18

Effective date.--The provision would apply to information
returns the due date for which (without regard to extensions) is
more than 30 days after the date of enactment.

3. Discussion of Issues

One issue to consider is whether the increase in the penalty
for failure to file correct information returns will result ina
penalty that is proportional to the offense of failing to report.
Some might argue that the resulting penalty could be
disproportionately high, particularly in light of the fact that
intentional disregard or willfulness are not required to be
asserted or proven in order to impose the higher penalty. Others
might argue that the penalty is not disproportionate to the
offense because information returns filed by companies with
respect to the independent contractors they engage are the
principal means by which the IRS learns from someone other than
the taxpayer of the existence and amounts of these payments. This
is important under the bill because some self-employed
individuals will be entitled to discounts on their health
insurance premiums based upon their income, so that correct
reporting of payments will be necessary to determine entitlement
to these discounts. In addition, some might argue that the
increased penalty is not disproportionate because the increase
does not apply where correction is made within a specified
period, within certain de minimis guidelines, or where there is
reasonable cause.

An additional issue to consider is how well the increased
penalty fits into the current information reporting penalty
structure. For example, the increased penalty is parallel in
structure to the penalty for intentional disregard of the
information reporting requirements (sec. 6721(d)}. The difference
is the rate: the increased penalty would be 5 percent of the
amount required to be reported, while the penalty for intentional
disregard is 10 percent. Consideration might be given as to
whether the differential between the two penalties should be
adjusted. Another aspect of how the increased penalty fits into
the current information reporting penalty structure is whether
the increased penalty should also apply to failures to furnish
correct payee statements (sec. 6722). Under the bill, the
increased penalty applies only with respect to the failure to
file a correct information return with the IRS, and it does not
apply to the failure to provide a correct copy of the information
return to the individual with respect to whom the information is
reported. Another aspect of how the increased penalty fits into
the current information reporting penalty structure is whether,
in light of this increased penalty, the overall annual caps on
the total amount of penalty that may be imposed should remain the
same (as they do under the bill) or should be adjusted.



12

the bill the classification of a worker would affect whether or
not the service recipient is required to pay a health care
premium for the worker. It could also affect the amount the
employer is required to pay (because the aggregate amount is
based on employee wages) and the Federal subsidy for health care
premiums. Whether it is more beneficial to be an employee or
independent contractor may be different under the bill than under
present law. The increased significance of worker classification
would mean that there would be even greater need for clarity of
rules to help prevent worker misclassification.

Section 530 is supported by those who take advantage of it
because it provides some certainty and protection to taxpayers in
an area of law that is far from clear. However, section 530 has
also been criticized. Not all taxpayers can use the section 530
safe harbors. For example, the consistency requirement may
prevent some taxpayers from using section 530. Taxpayers who
cannot take advantage of section 530 argue that it creates a
competitive disadvantage that is particularly unfair because they
are classifying their workers under the general rule. Section 530
has also been criticized because it may take very little to come
within one of the safe harbors if section 530 is otherwise
available to a taxpayer. For example, the prior audit rule has
been criticized because the audit need not have been an
employment tax audit. Thus, section 530 could apply even if
worker status was not raised on the audit. The industry practice
safe harbor has been criticized on the ground that it rewards
people who have consistently misclassified workers. Limiting the
scope of these provisions would be viewed as more fair to
taxpayers who cannot take advantage of section 530, and would
also be more consistent with tax policy concerns.

Codifying the safe harbors could provide more certainty to
taxpayers. In addition, lifting the prohibition on issuance of
guidance would enable the IRS to issue clarifying rules. Overall,
however, it is difficult to determine what effect the provisions
of the bill would have on classification of workers. It is not
clear to what extent modifying the safe harbors will actually
reduce the number of taxpayers who take advantage of them. For
example, a taxpayer that was relying on the prior audit safe
harbor but could not do so under the bill might rely instead on
the industry practice safe harbor. The bill would give the
Treasury Department the authority to terminate the application of
the industry practice safe harbor, but until actual rules are
proposed, it is difficult to determine what effect they will
have. The same issue arises in trying to determine what effect
regulations defining "employee" would have. Clarifying the
statutory rules would provide more certainty to both taxpayers

not arise because the worker is the employee of the subcontractor.



22
is subject to SECA at the partner or shareholder level.”

