[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 2252 Introduced in Senate (IS)]

<DOC>






114th CONGRESS
  1st Session
                                S. 2252

 To amend the Internal Revenue Code of 1986 to permit the Secretary of 
 the Treasury to issue prospective guidance clarifying the employment 
 status of individuals for purposes of employment taxes and to prevent 
      retroactive assessments with respect to such clarifications.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            November 5, 2015

Mr. Brown (for himself, Mr. Durbin, Mr. Cardin, Mr. Casey, Mr. Franken, 
 and Mr. Sanders) 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 permit the Secretary of 
 the Treasury to issue prospective guidance clarifying the employment 
 status of individuals for purposes of employment taxes and to prevent 
      retroactive assessments with respect to such clarifications.

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

SECTION 1. SHORT TITLE; FINDINGS; PURPOSES.

    (a) Short Title.--This Act may be cited as the ``Fair Playing Field 
Act of 2015''.
    (b) Findings.--Congress makes the following findings:
            (1) In 1978, Congress was concerned that lack of clarity as 
        to the proper classification of some workers, increased IRS 
        enforcement activity, and retroactive application by IRS of 
        interpretations that were arguably new had caused hardships for 
        some small businesses and other taxpayers and confusion as to 
        the applicable rules.
            (2) To allow time to develop a comprehensive approach to 
        the problem, Congress enacted section 530 of the Revenue Act of 
        1978 as an interim measure protecting taxpayers from liability 
        for misclassification if the taxpayer has a reasonable basis 
        for classifying a worker as an independent contractor and meets 
        certain other conditions. In addition, the Act prohibited the 
        Secretary of the Treasury from publishing regulations or 
        revenue rulings on workers' employment tax status pending the 
        expected near-term enactment of clarifying legislation.
            (3) During the ensuing 33 years, Congress made section 530 
        of the Revenue Act of 1978 permanent; however, changes in 
        working relationships and the continued prohibition on new 
        guidance have increased the uncertainty as to the proper 
        classification of workers.
            (4) Many workers are properly classified as independent 
        contractors. In other instances, workers who are employees are 
        being treated as independent contractors. Such 
        misclassification for tax purposes contributes to inequities in 
        the competitive positions of businesses and to the Federal and 
        State tax gap, and may also result in misclassification for 
        other purposes, such as denial of unemployment benefits, 
        workplace health and safety protections, and retirement or 
        other benefits or protections available to employees.
            (5) Workers, businesses, and other taxpayers will benefit 
        from clear guidance regarding employment tax status. In the 
        interest of fairness and in view of many service recipients' 
        reliance on current section 530, such guidance should apply 
        only prospectively.
    (c) Purposes.--The purposes of this Act are to permit the Secretary 
of the Treasury to provide guidance allowing workers and businesses to 
clearly understand the proper Federal tax classification of workers and 
to provide relief allowing an orderly transition to new rules designed 
to increase certainty and uniformity of treatment.

SEC. 2. AUTHORITY TO ISSUE GUIDANCE CLARIFYING EMPLOYMENT STATUS FOR 
              PURPOSES OF EMPLOYMENT TAXES.

    (a) In General.--Chapter 25 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new section:

``SEC. 3512. AUTHORITY TO ISSUE GUIDANCE CLARIFYING EMPLOYMENT STATUS.

