[Congressional Record Volume 144, Number 56 (Thursday, May 7, 1998)]
[Extensions of Remarks]
[Page E790]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               THE TECHNICAL WORKERS FAIRNESS ACT OF 1998

                                 ______
                                 

                    HON. JUANITA MILLENDER-McDONALD

                             of california

                    in the house of representatives

                         Thursday, May 7, 1998

  Ms. MILLENDER-McDONALD. Mr. Speaker, I rise today to introduce the 
Technical Workers Fairness Act of 1998. This bill, and its companion 
bill, S. 1924 offered by Sens. Connie Mack (R-FL) and John Kerry (D-
MA), would repeal Section 1706 of the 1986 Tax Reform Act in order to 
provide the necessary tax relief for the technical services industry.
  Since the passage of the 1986 Tax Reform Act, Section 1706 added a 
new subsection (d) to Section 530 of the Revenue Act of 1978. For those 
businesses classified as ``technical services firms,'' Section 1706 
removed the Section 530 employment tax safe havens that otherwise apply 
to all other types of businesses that use the services of independent 
contractors. These Section 530 safe havens were enacted by Congress in 
1978 to protect business taxpayers, especially small businesses, from 
arbitrary IRS decisions interpreting the common law employment test in 
employment tax audits.
  Yet Section 1706 singles out one group of taxpayers. As a result of 
Section 1706, technical services firms must prove to the IRS that their 
hired workers meet the qualifications as independent contractors under 
the centuries-old common law employment test. Even if the firm can 
prove that the employment of the independent contractor is consistent 
with industry practice or a relevant court ruling, all of which 
constitutes a ``safe haven'' under Section 530--none of these factors 
are relevant because of the enactment of Section 1706.
  The harm caused to the technical services industry and its employees 
is real. There is no rationale as to why a business could be severely 
penalized by the IRS and forced to pay employment taxes despite the 
fact that the contractors have already paid these same taxes in full. 
Unfortunately, some IRS auditors have used Section 1706 to claim that 
even incorporated independent contractors are not legitimate. Faced 
with the obstacle of meeting the requirements of the common law 
employment test to prove a worker's status to the IRS, many technical 
services firms will simply refuse to hire any independent contractors 
in order to avoid tempting an IRS audit.
  In 1991, the Treasury Department issued a 100-page study of Section 
1706, as required by Congress. The Study found that tax compliance is 
actually better-than-average among technical services workers compared 
to other contractors in other industries. In addition, Section 1706 is 
the only occasion since the enactment of Section 530 that Congress has 
ever cut back on the safe haven protections in Section 530. 
Furthermore, in 1996, Congress expanded the Section 530 protection and 
shifted the burden from the taxpayer to the IRS.
  In light of the unfairness of Section 1706, I believe it is time to 
move for its repeal so that technical services firms will be allowed to 
compete on a level playing field. As the Ranking Member of the Tax, 
Finance and Exports subcommittee, I am pleased to take these steps to 
remove this discriminatory provision.

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