Present law treats all trade or business income earned by a
partnership and allocated to general partners as NESE, regardless
of whether such partners are material participants or mere
investors. Thus, present law assumes that all. partnership trade
or business income that is allocated to a general partner is
remuneration for services performed by the partner. Income
allocated to limited partners is not NESE (unless in the form of
a guaranteed payment for services rendered), on the theory that
such partners have limited participation in the operation of the
partnership and should not be entitled to social security
benefits by virtue of their investment .*

Under present law, income allocated to a shareholder in an S
corporation is not subject to NESE. This exclusion may be based
on the theory that because S corporations are allowed to have
only one class of stock, a shareholder that provides services to
the corporation would draw a salary for such services, while a
passive co-investor shareholder would not.% For example, assume
two individuals form an S corporation by making equal capital
contributions. One shareholder provides services to the venture
and the other does not. Because the two shareholders have an
equal number of shares in the corporation, a salary (subject to
FICA) is needed in order to adequately compensate the service

7% It should be noted that because the determination of NESE
generally is based on income tax rules, the method by which a
business is capitalized also affects the NESE of the owner. A
business that is capitalized with debt generally will generate
lower NESE than an a business that is capitalized with equity
because the returns on debt (interest expense) are deductible while
the returns on equity (dividends, distributive share, etc.) are
not.

*4 Legislative history indicates that the definition of NESE
was amended to exclude distributive shares of limited partners
because of a concern that certain business organizations were
soliciting investments in limited partnerships as a means for the
investor to become insured for social security benefits. House
Ways and Means Committee Report on P.L. 95-216 (1977).

2S Conversely, partnerships are viewed as entities that allow
greater flexibility with respect to the allocation among the
partners of income or loss from partnership activities.
Partnerships do not pay salaries for services rendered by the
partners. Rather, the partnership agreement may provide special
allocations of partnership income to those partners who provide
services to or on behalf of the partnership. Such allocations of
income may be respected for Federal income tax purposes if they
have substantial economic effect.



3

proposal relies upon worker classification to determine an
employer’s or individual’s liability for health care premiums,
eligibility for Federal subsidies, or any additional health care
or tax liabilities, the importance of worker classification is
increased. The Health Security Act would place greater
significance on the proper classification of a worker as an
independent contractor or employee. In addition to the
consequences of present law, under the Health Security Act the
classification of a worker would affect whether or not the
service recipient is required to pay a health care premium for
the worker. It could also affect the amount the employer is
required to pay (because the aggregate amount is based on firm
size and employee wages) and the Federal subsidy for health care
premiums. Whether it is more beneficial to be an employee or
independent contractor may be different under the bill than under
present law. The increased significance of worker classification
would mean that there would be even greater need for clarity of
rules to help prevent worker misclassification. From an
administrative perspective, if there is an employer mandate, a
Clear definition of employee would make the system easier to
administer both for the private sector and government agencies
involved. The greater differences there are between the
consequences of being an employee and not being an employee, the
more likely employers and individuals would take aggressive
positions in order to achieve the outcome they desire.

B. Self-employment Tax Treatment of Certain S Corporation
Shareholders and Partners

The present-law self-employment tax (SECA) on self-employed
individuals is intended to parallel the FICA tax on wages of
employees. Both taxes are intended to be imposed on the
remuneration received from one’s own labor. However, present-law
SECA provides disparate treatment among different types of self-
employed individuals (i.e., sole proprietors, general and limited
partners in partnerships, and shareholders of S corporations)
despite the fact that these individuals generally are treated
similarly for Federal income tax purposes. In some cases the
trade or business income of these individuals may be fully
subject to SECA (e.g., in the case of sole proprietors and
general partners); may be partially subject to SECA (e.g., in the
case of limited partners); or may be excluded from SECA (e.g., in
the case of S corporation shareholders, whose salaries are
subject to FICA).

Various rationales can be put forth as to why it is
appropriate to treat various individuals differently for SECA
purposes. These rationales focus on the extent to which the
stakeholders of a flow-through entity are active participants or
mere investors and how the are compensated for these roles.
Partners in partnerships generally do not draw salaries. Thus,
specific rules must be developed for the treatment of their



19

III. MODIFICATION TO SELF-EMPLOYMENT TAX TREATMENT OF CERTAIN
S CORPORATION SHAREHOLDERS AND PARTNERS
(sec. 7141 of the bill)

A. Present Law
Empl xes, in genera’

As part of the Federal Insurance Contributions Act (FICA), a
tax is imposed on employees and employers up to a maximum amount
of employee wages. The tax is composed of two parts: old-age,
survivor, and disability insurance (OASDI) and Medicare hospital
insurance (HI). For wages paid in 1993, to covered employees,
the OASDI tax rate is 6.2 percent on both the employer and
employee on the first $57,600 of wages and the HI tax rate is
1.45 percent on both the employer and employee on the first
$135,000 of wages.

Similarly, under the Self-Employment Contributions Act
(SECA), a tax is imposed on an individual’s net earnings from
self-employment (NESE). The SECA tax rate is the same as the
total FICA rates for employers and employees (i.e., 12.4 percent
for OASDI and 2.9 percent for HI) and, for 1993, is capped at the
same levels. In general, the SECA tax is reduced to the extent
the individual had wages for which FICA taxes were withheld
during the year.

