[Congressional Record Volume 148, Number 23 (Wednesday, March 6, 2002)]
[Extensions of Remarks]
[Pages E285-E286]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


 INTRODUCTION OF A BILL CONCERNING AGENT-DRIVERS AND COMMISSION-DRIVERS

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                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                        Wednesday, March 6, 2002

  Mr. CRANE. Mr. Speaker, I rise to announce the introduction of 
legislation that will clarify the rules for determining whether certain 
agent-drivers and commission-drivers are employees for the purpose of 
FICA and FUTA taxes. Under present law, the determination of whether a 
worker is an employee or an independent contractor for Federal tax 
purposes is determined under a common law facts and circumstances test. 
An employer-employee relationship generally exists if the person 
contracting for the services has the right to control not only the 
result to be accomplished by the

[[Page E286]]

services, but also the means and details by which the result is 
accomplished.
  Under a special statutory rule in section 3121(d)(3) of the Internal 
Revenue Code, agent-drivers and commission-drivers, who are independent 
contractors but are engaged in distributing meat, vegetable, bakery, 
beverage (other than milk) products, or laundry or dry-cleaning 
services, are treated as ``statutory employees'' solely for FICA and 
FUTA tax purposes if (1) their services are part of a continuing 
relationship with the person for whom services are performed; (2) the 
distributor's service contract contemplates that he or she will perform 
substantially all of the services personally; and (3) the distributor 
does not have a substantial investment in facilities used in 
performance of services, excluding facilities used for transportation.
  In a reversal of its long-standing ruling position, the IRS issued 
GCM 39853 in 1991, which held that investments in distribution rights 
and territories were akin to investments in the intangible assets of 
education, training, and experience. The legislative history to section 
3121(d)(3) had indicated that investments in education, training, and 
experience were not to be treated as investments in ``facilities.'' The 
GCM analogized an investment in a distribution right or territory to an 
investment in education, training, and experience, and accordingly 
concluded that an investment in a distribution right or territory was 
not to be considered an investment in ``facilities.'' This reversal has 
created much uncertainty, particularly in the baking industry, with 
respect to independent contractor drivers, who have made substantial 
investments in their businesses and have been paying Social Security 
taxes with their federal tax returns. While the IRS may contend that 
the GCM is no longer in force, I believe that it is being applied by 
various field agents.
  For example, at least four companies have endured prolonged audits in 
which the IRS challenged the status of bakery drivers based on the GCM. 
In each of those audits, the IRS agreed that bakery drivers were 
independent contractors under the common law test, but sought to treat 
them as statutory employees by ignoring their substantial investment in 
ownership of their routes.
  This is not only an unfair result, but has caused great confusion in 
the bakery industry. This amendment attempts to clear up that confusion 
and correct that inequity.
  An investment in a distribution night or territory specifically and 
directly relates to, facilitates, and is used in the performance of the 
distribution services in question. In contrast, education, training, 
and experience have a more general, attenuated, and indirect 
relationship to distribution services. Accordingly, my bill will 
clarify the statute to reflect Congressional intent that an investment 
in facilities can include an investment in a distribution night or 
territory, in contrast to an investment in education, training, and 
experience. Thus, an independent contractor driver who is engaged in 
distributing meat, vegetable, bakery, beverage (other than milk) 
products, or laundry or dry-cleaning services and who has a substantial 
investment in his or her distribution fight or territory will not be 
treated as a statutory employee.

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