I 

112TH CONGRESS 

2D SESSION H. R. 4123 

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 HOUSE OF REPRESENTATIVES 

MARCH 1, 2012 

Mr. MCDERMOTT (for himself, Mr. ACKERMAN, Mr. MCGOVERN, Mr. PASTOR

of Arizona, Mr. STARK, Ms. SUTTON, Mr. TIERNEY, Mr. KIND, Ms. 

DELAURO, Mr. RANGEL, Ms. CHU, Mr. LEVIN, Mr. BRADY of Pennsylvania, Mr. LOEBSACK, Mr. VISCLOSKY, Mr. JACKSON of Illinois, Mr. 

HASTINGS of Florida, Ms. SCHAKOWSKY, Mr. NADLER, Mr. WALZ of 

Minnesota, Ms. SPEIER, Ms. MCCOLLUM, Mrs. MALONEY, Mr. CONYERS, 

Ms. NORTON, Mr. GUTIERREZ, Mr. HOLT, and Mr. LEWIS of Georgia) 

introduced the following bill; which was referred to the Committee on 

Ways and Means 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 


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1 SECTION 1. SHORT TITLE; FINDINGS; PURPOSES. 

2 (a) SHORT TITLE.—This Act may be cited as the 

3 ‘‘Fair Playing Field Act of 2012’’. 

4 (b) FINDINGS.—Congress makes the following find5 ings: 

6 (1) In 1978, Congress was concerned that lack 

7 of clarity as to the proper classification of some 

8 workers, increased IRS enforcement activity, and 

9 retroactive application by IRS of interpretations that 

10 were arguably new had caused hardships for some 

11 small businesses and other taxpayers and confusion 

12 as to the applicable rules. 

13 (2) To allow time to develop a comprehensive 

14 approach to the problem, Congress enacted section 

15 530 of the Revenue Act of 1978 as an interim meas16 ure protecting taxpayers from liability for misclassi17 fication if the taxpayer has a reasonable basis for 

18 classifying a worker as an independent contractor 

19 and meets certain other conditions. In addition, the 

20 Act prohibited the Secretary of the Treasury from 

21 publishing regulations or revenue rulings on work22 ers’ employment tax status pending the expected 

23 near-term enactment of clarifying legislation. 

24 (3) During the ensuing 33 years, Congress 

25 made section 530 of the Revenue Act of 1978 per26 manent, however, changes in working relationships 


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1 and the continued prohibition on new guidance have 

2 increased the uncertainty as to the proper classifica3 tion of workers. 

4 (4) Many workers are properly classified as 

5 independent contractors. In other instances, workers 

6 who are employees are being treated as independent 

7 contractors. Such misclassification for tax purposes 

8 contributes to inequities in the competitive positions 

9 of businesses and to the Federal and State tax gap, 

10 and may also result in misclassification for other 

11 purposes, such as denial of unemployment benefits, 

12 workplace health and safety protections, and retire13 ment or other benefits or protections available to 

14 employees. 

15 (5) Workers, businesses, and other taxpayers 

16 will benefit from clear guidance regarding employ17 ment tax status. In the interest of fairness and in 

18 view of many service recipients’ reliance on current 

19 section 530, such guidance should apply only pro20 spectively. 

21 (c) PURPOSES.—The purposes of this Act are to per22 mit the Secretary of the Treasury to provide guidance al23 lowing workers and businesses to clearly understand the 

24 proper Federal tax classification of workers and to provide 


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1 relief allowing an orderly transition to new rules designed 

2 to increase certainty and uniformity of treatment. 

3 SEC. 2. AUTHORITY TO ISSUE GUIDANCE CLARIFYING EM4 PLOYMENT STATUS FOR PURPOSES OF EM5 PLOYMENT TAXES. 

6 (a) IN GENERAL.—Chapter 25 of the Internal Rev7 enue Code of 1986 is amended by adding at the end the 

8 following new section: 

9 ‘‘SEC. 3511. AUTHORITY TO ISSUE GUIDANCE CLARIFYING 

10 EMPLOYMENT STATUS. 

11 ‘‘(a) IN GENERAL.—The Secretary shall issue such 

12 regulations or other guidance as the Secretary determines 

13 to be necessary or appropriate to clarify the proper em14 ployment status of individuals for purposes of any tax im15 posed by this subtitle. 