The cap on wages and NESE subject to the OASDI portion of
FICA and SECA taxes is indexed to changes in the average wages in
the economy. The cap on wages and NESE subject to the HI tax is
repealed for wages and income received after December 31, 1993.

r: of partners and corporation sharehk

The NESE of a partner in a partnership generally is the
partner’s distributive share from any trade or business of the
partnership, adjusted for certain items of income that are
passive in nature (e.g., rentals of real estate, dividends, and
interest are excluded from NESE unless such amounts are received
in the course of a trade or business of a dealer in the related
property). However, the distributive share of a limited partner
generally is excluded from NESE except to the extent the
distributive share is a guaranteed payment for services actually
rendered to or on behalf of the partnership.

Similar rules are not provided for shareholders in S$
corporations.” Thus, shareholders are not required to include

20 For some purposes, a shareholder that owns more than 2
percent of the stock of an S corporation is treated as a partner in
a partnership (sec. 1372(a)). However, this rule does not apply



25

except as provided in regulations, the activities of limited
partners do not constitute material participation. Treasury
regulations provide instances in which the activities of a
limited partner override this presumption. In general, it is
more difficult for a limited partner to sustain material
participation than it is for a general partner under section 469.

Although "material participation" may be an appropriate
standard for determining when the activities of an S corporation
shareholder or limited partner give rise to earnings that should
be subject to SECA, the application of such a standard may be
administratively difficult. Conversely, if the application of
the standard proves to be administratively feasible,
consideration should be given to applying the standard to general
partners in partnerships as well.

Service-related trade or business.--Under the bill, only the
portion of the pro rata share of the income or loss of a 2-
percent shareholder who materially participates that is
attributable to certain service-related trades or businesses is
subject to NESE. This test would require an S corporation to
determine if it is engaging in such activities and, if it is, to
segregate the earnings from such activities from earnings of
other activities. "Service-related trade or business" is defined
with reference to a provision that was enacted with the Omnibus
Budget Reconciliation Act of 1993 that allows for a partial
capital gains exclusion for the gain on the sale of the stock of
certain corporations engaged in active trades or businesses (sec.
13113 of the 1993 Act, adding sec. 1202 to the Code). "Service-
related trade or business" generally means the activities of
certain professions that are more dependent upon personnel skills
than upon capital investment.

The "service-related trade or business" test may create some
administrative difficulties. It may be difficult for an S$
corporation to determine if it is engaging in covered activities,
due to the relative newness and subjectivity of the term.”
Furthermore, if an S corporation engages in more than one
business, it would be required to segregate the earnings from
covered activities from other activities (e.g., an allocation may
be necessary if an S corporation is involved in both
architectural design and building construction). Income
determinations for separate trades or businesses are particularly
difficult (and manipulable) where the different trades or
businesses share common costs such as overhead or interest

oa Present-law sections 401(c)(2) (relating to employee

benefit plans) and 911(d) (2) (relating to an exclusion for foreign
earned income) of also provide distinctions between income earned
from personal services and other income. Neither definition was
adopted by the provision.



21

passive income that apply to partnerships would also apply to S$
corporations.

The bill also would amend the treatment of limited partners
in a partnership by providing that the distributive share of a
limited partner would be excluded from NESE only if the partner
does not materially participate in the activities of the
partnership. The provision retains the present-law guaranteed
payment rule for limited partners who provide services for the
partnership.

The bill would make conforming amendments to the Social
Security Act.

Effective date.--The provision would apply to taxable years
of individuals beginning after December 31, 1995, and to taxable
years of S corporations and partnerships ending with or within
such taxable years of individuals.

C. Discussion of Issues
Disparities created by present law

In general, partnerships and their partners and S
corporations and their shareholders are treated similarly for
Federal income tax purposes. The income of a partnership or S
corporation is not subject to tax at the entity level, but rather
is flowed through to the partners or shareholders and reported on
their individual income tax returns, regardless of whether or
when the income is actually distributed to the individuals. In
contrast, the income of a subchapter C corporation is subject to
an entity-level income tax when it is earned and is subject to
the individual income tax when it is distributed to the
individual shareholders of the corporation.

The SECA tax on the earnings of self-employed individuals
parallels the FICA tax on the wages of employees. Both taxes are
intended to be imposed on remuneration received for one’s own
labor. Under this theory, income that is a return on capital
investment should not be subject to SECA. Difficulties arise
when an individual provides both investment capital and labor
services to an enterprise and has control over whether the
remuneration for such services is in the form of salary (subject
to FICA) or a distribution of the net earnings of the enterprise
(generally subject to neither FICA nor SECA when distributed).
This issue is less problematic with respect to services provided
by a shareholder-employee of a subchapter C corporation because
there is an incentive to pay the individual a salary (subject to
FICA) in order to claim a corporate income tax deduction for such
amount. However, no such incentive applies with respect to flow-
through entities. Thus, rules are needed to determine what
portion, if any, of the income of a partnership or S corporation



16

small businesses. Small businesses are defined as firms having
average annual gross receipts for the most recent 3 taxable years
that do not exceed $5 million. The maximum penalties for small
businesses are: $25,000 (instead of $75,000) if the failures are
corrected on or before 30 days after the prescribed filing date;
$50,000 (instead of $150,000) if the failures are corrected on or
before August 1; and $100,000 (instead of $250,000) if the
failures are not corrected on or before August 1.

