HR 6653 IHCommentsClose CommentsPermalink

112th CONGRESSCommentsClose CommentsPermalink

2d SessionCommentsClose CommentsPermalink

H. R. 6653CommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to provide standards for determining employment status, and for other purposes.CommentsClose CommentsPermalink

IN THE HOUSE OF REPRESENTATIVESCommentsClose CommentsPermalink

December 12, 2012CommentsClose CommentsPermalink

Mr. PAULSEN introduced the following bill; which was referred to the Committee on Ways and MeansCommentsClose CommentsPermalink

A BILLCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to provide standards for determining employment status, and for other purposes.CommentsClose CommentsPermalink

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

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Independent Contractor Tax Fairness and Simplification Act of 2012’.CommentsClose CommentsPermalink

SEC. 2. FINDINGS.

The Congress finds the following:CommentsClose CommentsPermalink





(1) Independent contractors play a vital role in our economy.CommentsClose CommentsPermalink





(2) Independent contractors embrace the entrepreneurial spirit of our country and are free to seek economic opportunities that best fit their needs.CommentsClose CommentsPermalink





(3) Many small businesses start as an independent contractor and grow creating jobs for other individuals.CommentsClose CommentsPermalink





(4) The proper classification of individuals as employees and independent contractors is a significant responsibility for businesses.CommentsClose CommentsPermalink





(5) The rules and guidelines for determining whether an individual is an independent contractor or an employee lack clarity and consistency.CommentsClose CommentsPermalink





(6) It is in the best interests of taxpayers, the Federal Government and the business community to have fair and objective rules for determining who is an independent contractor and who is an employee.CommentsClose CommentsPermalink

SEC. 3. STANDARDS FOR DETERMINING EMPLOYMENT STATUS.

(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 sections:CommentsClose CommentsPermalink

‘SEC. 3511. CONTROVERSIES INVOLVING WHETHER INDIVIDUALS ARE EMPLOYEES FOR PURPOSES OF THE EMPLOYMENT TAXES.

‘(a) Termination of Certain Employment Tax Liability-CommentsClose CommentsPermalink





‘(1) IN GENERAL- If--CommentsClose CommentsPermalink





‘(A) for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period, andCommentsClose CommentsPermalink





‘(B) in the case of periods after December 31, 1978, all 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,CommentsClose CommentsPermalink





then, for purposes of applying such taxes for such period 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.CommentsClose CommentsPermalink





‘(2) STATUTORY STANDARDS PROVIDING ONE METHOD OF SATISFYING THE REQUIREMENTS OF PARAGRAPH (1)- For purposes of paragraph (1), 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--CommentsClose CommentsPermalink





‘(A) judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer,CommentsClose CommentsPermalink





‘(B) a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding positions substantially similar to the position held by this individual, orCommentsClose CommentsPermalink





‘(C) long-standing recognized practice of a significant segment of the industry in which such individual was engaged.CommentsClose CommentsPermalink





‘(3) CONSISTENCY REQUIRED IN THE CASE OF PRIOR TAX TREATMENT- Paragraph (1) shall not apply with respect to the treatment of any individual for employment tax purposes for any period ending after December 31, 2012, if the taxpayer (or a predecessor) has treated any individual holding a substantially similar position as an employee for purposes of the employment taxes for any period beginning after December 31, 2011.CommentsClose CommentsPermalink





‘(4) REFUND OR CREDIT OF OVERPAYMENT- If refund or credit of any overpayment of an employment tax resulting from the application of paragraph (1) is not barred on the date of the enactment of this section by any law or rule of law, the period for filing a claim for refund or credit of such overpayment (to the extent attributable to the application of paragraph (1)) shall not expire before the date 1 year after the date of the enactment of this section.CommentsClose CommentsPermalink





‘(b) Prohibition Against Regulations and Rulings on Employment Status- Except for purposes of providing Revenue Rulings with respect to section 3512, no regulation or Revenue Ruling shall be published on or after the date of the enactment of this section by the Department of the Treasury (including the Internal Revenue Service) with respect to the employment status of any individual for purposes of the employment taxes.CommentsClose CommentsPermalink





‘(c) Definitions- For purposes of this section--CommentsClose CommentsPermalink





‘(1) EMPLOYMENT TAX- The term ‘employment tax’ means any tax imposed by this subtitle.CommentsClose CommentsPermalink





‘(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).CommentsClose CommentsPermalink





‘(d) Exception- This section 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.CommentsClose CommentsPermalink





‘(e) Special Rules for Application of Section-CommentsClose CommentsPermalink





‘(1) 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.CommentsClose CommentsPermalink





‘(2) RULES RELATING TO STATUTORY STANDARDS- For purposes of subsection (a)(2)--CommentsClose CommentsPermalink





‘(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 employment tax purposes of 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,CommentsClose CommentsPermalink





‘(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), andCommentsClose CommentsPermalink





‘(C) in applying the long-standing recognized practice requirement of subparagraph (C) thereof--CommentsClose CommentsPermalink





‘(i) such requirement shall not be construed as requiring the practice to have continued for more than 10 years, andCommentsClose CommentsPermalink





‘(ii) a practice shall not fail to be treated as long-standing merely because such practice began after 1978.CommentsClose CommentsPermalink





‘(3) AVAILABILITY OF SAFE HARBORS- Nothing in this section shall be construed to provide that subsection (a) only applies where the individual involved is otherwise an employee of the taxpayer.CommentsClose CommentsPermalink