16 ‘‘(b) PROHIBITION ON RETROACTIVE ASSESS17 MENTS.— 

18 ‘‘(1) IN GENERAL.—If— 

19 ‘‘(A) for purposes of any tax imposed by 

20 this subtitle, the taxpayer did not treat an indi21 vidual as an employee for any period before the 

22 reclassification date with respect to such indi23 vidual, and 

24 ‘‘(B) in the case of periods after December 

25 31, 1978, and before such reclassification date, 


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1 all Federal tax returns (including information 

2 returns) required to be filed by the taxpayer 

3 with respect to such individual for such period 

4 are filed on a basis consistent with the tax5 payer’s treatment of such individual as not 

6 being an employee, 

7 then, for purposes of applying such taxes for periods 

8 before such reclassification date with respect to the 

9 taxpayer, the individual shall be deemed not to be an 

10 employee unless the taxpayer had no reasonable 

11 basis for not treating such individual as an em12 ployee. 

13 ‘‘(2) STATUTORY STANDARDS PROVIDING ONE

14 METHOD OF SATISFYING THE REQUIREMENTS OF

15 PARAGRAPH (1).—For purposes of paragraph (1), a 

16 taxpayer shall in any case be treated as having a 

17 reasonable basis for not treating an individual as an 

18 employee for a period if the taxpayer’s treatment of 

19 such individual for such period was in reasonable re20 liance on any of the following: 

21 ‘‘(A) Judicial precedent, published rulings, 

22 technical advice with respect to the taxpayer, or 

23 a letter ruling to the taxpayer. 

24 ‘‘(B) A past Internal Revenue Service 

25 audit of the taxpayer in which there was no asVerDate Mar 15 2010 02:16 Mar 02, 2012 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4123.IH H4123

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1 sessment attributable to the treatment (for pur2 poses of any tax imposed by this subtitle) of the 

3 individuals holding positions substantially simi4 lar to the position held by such individual. 

5 ‘‘(C) Long-standing recognized practice of 

6 a significant segment of the industry in which 

7 such individual was engaged. 

8 ‘‘(3) CONSISTENCY REQUIRED IN THE CASE OF

9 PRIOR TAX TREATMENT.—Paragraph (1) shall not 

10 apply with respect to the treatment of any individual 

11 (hereafter in this paragraph referred to as the re12 classified individual) for purposes of any tax im13 posed by this subtitle for any period ending after 

14 December 31, 1978, if the taxpayer (or a prede15 cessor) has treated any individual holding a substan16 tially similar position as an employee for purposes of 

17 any tax imposed by this subtitle for any period be18 ginning after December 31, 1977, and ending before 

19 the reclassification date with respect to such reclas20 sified individual. 

21 ‘‘(c) DEFINITIONS.—For purposes of this section— 

22 ‘‘(1) RECLASSIFICATION DATE.— 

23 ‘‘(A) IN GENERAL.—The term ‘reclassifica24 tion date’ means, with respect to any individual, 

25 the earlier of— 


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1 ‘‘(i) the first day of the first calendar 

2 quarter beginning more than 180 days 

3 after the date of an employee classification 

4 determination with respect to such indi5 vidual, or 

6 ‘‘(ii) the effective date of the first ap7 plicable final regulation issued by the Sec8 retary under subsection (a) with respect to 

9 such individual (or, if later, the first day of 

10 the first calendar quarter beginning more 

11 than 180 days after such regulation is 

12 issued). 

13 ‘‘(B) EMPLOYEE CLASSIFICATION DETER14 MINATION.—The term ‘employee classification 

15 determination’ means, with respect to any indi16 vidual, a determination by the Secretary, in 

17 connection with an audit of the taxpayer which 

18 is described in section 7436 and which com19 mences after the date which is 1 year after the 

20 date of the enactment of this section, that a 

21 class of individuals holding positions with such 

22 taxpayer which are substantially similar to the 

23 position held by such individual are employees. 