Failure to rnish ¢ ayee st

Any person that fails to furnish a correct payee statement"®
to a taxpayer on or before the prescribed due date is subject to
a penalty of $50 per statement, with a maximum penalty of
$100,000 per calendar year (sec. 6722). If the failure to furnish
a correct payee statement to a taxpayer is due to intentional
disregard of the requirement, there is a penalty of $100 per
statement or, if greater, 10 percent" of the amount required to
be shown on the statement, with no limitation on the maximum
penalty per calendar year.

ilure to com with othe: n ion reportin

Any person that fails to comply with other specified
information reporting requirements on or before the prescribed
date is subject to a penalty of $50 for each failure, with a
maximum penalty of $100,000 per calendar year (sec. 6723). The
information reporting requirements specified for this purpose
include any requirement to include a correct taxpayer
identification number on a return or a statement and any
requirement to furnish a correct taxpayer identification number
to another person.

Waiver, definitions, and special rules

Any of the information reporting penalties may be waived if
it is shown that the failure to comply is due to reasonable cause
and not to willful neglect (sec. 6724). For this purpose,
reasonable cause exists if significant mitigating factors are
present, such as the fact that a person has an established
history of complying with the information reporting requirements.

6 This term is defined in sec. 6724(d) (2), and refers to 22

information reporting requirements in the Code, including secs.
6041(a) and 6041A(a).

" Five percent for several types of statements.



8

Under the bill, an individual would not be treated as an employee
of a taxpayer for any period if, for that period:

(1) the taxpayer treats the individual as not being an
employee;

(2) the taxpayer treats the individual (and all other
individuals holding substantially similar positions) as not
being an employee for employment tax purposes | for such
period and all prior periods;

(3) a return filing requirement is met;
(4) a safe harbor requirement is met; and

(5) the Secretary has not notified the taxpayer in writing
before the beginning of such period that the Secretary has
determined that the taxpayer should treat such individual
(or any individual holding a substantially similar position)
as an employee.

The return filing requirement would be met if all Federal
tax returns (including information returns) required to be filed
by the taxpayer for such period with respect to such individual
(and all other individuals holding substantially similar
positions) were timely filed on a basis consistent with the
taxpayer’s treatment of such individuals as not being employees.
For purposes of this requirement, a return that was not timely
filed would be considered to have been timely filed if the
penalty for failure to file is reduced or waived because the
failure was corrected or because it was_a de nimis, failure.
pursuant to section 6721(b) and (c). In ‘addition, the taxpayer
would not fail to satisfy the return filing requirement solely
because the taxpayer failed to timely file accurate information
returns with respect to individuals holding substantially similar
positions if ‘the taxpayer substantially complied with reporting
requirements (as defined in proposed new Code sec. 6721(a) (3)).

The safe harbor requirement would be met with respect to an
individual for any period if treating such individual as not an
employee was:

(1) in reasonable reliance on a written determination
regarding the taxpayer that addressed the employment status
of the individual or an individual holding a substantially
similar position;

(2) in reasonable reliance on a concluded IRS audit which
was for a period in which the rules for determining
employment status were the same as for the period in
question, and in which the employment status of the
individual (or an individual holding a substantially similar



5
II. WORKER CLASSIFICATION UNDER THE HEALTH SECURITY ACT

A. Definition of Employee and Protection Against Retroactive
Employment Tax Reclassifications
(secs. 7301 and 7303 of the bill)

1. Present Law

In general

In general, the determination of whether an employer-
employee or independent contractor relationship exists for
Federal tax purposes is made under a common-law test. Under this
test, an employer-employee relationship exists if the person
contracting for the services has the right to control not only
the result of the services, but also the means by which that
result is accomplished (Treas. Reg. sec. 31.3401(c)-(1) (b)).
Whether the requisite control exists is determined based on the
facts and circumstances.