    ``(a) In General.--The Secretary shall issue such regulations or 
other guidance as the Secretary determines to be necessary or 
appropriate to clarify the proper employment status of individuals for 
purposes of any tax imposed by this subtitle.
    ``(b) Prohibition on Retroactive Assessments.--
            ``(1) In general.--Except as provided in paragraph (2), 
        if--
                    ``(A) for purposes of any tax imposed by this 
                subtitle, the taxpayer did not treat an individual as 
                an employee for any period before the reclassification 
                date with respect to such individual, and
                    ``(B) in the case of periods after December 31, 
                1978, and before such reclassification date, all 
                Federal tax returns (including information returns) 
                required to be filed by the taxpayer with respect to 
                such individual for such period are filed on a basis 
                consistent with the taxpayer's treatment of such 
                individual as not being an employee,
        then, for purposes of applying such taxes for such period 
        before such reclassification date with respect to the taxpayer, 
        the individual shall be deemed not to be an employee unless the 
        taxpayer had no reasonable basis for not treating such 
        individual as an employee.
            ``(2) Professional services.--
                    ``(A) In general.--In the case of an individual who 
                performs professional services, if--
                            ``(i) for purposes of any tax imposed by 
                        this subtitle, the taxpayer did not treat the 
                        individual as an employee for any period, and
                            ``(ii) in the case of periods after 
                        December 31, 1978, all Federal tax returns 
                        (including information returns) required to be 
                        filed by the taxpayer with respect to such 
                        individual for such period are filed on a basis 
                        consistent with the taxpayer's treatment of 
                        such individual as not being an employee,
                then, for purposes of applying such taxes for such 
                period with respect to the taxpayer, the individual 
                shall be deemed not be an employee unless the taxpayer 
                had no reasonable basis for not treating such 
                individual as an employee. For purposes of this 
                subparagraph, professional services means services 
                performed in the fields of health, law, engineering, 
                architecture, accounting, actuarial science, 
                consulting, or financial services.
                    ``(B) Application to full-time life insurance 
                salesmen.--For purposes of this subtitle (with the 
                exception of chapter 21), an individual shall not 
                excluded from the application of subparagraph (A) due 
                solely to treatment of such individual by the taxpayer 
                as an employee, including for purposes of tax returns, 
                to the extent required under section 3121(d)(3)(B).
            ``(3) Statutory standards providing one method of 
        satisfying the requirements of paragraphs (1) and (2).--For 
        purposes of paragraphs (1) and (2), a taxpayer shall in any 
        case be treated as having a reasonable basis for not treating 
        an individual as an employee for a period if the taxpayer's 
        treatment of such individual for such period was in reasonable 
        reliance on any of the following:
                    ``(A) Judicial precedent, published rulings, 
                technical advice with respect to the taxpayer, or a 
                letter ruling to the taxpayer.
                    ``(B) A past Internal Revenue Service audit of the 
                taxpayer in which there was no assessment attributable 
                to the treatment (for purposes of any tax imposed by 
                this subtitle) of the individuals holding positions 
                substantially similar to the position held by such 
                individual.
                    ``(C) Long-standing recognized practice of a 
                significant segment of the industry in which such 
                individual was engaged.
            ``(4) Consistency required in the case of prior tax 
        treatment.--Paragraph (1) shall not apply with respect to the 
        treatment of any individual (hereafter in this paragraph 
        referred to as the reclassified individual) for purposes of any 
        tax imposed by this subtitle for any period ending after 
        December 31, 1978, if the taxpayer (or a predecessor) has 
        treated any individual holding a substantially similar position 
        as an employee for purposes of any tax imposed by this subtitle 
        for any period beginning after December 31, 1977, and ending 
        before the reclassification date with respect to such 
        reclassified individual.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Reclassification date.--
                    ``(A) In general.--The term `reclassification date' 
                means, with respect to any individual, the earlier of--
                            ``(i) the first day of the first calendar 
                        quarter beginning more than 180 days after the 
                        date of an employee classification 
                        determination with respect to such individual, 
                        or
                            ``(ii) the effective date of the first 
                        applicable final regulation issued by the 
                        Secretary under subsection (a) with respect to 
                        such individual (or, if later, the first day of 
                        the first calendar quarter beginning more than 
                        180 days after such regulation is issued).
                    ``(B) Employee classification determination.--The 
                term `employee classification determination' means, 
                with respect to any individual, a determination by the 
                Secretary, in connection with an audit of the taxpayer 
                which is described in section 7436 and which commences 
                after the date which is 1 year after the date of the 
                enactment of this section, that a class of individuals 
                holding positions with such taxpayer which are 
                substantially similar to the position held by such 
                individual are employees.
                    ``(C) First applicable final regulation.--The term 
                `first applicable final regulation' means, with respect 
                to any individual, the first final regulation (or other 
                guidance of general applicability) which sets forth the 
                factors for determining the employment status of a 
                class of individuals holding positions substantially 
                similar to the position held by such individual.
            ``(2) Employment status.--The term `employment status' 
        means the status of an individual, under the usual common law 
        rules applicable in determining the employer-employee 
        relationship, as an employee or as an independent contractor 
        (or other individual who is not an employee).
    ``(d) Continuation of Certain Special Rules.--
            ``(1) Exception for certain skilled workers.--Subsection 
        (b) shall not apply in the case of an individual who, pursuant 
        to an arrangement between the taxpayer and another person, 
        provides services for such other person as an engineer, 
        designer, drafter, computer programmer, systems analyst, or 
        other similarly skilled worker engaged in a similar line of 
        work.
            ``(2) Notice of availability of section.--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.
            ``(3) Rules relating to statutory standards.--For purposes 
        of subsection (b)(3)--
                    ``(A) a taxpayer may not rely on an audit commenced 
                after December 31, 1996, for purposes of subparagraph 
