[Congressional Record Volume 141, Number 109 (Friday, June 30, 1995)]
[Extensions of Remarks]
[Pages E1374-E1375]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


 THE INDEPENDENT CONTRACTOR TAX SIMPLIFICATION ACT: FAIRNESS FOR SMALL 
                         BUSINESSES AND WORKERS

                                 ______


                          HON. JON CHRISTENSEN

                              of nebraska

                    in the house of representatives

                         Friday, June 30, 1995
  Mr. CHRISTENSEN. Mr. Speaker, today I am introducing the Independent 
Contractor Tax Simplification Act. My bill, which has 100 original 
cosponsors, is designed to remedy the concern which received the most 
votes of any issue at the White House Conference on Small Business 
earlier this month. In a nut shell, the bill clarifies the difference 
between contractors and employees in Federal tax law.
  Today, the IRS uses a 20-factor test to distinguish an independent 
contractor from a full-time employee. This archaic policy has caused 
small businesses endless problems. First of all, the test is confusing 
enough to foil good-faith efforts to put individuals in one category or 
the other. Second, the confusion gives the IRS the power to force whole 
classes of workers from one category to the other. It has happened to 
truckers, to paper-delivery people, to travel agents, to hard-working 
people from every walk of life.
  Mentioning the tortured distinction between employees and contractors 
is a sure-fire way to infuriate Main Street business people. They are 
the ones who can't afford the fancy lawyers and CPA's it takes to out-
guess the IRS. And when you're in a gray area, you're in trouble no 
matter how much you spend--because the IRS can decide differently on 
two seemingly identical cases. This has wreaked havoc on businesses 
across the country.
  For these and other reasons, clarifying tangled Federal tax 
provisions with respect to the distinction between full-time employee 
and independent contractor status has emerged as the top priority of 
the Nation's small business community. As I mentioned, this month the 
White House Conference on Small Business gave the most votes of any 
issue to the independent contractor issue. Think about that: of the 
hundreds of items that the small business community needs, this single 
issue emerged as the first order of business for policy makers. It sent 
me a strong message when the Nebraska delegation of the Conference told 
me this topped their list, as well.
  My bill will substitute a new, far simpler set of criteria for 
determining who is not an employee--a new approach to an old problem. 
Today's law paints a dizzying portrait of every possible factor which 
would make someone an 

[[Page E1375]]
employee. This bill would instead sketch clearly and starkly who would 
qualify as an independent contractor for tax purposes. By defining the 
restricted class--contractors--instead of the general class--
employees--my bill avoids laying out a labyrinth of rules. Once the 
distinction is clarified, the problem should all but disappear.
  I plan to press this legislation in Ways and Means and hope Chairman 
Archer will bring it up as soon as possible. And let me just say this 
too: I believe that with the groundswell of support this bill is 
already getting, including the backing of seven committee chairmen and 
14 Ways and Means members, we will pass it in this Congress.
                               H.R. 1972

       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 1995''.

     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 subtitle, and 
     notwithstanding any provision of this subtitle 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, and
       ``(3) the payor shall not be treated as an employer.
       ``(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 and/or 
     training,
       ``(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
       ``(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 in the service 
     recipient's place of business, or
       ``(C) pays a fair market rent for use of the service 
     recipient's place of business; 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) 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) 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 after December 31, 1995.
     

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