The Internal Revenue Service (IRS) has developed a list of
20 factors that may be examined in determining whether an
employer-employee relationship exists. Rev. Rul. 87-41, 1987-1
C.B. 296. The 20 factors were developed by the IRS based on an
examination of cases and rulings considering whether a worker is
an employee. The degree of importance of each factor varies
depending on the occupation and the factual context in which the
services are performed. The 20 factors are designed as guides;
special scrutiny may be required in applying the factors to
assure that formalistic aspects of an arrangement designed to
achieve a particular status do not cbscure the substance of the
arrangement .*

3 The factors are as follows: (1) whether the worker is
required to comply with instructions about when, where, and how to
perform the work; (2) whether the service recipient trains the
worker; (3) the extent to which the worker’s services are
integrated into the business operations of the service recipient;
(4) whether the services must be rendered personally; (5) whether
the service recipient supervises the worker; (6) whether there is
a continuing relationship between the worker and the service
recipient; (7) whether the service recipient sets the hours of work
of the worker; (8) whether the worker is required to devote
substantially full time to the business of the service recipient;
(9) whether the work is done on the premises of the service
recipient; (10) whether the worker must perform services in the
order set by the service recipient; (11) whether reports by the
worker to the service recipient are required; (12) whether payment
is by the hour, week, or month; (13) whether the service recipient
pays the worker's business and/or traveling expenses; (14) whether
the worker is required to furnish his or her own tools; (15)



4

earnings in the SECA base. In addition, the participation by
limited partners in the activities of a partnership traditionally
has been limited by local law. Because of the one-class-of-stock
rule applicable to S corporations, shareholders that more
actively participate in the corporation’s business generally
receive salaries as compensation for such activity. These
Salaries are subject to FICA. However, these traditional
differences between general partners, limited partners, and S
corporation shareholders are changing and differing employment
tax treatment among such individuals may invite taxpayers to
devise cosmetic structures to minimize their employment tax
liabilities. In addition, to the extent that the Health Security
Act or any other health care reform proposal relies upon the
determination of aggregate wages (as defined under the employment
tax rules), the significance of differing treatment among
similarly-situated individuals increases.

The disparate treatment provided under SECA raises the
following issues: (1) whether it is appropriate to provide
different SECA rules for individuals who derive trade or business
earnings from different types of flow-through entities; (2)
whether it is possible to determine the theoretically correct
employment tax bases for any or all types of self-employed
individuals; and (3) whether it is possible to develop
administratively feasible rules that adhere to these theoretical
determinations.



17
2. Description of Bill

The bill would modify the penalty for failure to file
correct information returns with respect to two types of
information returns: (1) information returns under section
6041(a) which relate to payments to any person for services
performed by such person (other than as an employee) ;'* and (2)
returns regarding remuneration for services under 6041A(a). In
general, both of these sections of the Code relate to information
returns with respect to payments made to non-employees, such as
independent contractors.”

In general, the bill would increase the penalty for failure
to file correct information returns on or before August 1 from
$50 for each return to the greater of $50 or 5 percent of the
amount required to be reported correctly but not so reported.

The bill would also provide for an exception to this
increase where substantial compliance has occurred. The bill
would provide that this exception would apply with respect toa
calendar year if the aggregate amount that is timely and
correctly reported under these two sections of the Code for that
calendar year is at least 97 percent of the aggregate amount
required to be reported under these two sections of the Code for
that calendar year. If this exception applies, the penalty of $50
for each return would continue to apply.

The present-law reductions in the $50 penalty where
correction is made within a specified period, the exception for
de minimis failures, and the lower limitations for persons with
gross receipts of not more than $5,000,000 would not be affected
by the bill. Also, the penalty for failure to furnish correct
payee statements, the penalty for failure to comply with other
information reporting requirements, and the reasonable cause
rules would not be affected by the bill.

% It is intended that the modification to the penalty apply

only to information returns reporting payments for services
performed that are made to non-employees under section 6041(a), and
not with respect to other types of information returns filed under
section 6041(a). A technical correction to the statutory language
may be necessary to effect this result.

% Employers are required to provide information with respect

to wages paid to their employees on Form W-2 under section 6051;
consequently, those information returns would not be affected by
the bill.



7

Under section 530, a reasonable basis is deemed to exist for
a period if the taxpayer reasonably relied on any of the
following: (1) judicial precedent, published rulings, technical
advice with respect to the taxpayer, or a letter ruling to the
taxpayer; (2) a past IRS 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 the individual in question; or
(3) long-standing recognized practice of a significant segment of
the industry in which such individual was engaged. These factors
are a safe harbor, not the exclusive means of meeting the
reasonable basis requirement.

In order to qualify for section 530 relief, certain
conditions must also be satisfied. In particular, section 530
does not apply if the taxpayer (or a predecessor) has treated any
individual holding a substantially similar position as an
employee for purposes of employment taxes for any period
beginning after December 31, 1977. In addition, section 530 does
not apply unless all Federal tax returns (including information
returns) required to be filed by the taxpayer with respect to the
individual are filed on a basis consistent with the taxpayer’s
treatment of such individual as not being an employee.