24 ‘‘(C) FIRST APPLICABLE FINAL REGULA25 TION.—The term ‘first applicable final regulaVerDate Mar 15 2010 02:16 Mar 02, 2012 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H4123.IH H4123

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1 tion’ means, with respect to any individual, the 

2 first final regulation (or other guidance of gen3 eral applicability) which sets forth the factors 

4 for determining the employment status of a 

5 class of individuals holding positions substan6 tially similar to the position held by such indi7 vidual. 

8 ‘‘(2) EMPLOYMENT STATUS.—The term ‘em9 ployment status’ means the status of an individual, 

10 under the usual common law rules applicable in de11 termining the employer-employee relationship, as an 

12 employee or as an independent contractor (or other 

13 individual who is not an employee). 

14 ‘‘(d) CONTINUATION OF CERTAIN SPECIAL RULES.— 

15 ‘‘(1) EXCEPTION FOR CERTAIN SKILLED WORK16 ERS.—Subsection (b) shall not apply in the case of 

17 an individual who, pursuant to an arrangement be18 tween the taxpayer and another person, provides 

19 services for such other person as an engineer, de20 signer, drafter, computer programmer, systems ana21 lyst, or other similarly skilled worker engaged in a 

22 similar line of work. 

23 ‘‘(2) NOTICE OF AVAILABILITY OF SECTION.— 

24 An officer or employee of the Internal Revenue Serv25 ice shall, before or at the commencement of any 


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1 audit inquiry relating to the employment status of 

2 one or more individuals who perform services for the 

3 taxpayer, provide the taxpayer with a written notice 

4 of the provisions of this section. 

5 ‘‘(3) RULES RELATING TO STATUTORY STAND6 ARDS.—For purposes of subsection (b)(2)— 

7 ‘‘(A) a taxpayer may not rely on an audit 

8 commenced after December 31, 1996, for pur9 poses of subparagraph (B) thereof unless such 

10 audit included an examination for purposes of 

11 any tax imposed by this subtitle whether the in12 dividual involved (or any individual holding a 

13 position substantially similar to the position 

14 held by the individual involved) should be treat15 ed as an employee of the taxpayer, 

16 ‘‘(B) in no event shall the significant seg17 ment requirement of subparagraph (C) thereof 

18 be construed to require a reasonable showing of 

19 the practice of more than 25 percent of the in20 dustry (determined by not taking into account 

21 the taxpayer), and 

22 ‘‘(C) in applying the long-standing recog23 nized practice requirement of subparagraph (C) 

24 thereof— 


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1 ‘‘(i) such requirement shall not be 

2 construed as requiring the practice to have 

3 continued for more than 10 years, and 

4 ‘‘(ii) a practice shall not fail to be 

5 treated as long-standing merely because 

6 such practice began after 1978. 

7 ‘‘(4) AVAILABILITY OF SAFE HARBORS.—Noth8 ing in this section shall be construed to provide that 

9 subsection (b) only applies where the individual in10 volved is otherwise an employee of the taxpayer. 

11 ‘‘(5) BURDEN OF PROOF.— 

12 ‘‘(A) IN GENERAL.—If— 

13 ‘‘(i) a taxpayer establishes a prima 

14 facie case that it was reasonable not to 

15 treat an individual as an employee for pur16 poses of subsection (b), and 

17 ‘‘(ii) the taxpayer has fully cooperated 

18 with reasonable requests from the Sec19 retary, 

20 then the burden of proof with respect to such 

21 treatment shall be on the Secretary. 

22 ‘‘(B) EXCEPTION FOR OTHER REASONABLE

23 BASIS.—In the case of any issue involving 

24 whether the taxpayer had a reasonable basis 

25 not to treat an individual as an employee for 


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1 purposes of subsection (b), subparagraph (A) 

2 shall only apply for purposes of determining 

3 whether the taxpayer meets the requirements of 

4 subparagraph (A), (B), or (C) of subsection 

5 (b)(2). 

6 ‘‘(6) PRESERVATION OF PRIOR PERIOD SAFE

7 HARBOR.—If— 

8 ‘‘(A) an individual would (but for the 

9 treatment referred to in subparagraph (B)) be 

10 deemed not to be an employee of the taxpayer 

11 under subsection (b) for any prior period, and 

12 ‘‘(B) such individual is treated by the tax13 payer as an employee for purposes of the taxes 

14 imposed by this subtitle for any subsequent pe15 riod, 

16 then, for purposes of applying such taxes for such 

17 prior period with respect to the taxpayer, the indi18 vidual shall be deemed not to be an employee. 