‘(4) BURDEN OF PROOF-CommentsClose CommentsPermalink





‘(A) IN GENERAL- If--CommentsClose CommentsPermalink





‘(i) a taxpayer establishes a prima facie case that it was reasonable not to treat an individual as an employee for purposes of this section, andCommentsClose CommentsPermalink





‘(ii) the taxpayer has fully cooperated with reasonable requests from the Secretary of the Treasury or his delegate,CommentsClose CommentsPermalink





then the burden of proof with respect to such treatment shall be on the Secretary.CommentsClose CommentsPermalink





‘(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 this section, subparagraph (A) shall only apply for purposes of determining whether the taxpayer meets the requirements of subparagraph (A), (B), or (C) of subsection (a)(2).CommentsClose CommentsPermalink





‘(5) PRESERVATION OF PRIOR PERIOD SAFE HARBOR- If--CommentsClose CommentsPermalink





‘(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 (a) for any prior period, andCommentsClose CommentsPermalink





‘(B) such individual is treated by the taxpayer as an employee for employment tax purposes for any subsequent period,CommentsClose CommentsPermalink





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.CommentsClose CommentsPermalink





‘(6) SUBSTANTIALLY SIMILAR POSITION- For purposes of this section, 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.CommentsClose CommentsPermalink

‘SEC. 3512. SAFE HARBOR STANDARDS FOR DETERMINING EMPLOYMENT STATUS.

‘(a) General Rule- For purposes of this title, if the requirements of subsection (c) are met with respect to any service performed by any service provider, then with respect to such service--CommentsClose CommentsPermalink





‘(1) the service provider shall not be treated as an employee,CommentsClose CommentsPermalink





‘(2) the service recipient shall not be treated as an employer,CommentsClose CommentsPermalink





‘(3) the payor shall not be treated as an employer, andCommentsClose CommentsPermalink





‘(4) compensation paid or received for such service shall not be treated as paid or received with respect to employment.CommentsClose CommentsPermalink





‘(b) Statutory Employees- Nothing in this section shall supersede the categories of employees described in section 3121(d)(3).CommentsClose CommentsPermalink





‘(c) Requirements-CommentsClose CommentsPermalink





‘(1) IN GENERAL- The requirements of this subsection are met if the requirements of paragraphs (2) and (3) are met.CommentsClose CommentsPermalink





‘(2) INVESTMENT OR INCOME FLUCTUATION- A service provider meets the requirements of this paragraph if the service provider--CommentsClose CommentsPermalink





‘(A) incurs significant financial responsibility for providing and maintaining the necessary equipment and facilities to perform the work outlined in their qualified agreement, andCommentsClose CommentsPermalink





‘(B) either--CommentsClose CommentsPermalink





‘(i) incurs unreimbursed expenses, orCommentsClose CommentsPermalink





‘(ii) risks income fluctuations because the remuneration with respect to such service is directly related to sales or other output rather than solely to the number of hours actually worked or expenses incurred.CommentsClose CommentsPermalink





‘(3) CONTROL OF TIME WORKED AND PERFORMANCE OF SERVICES- A service provider meets the requirements of this paragraph if the service provider--CommentsClose CommentsPermalink





‘(A) is compensated upon factors related to the work performed, such as a percentage of revenue or scheduled rates, and not solely on the basis of hours or time expended, andCommentsClose CommentsPermalink





‘(B) substantially controls the means and manner of performing the services, in conformance with regulatory requirements, the specifications of the service recipient or payor and any additional requirements specified in the qualified agreement.CommentsClose CommentsPermalink





‘(d) Definitions- For the purposes of this section--CommentsClose CommentsPermalink





‘(1) SERVICE PROVIDER- The term ‘service provider’ means any individual or entity that performs service for another company under a qualified agreement.CommentsClose CommentsPermalink





‘(2) SERVICE RECIPIENT- The term ‘service recipient’ means the person or entity for whom the service provider performs such service.CommentsClose CommentsPermalink





‘(3) PAYOR- The term ‘payor’ means the person or entity that pays the service provider for the performance of such service in the event that the service recipients do not pay the service provider.CommentsClose CommentsPermalink





‘(4) EXCEPTIONS- The terms ‘service recipient’ and ‘payor’ do not include any entity which is owned in whole or in part by the service provider.CommentsClose CommentsPermalink





‘(5) QUALIFIED AGREEMENT- The term ‘qualified agreement’ means a written contract between a service provider and the service recipient for whom the services are performed or the payor that provides that the service provider--CommentsClose CommentsPermalink





‘(A) will not be treated as an employee with respect to such services for the purpose of this title, andCommentsClose CommentsPermalink





‘(B) has been informed of the Federal tax obligations resulting from such treatment.’.CommentsClose CommentsPermalink





(b) Conforming Amendments-CommentsClose CommentsPermalink





(1) Section 530 of the Revenue Act of 1978 is hereby repealed.CommentsClose CommentsPermalink





(2) The table of sections for chapter 25 of such Code is amended by adding at the end the following new items:CommentsClose CommentsPermalink





‘Sec. 3511. Controversies involving whether individuals are employees for purposes of the employment taxes.CommentsClose CommentsPermalink





‘Sec. 3512. Safe harbor standards for determining employment status.’.CommentsClose CommentsPermalink





(c) Effective Dates-CommentsClose CommentsPermalink





(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this Act shall take effect beginning on the first day of the first calendar year beginning after the date of enactment of this Act.CommentsClose CommentsPermalink





(2) REPEAL OF SECTION 530- The amendment made by subsection (b)(1) shall apply to periods in calendar years beginning after the date of enactment of this Act.CommentsClose CommentsPermalink