Section 530 also bars the Department of Treasury (including
the IRS) from publishing any regulation or revenue ruling
classifying individuals for purposes of employment taxes under
interpretations of the common law. Taxpayers may, however, obtain
private letter rulings from the IRS regarding the status of
workers.

Section 530 does not apply for income tax purposes. Thus,
the determination of whether an individual is an employee for
income tax purposes is made without regard to section 530.

2. Description of Bill

In _ general

The bill would (1) repeal section 530 of the Revenue Act of
1978, (2) codify a modified version of section 530 which protects
taxpayers against retroactive reclassification of workers as
employees, and (3) give the Secretary of the Treasury the
authority to define the term "employee" by regulation. The
modified rules would apply for income tax purposes, employment
tax purposes, and for purposes of the bill’s health care
provisions.

if mai visio: sec

The bill would repeal section 530 of the Revenue Act of 1978
and incorporate a modified version in the Internal Revenue Code.



23

provider. Any income remaining after the payment of the salary
would be deemed a return on the capital investments of the
shareholders and not subject to SECA or FICA taxes. However, the
application of this theory may result in an under-inclusion of
earnings for employment tax purposes in some cases. For
instance, if both shareholders in the example above provide an
equal amount of services to the corporation, there is no need to
pay salaries to equalize their contributions, and each
shareholder's pro rata share of the corporate earnings would not
be subject to SECA (although the IRS may contend that the
shareholders are subject to FICA on all or a portion of the S$
corporation’s earnings) .*

If the two individuals in the two examples above formed a
general partnership rather than an S corporation, each partner's
distributive share of partnership trade or business income would
be NESE, regardless of the level of activities by the partners.
Thus, present law treats general partners in a partnership
differently than shareholders in an S corporation for employment
tax purposes, despite the fact that a partnership and its
partners and an S corporation and its shareholders are treated
similarly for income tax purposes.

Treatment under the bill

The bill would broaden the SECA base and narrow the
disparate SECA treatment between income earned by partnerships
and S corporations by treating as NESE the pro rata share of
income of certain S corporation shareholders. Under the bill,
NESE would include the pro rata share of S corporation income:
(1) of a 2-percent shareholder; (2) who materially participates
in the activities of the corporation; (3) but only to the extent
the income is from a service-related trade or business. Each of
these three tests raise certain issues.

Two-percent shareholders.--Present law treats 2-percent
shareholders as individuals in control of the corporation for

fringe benefit purposes (sec.'.1372(a)). Thus, the "2-percent
shareholder" test of the bill appears consistent with the
present-law treatment of 2-percent shareholders for employment
related purposes. In addition, in practice, most S corporation
shareholders who are not 2-percent shareholders likely are
employees whose wages are subject to FICA or minority investors
who are not involved in the operations of the corporation.

% The identical issue arises if the corporation is owned by

a sole shareholder. It is reported that, based on 1990 data,
approximately 80 percent of S corporations have only one or two
shareholders. Susan C. Nelson, "S Corporations: The Record of
Growth After Tax Reform", urn Co. ion_T: ion, Vol.
5, No. 2, Fall 1993, p. 146.



DESCRIPTION AND ANALYSIS OF PROPOSALS RELATING TO
WORKER CLASSIFICATION AND THE TAX TREATMENT
OF CERTAIN S CORPORATION SHAREHOLDERS
AND PARTNERS

Scheduled for a Hearing
Before the
SENATE COMMITTEE ON FINANCE

on May 3, 1994

Prepared by the Staff
of the

JOINT COMMITTEE ON TAXATION

May 2, 1994
JCX-6-94



10

providing that for employment tax purposes a person who provides
companion sitting services is not an employee of any person who
places the individual with the service recipient (sec. 3506); (3)
the rule providing that certain real estate agents and direct
sellers are not employees (sec. 3508); and (4) the new safe
harbor provisions described above (proposed new Code sec. 3511).
The regulations issued under this provision could not be
effective earlier than 6 months after the regulations are
promulgated as final regulations. When the regulations are
issued, the Secretary of the Treasury is to submit a report to
Congress relating to such regulations, including an explanation
of their purposes and the issues they were designed to address.

Effective date.--The provision relating to section 530 would
generally be effective for periods beginning after December 31,
1995, except that the repeal of the prohibition on the issuance
of regulations and rulings would be effective on the date of
enactment.. The provision authorizing regulations defining
"employee" would be effective on the date of enactment.

3. Discussion of Issues

Tax issues relating to the definition of employee

Under present law, significant tax consequences result from
the classification of a worker as an employee or an independent
contractor.® Some of these differences relate to withholding and
employment tax requirements, as well as the ability to exclude
certain types of compensation from income or take tax deductions
for certain expenses. They also relate to whether the service
recipient has to include the worker for pension or other employee
benefit plan purposes. Some of these consequences favor employee
status, while others favor independent contractor status. For
example, an employee may exclude from gross income
employer-provided benefits such as pension, health, and
group-term life insurance benefits. On the other hand, an
independent contractor can establish his or her own pension plan
and deduct contributions to the plan. An independent contractor
also has greater ability to deduct work-related expenses.