19 ‘‘(7) SUBSTANTIALLY SIMILAR POSITION.—For 

20 purposes of subsection (b) and this subsection, the 

21 determination as to whether an individual holds a 

22 position substantially similar to a position held by 

23 another individual shall include consideration of the 

24 relationship between the taxpayer and such individ25 uals. 


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1 ‘‘(8) TREATMENT OF TEST ROOM SUPERVISORS

2 AND PROCTORS WHO ASSIST IN THE ADMINISTRA3 TION OF COLLEGE ENTRANCE AND PLACEMENT

4 EXAMS.— 

5 ‘‘(A) IN GENERAL.—In the case of an indi6 vidual described in subparagraph (B) who is 

7 providing services as a test proctor or room su8 pervisor by assisting in the administration of 

9 college entrance or placement examinations, 

10 subsection (b) shall be applied to such services 

11 performed after December 31, 2006 (and remu12 neration paid for such services) without regard 

13 to paragraph (3) thereof. 

14 ‘‘(B) APPLICABILITY.—An individual is de15 scribed in this subparagraph if the individual— 

16 ‘‘(i) is providing the services described 

17 in subsection (b) to an organization de18 scribed in section 501(c) and exempt from 

19 tax under section 501(a), and 

20 ‘‘(ii) is not otherwise treated as an 

21 employee of such organization for purposes 

22 of this subtitle. 

23 ‘‘(9) TREATMENT OF SECURITIES BROKER

24 DEALERS.—In determining for purposes of this title 

25 whether a registered representative of a securities 


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1 broker-dealer is an employee (as defined in section 

2 3121(d)), no weight shall be given to instructions 

3 from the service recipient which are imposed only in 

4 compliance with investor protection standards im5 posed by the Federal Government, any State govern6 ment, or a governing body pursuant to a delegation 

7 by a Federal or State agency. 

8 ‘‘(e) STATEMENTS TO INDEPENDENT CONTRAC9 TORS.— 

10 ‘‘(1) IN GENERAL.—Each person who contracts 

11 for the services of an independent contractor on a 

12 regular and ongoing basis, within the scope of such 

13 person’s trade or business, shall provide a written 

14 statement to such independent contractor notifying 

15 such independent contractor of the Federal tax obli16 gations of an independent contractor, the labor and 

17 employment law protections that do not apply to 

18 independent contractors, and the right of such inde19 pendent contractor to seek a status determination 

20 from the Internal Revenue Service. 

21 ‘‘(2) INDEPENDENT CONTRACTOR.—For pur22 poses of this subsection, the term ‘independent con23 tractor’ means any individual who is not treated as 

24 an employee by the person receiving the services re25 ferred to in paragraph (1). 


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1 ‘‘(3) TIMING OF STATEMENT.—Except as other2 wise provided by the Secretary, the statement re3 quired under paragraph (1) shall be provided within 

4 a reasonable period of entering into the contract re5 ferred to in paragraph (1). 

6 ‘‘(4) DEVELOPMENT OF MODEL STATEMENT.— 

7 The Secretary shall develop model materials for pro8 viding the statement required under paragraph 

9 (1).’’. 

10 (b) REDUCED PENALTY NOT APPLICABLE IN CASES

11 OF NONCOMPLIANCE WITH GUIDANCE WITHOUT REA12 SONABLE BASIS.—Subsection (c) of section 3509 of such 

13 Code is amended— 

14 (1) by striking ‘‘if such liability’’ and inserting 

15 ‘‘if— 

16 ‘‘(1) such liability’’, and 

17 (2) by striking the period at the end and insert18 ing ‘‘, or 

19 ‘‘(2) such liability relates to an individual who 

20 is treated as an employee under regulations or other 

21 guidance issued by the Secretary under section 

22 3511(a) and the taxpayer lacks a reasonable basis 

23 for treating the individual as other than an em24 ployee. 