                (B) thereof unless such audit included an examination 
                for purposes of any tax imposed by this subtitle 
                whether the individual involved (or any individual 
                holding a position substantially similar to the 
                position held by the individual involved) should be 
                treated as an employee of the taxpayer,
                    ``(B) in no event shall the significant segment 
                requirement of subparagraph (C) thereof be construed to 
                require a reasonable showing of the practice of more 
                than 25 percent of the industry (determined by not 
                taking into account the taxpayer), and
                    ``(C) in applying the long-standing recognized 
                practice requirement of subparagraph (C) thereof--
                            ``(i) such requirement shall not be 
                        construed as requiring the practice to have 
                        continued for more than 10 years, and
                            ``(ii) a practice shall not fail to be 
                        treated as long-standing merely because such 
                        practice began after 1978.
            ``(4) Availability of safe harbors.--Nothing in this 
        section shall be construed to provide that subsection (b) only 
        applies where the individual involved is otherwise an employee 
        of the taxpayer.
            ``(5) Burden of proof.--
                    ``(A) In general.--If--
                            ``(i) a taxpayer establishes a prima facie 
                        case that it was reasonable not to treat an 
                        individual as an employee for purposes of 
                        subsection (b), and
                            ``(ii) the taxpayer has fully cooperated 
                        with reasonable requests from the Secretary,
                then the burden of proof with respect to such treatment 
                shall be on the Secretary.
                    ``(B) Exception for other reasonable basis.--In the 
                case of any issue involving whether the taxpayer had a 
                reasonable basis not to treat an individual as an 
                employee for purposes of subsection (b), subparagraph 
                (A) shall only apply for purposes of determining 
                whether the taxpayer meets the requirements of 
                subparagraph (A), (B), or (C) of subsection (b)(3).
            ``(6) Preservation of prior period safe harbor.--If--
                    ``(A) an individual would (but for the treatment 
                referred to in subparagraph (B)) be deemed not to be an 
                employee of the taxpayer under subsection (b) for any 
                prior period, and
                    ``(B) such individual is treated by the taxpayer as 
                an employee for purposes of the taxes imposed by this 
                subtitle for any subsequent period,
        then, for purposes of applying such taxes for such prior period 
        with respect to the taxpayer, the individual shall be deemed 
        not to be an employee.
            ``(7) Substantially similar position.--For purposes of 
        subsection (b) and this subsection, 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.
            ``(8) Treatment of test room supervisors and proctors who 
        assist in the administration of college entrance and placement 
        exams.--
                    ``(A) In general.--In the case of an individual 
                described in subparagraph (B) who is providing services 
                as a test proctor or room supervisor by assisting in 
                the administration of college entrance or placement 
                examinations, subsection (b) shall be applied to such 
                services performed after December 31, 2006 (and 
                remuneration paid for such services), without regard to 
                paragraph (4) thereof.
                    ``(B) Applicability.--An individual is described in 
                this subparagraph if the individual--
                            ``(i) is providing the services described 
                        in subsection (b) to an organization described 
                        in section 501(c) and exempt from tax under 
                        section 501(a), and
                            ``(ii) is not otherwise treated as an 
                        employee of such organization for purposes of 
                        this subtitle.
            ``(9) Treatment of securities broker dealers.--In 
        determining for purposes of this title whether a registered 
        representative of a securities broker-dealer is an employee (as 
        defined in section 3121(d)), no weight shall be given to 
        instructions from the service recipient which are imposed only 
        in compliance with investor protection standards imposed by the 
        Federal Government, any State government, or a governing body 
        pursuant to a delegation by a Federal or State agency.
    ``(e) Statements to Independent Contractors.--
            ``(1) In general.--Each person who contracts for the 
        services of an independent contractor on a regular and ongoing 
        basis, within the scope of such person's trade or business, 
        shall provide a written statement to such independent 
        contractor notifying such independent contractor 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.
            ``(2) Independent contractor.--For purposes of this 
        subsection, the term `independent contractor' means any 
        individual who is not treated as an employee by the person 
        receiving the services referred to in paragraph (1).
            ``(3) Timing of statement.--Except as otherwise provided by 
        the Secretary, the statement required under paragraph (1) shall 
        be provided within a reasonable period before or after entering 
        into the arrangement for services referred to in paragraph (1).
            ``(4) Development of model statement.--The Secretary shall 
        develop model materials for providing the statement required 
        under paragraph (1).''.
    (b) Reduced Penalty Not Applicable in Cases of Noncompliance With 
Guidance Without Reasonable Basis.--Subsection (c) of section 3509 of 
the Internal Revenue Code of 1986 is amended--
            (1) by striking ``if such liability'' and inserting ``if--
            ``(1) such liability'', and
            (2) by striking the period at the end and inserting ``, or
            ``(2) such liability relates to an individual who is 
        treated as an employee under regulations or other guidance 
        issued by the Secretary under section 3512(a) and the taxpayer 
        lacks a reasonable basis for treating the individual as other 
        than an employee.
In the case of a taxpayer which has received a final written 
determination from the Internal Revenue Service holding that the 
individual referred to in paragraph (2) (or another individual who 
holds a position with the taxpayer substantially similar to the 
position held by such individual) is an employee, such taxpayer shall 
be treated for purposes of paragraph (2) as lacking a reasonable basis 
for treating such individual as other than an employee with respect to 
periods beginning on and after the first day of the first calendar 
quarter beginning more than 180 days after the date of such written 
determination unless the taxpayer establishes by clear and convincing 
evidence that the taxpayer has a reasonable basis for such 
treatment.''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 6724(d) of the Internal 
        Revenue Code of 1986 is amended by striking ``or'' at the end 
        of subparagraph (GG), by striking the period at the end of 
        subparagraph (HH) and inserting ``, or'', and by inserting 
        after subparagraph (HH) the following new subparagraph:
                    ``(II) section 3512(e) (relating to statements to 
                independent contractors).''.
            (2) Paragraph (2) of section 7436(a) of such Code is 
        amended by striking ``subsection (a) of section 530 of the 
        Revenue Act of 1978'' and inserting ``section 3512(b)''.
            (3) The table of sections for chapter 25 of such Code is 
        amended by adding at the end the following new item:

``Sec. 3512. Authority to issue guidance clarifying employment 
                            status.''.
    (d) Termination of Section 530 of the Revenue Act of 1978.--The 
Revenue Act of 1978 is amended by striking section 530.
    (e) Reports on Worker Misclassification.--Beginning with the first 
fiscal year beginning after the date the first regulation or other 
guidance is issued for public comment under section 3512(a) of the 
Internal Revenue Code of 1986 (as added by this section), the 
Commissioner of the Internal Revenue Service shall issue the following 
reports:
            (1) A report each fiscal year on worker classification 
        which shall include the total number of examinations of 
        employers initiated because of suspected worker classification 
        issues, the total number of examinations that included 
        determinations on worker classification issues, the amount of 
        additional tax liabilities associated with worker 
        classification enforcement actions, the number of workers 
        reclassified as a result of these actions, the number of 
        requests for Determination of Worker Status (Form SS-8), and 
        technical guidance on how to understand the data provided in 
        the report.
            (2) A report each fiscal year in which new statistically 
        valid data is compiled and interpreted on worker 
        classification, prepared on the basis of information gathered 
        during an Employment Tax Study conducted by the National 
        Research Program (NRP) of the Internal Revenue Service. Such 
        report shall provide statistical estimates of the number of 
        employers misclassifying workers, the number of workers 
        misclassified, the industries involved, data interpretations 
        and conclusions, and a description of the impact of improper 
        worker classification on the employment tax gap.
    (f) Termination of Section 921 of the Taxpayer Relief Act of 
1997.--The Taxpayer Relief Act of 1997 is amended by striking section 
921.
    (g) Effective Dates.--
            (1) Delayed effective date of regulations and guidance.--
        Any regulation or other guidance issued under section 3512(a) 
        of the Internal Revenue Code of 1986, as added by this section, 
        shall not apply to services rendered before the date which is 1 
        year after the date of the enactment of this Act.
            (2) Authority to issue regulations and guidance 
        immediately.--So much of the amendment made by subsection (d) 
        as relates to subsection (b) of section 530 of the Revenue Act 
        of 1978 shall take effect on the date of the enactment of this 
        Act.
            (3) Delayed termination of remainder of section 530 of the 
        revenue act of 1978.--Except as provided in paragraph (2), the 
        amendment made by subsection (d) shall apply to services 
        rendered on or after the date which is 1 year after the date of 
        the enactment of this Act.
            (4) Statements to independent contractors.--Subsection (e) 
        of section 3512 of the Internal Revenue Code of 1986, as added 
        by this section, and the amendments made by subsection (c)(1) 
        of this section shall apply to arrangements for services 
        entered into after December 31, 2015.
            (5) Application of reduced penalty.--The amendments made by 
        subsection (b) shall apply to any calendar year beginning after 
        the date of the enactment of this Act.
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