The present-law rules for determining whether a worker is an
employee or an independent contractor continue to result in
misclassification of workers and uncertainty among taxpayers.
While the section 530 safe harbor provides a relatively clear
rule for determining worker status, the safe harbor does not
apply in all cases, so many employers must rely on the common-law
test.

° There may also be nontax consequences, such as applicability
of wage and hour laws.



i)
position) was examined and accepted;

(3) in reasonable reliance on a long-standing recognized
practice of a significant segment of the industry in which
_ the individual is engaged; or

(4) supported by substantial authority (excluding for this
purpose letter rulings regarding other taxpayers) .

No other means could be used to demonstrate reasonable
reliance.

The prior audit safe harbor would cease to apply to an
individual for a period if the treatment of such individual as
not being an employee is inconsistent with any regulation,
revenue ruling, revenue procedure, or other authority published
by the Secretary before the beginning of the period and after
conclusion of the audit on which the taxpayer is relying.

The availability of the industry practices safe harbor would
terminate for all workers for periods beginning after the date on
which the Secretary prescribes regulations defining "employee"
and could terminate with respect to particular workers for
earlier periods if the treatment of such workers as not being
employees was inconsistent with any other regulation, revenue
ruling, revenue procedure, or other authority published by thi
Secretary before the beginning of such earlier period. -

The bill would provide that if an individual was treated as
not being an employee under the safe harbor rules for employment
taxes, then the individual would be treated as self-employed for
income tax purposes as well.

Treasu: ions defin loyee

The bill would authorize the Secretary of the Treasury to
prescribe rules for determining whether an individual is an
employee. These rules would apply for employment tax purposes
and, to the extent provided in the regulations, for income tax
purposes. Such regulations could modify the rules otherwise
applicable for determining whether someone is an employee, except
for certain statutory rules. The regulations would be required to
give significant weight to the common-law rules. The following
statutory provisions could not be modified by the regulations:

(1) the rules providing that the following persons are treated as
employees (a) corporate officers (sec. 3121(d)(1)), (b) certain
agent-drivers or commission-drivers, full-time life insurance
salesmen, home workers, and traveling salesmen (sec. 3121(d) (3));
and (c) individuals who perform services that are included under
an agreement entered into pursuant to section 218 of the Social
Security Act (relating to voluntary coverage of certain State and
local government employees) (sec. 3121(d)(4)); (2) the rule



yeah die She

6

In addition to the common-law test, there are statutory
provisions classifying workers as employees or independent
contractors. Thus, for example, full-time life insurance salesmen
are treated as employees for certain purposes pursuant to
statutory provisions (secs. 3121(d) and 7701(a) (20)). Similarly,
certain real estate agents and direct sellers are not treated as
employees (sec. 3508).

Section 530 of the Revenue Act of 1978

In the late 1960s, the IRS increased enforcement of the
employment tax laws, and controversies developed between the IRS
and taxpayers as to whether businesses had correctly classified
certain workers as independent contractors rather than as
employees. In response to this problem, Congress enacted section
530 of the Revenue Act of 1978 ("section 530"), which generally
permits a taxpayer to treat an individual as not being an
employee for employment tax purposes regardless of the
individual’s actual status under the common-law test, unless the
taxpayer has no reasonable basis for such treatment and if
certain additional requirements are satisfied.‘ Section 530 does
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.°

whether the worker invests in facilities used to perform the work;
(16) whether the worker can realize a profit or loss as a result of
the performance of the services; (17) whether the worker performs
services for more than one service recipient; (18) whether the
worker makes his or her services available to the general public;
(19) whether the service recipient has the right to discharge the
worker; and (20) whether the worker has the right to terminate the
relationship without incurring liability.

4 The relief granted by section 530, initially scheduled to

terminate at the end of 1979, was extended through the end of 1980
by P.l. 96-167 and through June 30, 1982, by P.L. 96-541. In the
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (P.L.
97-248), the Congress extended the section 530 relief indefinitely,
pending enactment of further statutory rules regarding the
classification of workers as employees or independent contractors.

5 This provision was contained in section 1706 of the Tax

Reform Act of 1986, (P.L. 99-514), effective for remuneration paid
and services rendered after December 31, 1986.



20

as NESE their pro rata share of the income of an S$ corporation.”
Rather, shareholders who perform services for the S corporation
are subject to FICA taxes on the wages paid to them.”