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1 In the case of a taxpayer which has received a final written 

2 determination from the Internal Revenue Service holding 

3 that the individual referred to in paragraph (2) (or an4 other individual who holds a position with the taxpayer 

5 substantially similar to the position held by such indi6 vidual) is an employee, such taxpayer shall be treated for 

7 purposes of paragraph (2) as lacking a reasonable basis 

8 for treating such individual as other than an employee 

9 with respect to periods beginning on and after the first 

10 day of the first calendar quarter beginning more than 180 

11 days after the date of such written determination unless 

12 the taxpayer establishes by clear and convincing evidence 

13 that the taxpayer has a reasonable basis for such treat14 ment.’’. 

15 (c) CONFORMING AMENDMENTS.— 

16 (1) Paragraph (2) of section 6724(d) of such 

17 Code is amended by striking ‘‘or’’ at the end of sub18 paragraph (GG), by striking the period at the end 

19 of subparagraph (HH) and inserting ‘‘, or’’, and by 

20 inserting after subparagraph (HH) the following 

21 new subparagraph: 

22 ‘‘(II) section 3511(e) (relating to state23 ments to independent contractors).’’. 

24 (2) Paragraph (2) of section 7436(a) of such 

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1 tion 530 of the Revenue Act of 1978’’ and inserting 

2 ‘‘section 3511(b)’’. 

3 (3) The table of sections for chapter 25 of such 

4 Code is amended by adding at the end the following 

5 new item: 

‘‘Sec. 3511. Authority to issue guidance clarifying employment status.’’. 

6 (d) TERMINATION OF SECTION 530 OF THE REV7 ENUE ACT OF 1978.—The Revenue Act of 1978 is amend8 ed by striking section 530. 

9 (e) REPORTS ON WORKER MISCLASSIFICATION.—Be10 ginning with the first fiscal year beginning after the date 

11 the first regulation or other guidance is issued for public 

12 comment under section 3511(a) of the Internal Revenue 

13 Code of 1986 (as added by this section): 

14 (1) A report each fiscal year on worker classi15 fication which shall include the total number of ex16 aminations of employers initiated because of sus17 pected worker classification issues, the total number 

18 of examinations that included determinations on 

19 worker classification issues, the amount of additional 

20 tax liabilities associated with worker classification 

21 enforcement actions, the number of workers reclassi22 fied as a result of these actions, the number of re23 quests for Determination of Worker Status (Form 

24 SS–8), and technical guidance on how to understand 

25 the data provided in the report. 


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1 (2) A report each fiscal year in which new sta2 tistically valid data is compiled and interpreted on 

3 worker classification, prepared on the basis of infor4 mation gathered during an Employment Tax Study 

5 conducted by the National Research Program (NRP) 

6 of the Internal Revenue Service. Such report shall 

7 provide statistical estimates of the number of em8 ployers misclassifying workers, the number of work9 ers misclassified, the industries involved, data inter10 pretations and conclusions, and a description of the 

11 impact of improper worker classification on the em12 ployment tax gap. 

13 (f) EFFECTIVE DATES.— 

14 (1) DELAYED EFFECTIVE DATE OF REGULA15 TIONS AND GUIDANCE.—Except as provided in para16 graph (2), any regulation or other guidance issued 

17 under section 3511(a) of the Internal Revenue Code 

18 of 1986, as added by this section, shall not apply to 

19 services rendered before the date which is 1 year 

20 after the date of the enactment of this Act. 

21 (2) TREATMENT OF SECURITIES BROKER DEAL22 ERS.—Paragraph (9) of section 3511(d) of the In23 ternal Revenue Code of 1986, as added by this sec24 tion, shall apply to services performed after Decem25 ber 31, 1997. 


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1 (3) AUTHORITY TO ISSUE REGULATIONS AND

2 GUIDANCE IMMEDIATELY.—So much of the amend3 ment made by subsection (d) as relates to subsection 

4 (b) of section 530 of the Revenue Act of 1978 shall 

5 take effect on the date of the enactment of this Act. 

6 (4) DELAYED TERMINATION OF REMAINDER OF

7 SECTION 530 OF THE REVENUE ACT OF 1978.—Ex8 cept as provided in paragraph (3), the amendments 

9 made by subsections (c)(1) and (d) shall apply to 

10 services rendered on or after the date which is 1 

11 year after the date of the enactment of this Act. 

Æ 


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