,
                    ``(B) an administrative appeal of any determination 
                that an individual is not an employee of the taxpayer,
                    ``(C) the award of expenses, including expert 
                witness fees and reasonable attorneys' fees for the 
                individual against the taxpayer in any case in which 
                the individual achieves reclassification, and
                    ``(D) the assessment of such expenses against the 
                taxpayer by the Secretary of the Treasury on behalf of 
                such individual.
            ``(3) Prohibition against retaliation.--
                    ``(A) In general.--No taxpayer may discharge an 
                individual, refuse to contract with an individual, or 
                otherwise discriminate against an individual with 
                respect to compensation, terms, conditions, or 
                privileges of the services provided by the individual 
                because the individual (or any designated 
                representative or attorney on behalf of such 
                individual) filed a petition under paragraph (1).
                    ``(B) Enforcement action.--An individual who 
                alleges discharge or other discrimination by any 
                taxpayer in violation of subparagraph (A) may seek 
                relief under the procedures and remedies established 
                under section 42121 of title 49, United States Code.
                    ``(C) Rights retained by individual.--Nothing in 
                this paragraph shall be deemed to diminish the rights, 
                privileges, or remedies of any individual under any 
                Federal or State law, or under any collective 
                bargaining agreement.
    ``(g) Results of Misclassification Determinations.--In any case in 
which the Secretary of the Treasury determines that a taxpayer has 
misclassified an individual as not an employee for employment tax 
purposes, the Secretary of the Treasury shall--
            ``(1) if necessary, perform an employment tax audit of such 
        taxpayer,
            ``(2) inform the Department of Labor about such 
        misclassification,
            ``(3) notify the individual of any eligibility for the 
        refund of self-employment taxes under chapter 2 of the Internal 
        Revenue Code of 1986, and
            ``(4) apply the provisions of section 3509 of the Internal 
        Revenue Code of 1986 and direct the taxpayer to take 
        affirmative action to abate the violation.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 4. COORDINATION, ENFORCEMENT, AND COMPLIANCE.

    (a) Annual Reports.--The Secretary of the Treasury and the 
Secretary of Labor shall each issue annual reports on worker 
misclassification, including--
            (1) information on the number and type of enforcement 
        actions against, and audits of, employers who have 
        misclassified workers,
            (2) relief obtained as a result of such actions against, 
        and audits of, employers who have misclassified workers,
            (3) an overall estimate of the number of employers 
        misclassifying workers, the number of workers affected, and the 
        industries involved,
            (4) the impact of such misclassification on the Federal tax 
        system, and
            (5) the aggregate number of worker misclassification cases 
        with respect to which each Secretary has provided information 
        to the other Secretary and the outcome of actions taken, if 
        any, by each Secretary in each worker misclassification case 
        with respect to which the Secretary has received such 
        information.
As part of the annual report, the Secretary of the Treasury shall 
include information on the outcomes of the petitions filed under 
section 530(f) of the Revenue Act of 1978 and the Secretary of Labor 
shall include information on the outcomes of the complaints and actions 
described in subsection (b)(1)(A) and the investigations required in 
subsection (b)(1)(B).
    (b) Enforcement Activities.--
            (1) Department of labor.--
                    (A) Wage and hour enforcement.--The Secretary of 
                Labor shall identify and track complaints and 
                enforcement actions involving misclassification of 
                independent contractors for the purposes of the laws 
                enforced by the Wage and Hour Division of the 
                Department of Labor.
                    (B) Investigations of industries with worker 
                misclassifications.--The Secretary of Labor shall 
                conduct investigations of industries in which worker 
                misclassification is present as determined by 
                information (other than return information (as defined 
                in section 6103(b)(2)) received from the Secretary of 
                the Treasury and any other relevant information, 
                including reports from other Federal agencies and State 
                workforce, labor, and revenue agencies.
            (2) Authorization of appropriations.--There is authorized 
        such sums as are necessary for the Department of the Treasury 
        and the Department of Labor to carry out the purposes of the 
        provisions of, and amendments made by, this Act.
            (3) Information sharing.--The Secretary of the Treasury and 
        the Secretary of Labor shall exchange information on worker 
        misclassification cases and shall provide such information with 
        relevant State agencies. Upon receipt of such information, the 
        Secretary of the Treasury and the Secretary of Labor shall 
        determine whether further investigation is warranted in each 
        case.

SEC. 5. NOTICE TO EMPLOYEES AND INDEPENDENT CONTRACTORS AND MAINTENANCE 
              OF INFORMATION REGARDING INDEPENDENT CONTRACTORS.

    (a) Notice of Right To Challenge Classification.--The Secretary of 
Labor shall provide for the placement of information on any poster 
required under the Fair Labor Standards Act informing workers of their 
right to seek a status determination from the Internal Revenue Service.
    (b) Employer Notices to Independent Contractors.--Each employer 
shall notify any individual who is hired by the employer as an 
independent contractor within the scope of the employer's trade or 
business, at the time of hire, of the Federal tax obligations of an 
independent contractor, the labor and employment law protections that 
do not apply to independent contractors, and the right of such 
independent contractor to seek a status determination from the Internal 
Revenue Service. The Secretary of the Treasury and the Secretary of 
Labor shall develop model materials for providing such notice.
    (c) Maintenance of Information Regarding Independent Contractors.--
Each employer shall maintain for 3 years a list of the independent 
contractors retained by the employer, including name, address, Social 
Security number and Federal tax identification number, and shall make 
the records available for inspection during investigations.
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