B. Description of Bill

The bill would: (1) amend the definition of NESE to include
the pro rata share of certain S corporation income of certain
shareholders and (2) modify the NESE rules applicable to limited
partners in a partnership, for SECA tax and health insurance
premium purposes.

Under the bill, in the case of a "2-percent shareholder" of
an S corporation for any taxable year who materially participates
in the activities of the corporation during the year, NESE would
include the shareholder’s pro rata share of taxable income or
loss from "service-related businesses" carried on by the S
corporation. A "2-percent shareholder" would be any shareholder
that owns more than 2 percent of the stock of an S corporation at
any time during the year (sec. 1372(b)}. The shareholder's pro
rata share of the income or loss of an S corporation would be
determined pursuant to the general rules of subchapter S (sec.
1366). . A "service-related business" would be any trade or
business involving the performance of services in the fields of
health, law, engineering, architecture, accounting, actuarial
services, performing arts, consulting, athletics, financial
services, brokerage services, or any trade or business where the
principal asset is the reputation or skill of one or more of its
employees. The present-law exclusions from NESE for certain

for employment tax purposes.

21 See, Rev. Rul. 59-221, 1959-1 C.B. 225.
2 Furthermore, a shareholder of an S corporation may be
subject to FICA tax even if the shareholder is not paid amounts
denominated as "wages" by the corporation. In Rev. Rul. 74-44,
1974-1 C.B. 287, the IRS held that two shareholders who performed
services for an S corporation but did not draw salaries were
subject to FICA tax on dividend distributions from the corporation
because the dividends represented reasonable compensation for the
services performed. The present-law validity of this 1974 ruling
following the substantial revision of the rules that apply to S
corporations and their shareholders in 1982 is unclear.

However, it is the present position of the IRS that if a
shareholder is an officer of an S$ corporation and performs
substantial services, such shareholder is an employee of the
corporation whose income is subject to FICA (but not SECA) tax.
See, Department of the Treasury, "Tax Guide for Small Businesses"
(for use in preparing 1992 returns), Publication 334, p. 136.



26

expense. In addition, the use of a "service-related trade or
business" test may provide an incentive for a service provider to
break-up a single business into separate lines of business in
order to minimize its NESE (e.g., an accounting firm that
prepares computer-generated tax returns may claim to be in two
businesses--the provision of income tax advice and the mechanical
preparation of tax returns.)

The "service-related trade or business" test may be deemed
appropriate for SECA purposes on the theory that passive
investors are unlikely to invest where the success of the
business is dependent upon the skills of another individual
rather than the application of capital. As such, the "service-
related trade or business" test may be redundant with the "2-
percent shareholder" and "material participation" tests and may
add little other than complexity to the employment tax rules.
Conversely, if an entity-level activity test is appropriate as a
separate standard for SECA purposes and is administrable, the
question arises as to whether the test should be applied to
partnerships as well. For example, under the bill, NESE would
include income from manufacturing activities conducted through a
general partnership, but not through an S corporation.

Other employment tax exceptions

In many instances, the bases for the FICA and SECA payroll
taxes are broader than the base of the income tax with respect to
the earned income of individuals. For example, several
deductions and exclusions that are allowed for income tax
purposes are not allowed for employment tax purposes. The bill
would further expand the SECA base to include additional trade or
business income of self-employed individuals by eliminating
present-law exceptions with respect to the incomes of certain S
corporation shareholders and limited partners. If one of the
goals of the bill is to expand the employment tax bases to
include as much earned income as possible, consideration should
be given as to whether there are any other present-law exceptions
and whether these exceptions are warranted. One question to be
kept in mind in determining whether an employment tax exception
is warranted is whether the individual should be entitled to
social security (or health care) benefits by virtue of the
activity to which the exception applies.

39 For example, the net operating loss deduction of section

172, the personal exemptions of section 151, and the exclusion for
income earned abroad of section 911 are not allowed for SECA
purposes.



2
I. BACKGROUND AND OVERVIEW
A. Worker Classification

Under present law, significant tax consequences’ result from
the classification of a worker as an employee or an independent
contractor.* Some of these favor employee status, while others
favor independent contractor status.

The determination of whether a worker is an employee or an
independent contractor is made under a common-law test. Under
this test, a worker is generally considered an employee if the
person contracting for the services has the right to control not
only the result of the services, but also the means by which that
resuit is accomplished. Whether the requisite control exists is
determined based on all the facts and circumstances. The
Internal Revenue Service (IRS) has developed a list of 20 factors
that may be examined in determining worker status. These factors
were developed by the IRS based on an examination of cases and
rulings.

In the late 1960s, the IRS increased enforcement of the
employment tax laws, and controversies developed between the IRS
and taxpayers as to whether businesses had correctly classified
certain workers as independent contractors rather than as
employees. In response to this problem, Congress enacted section
530 of the Revenue Act of 1978 ("section 530"), which generally
permits a taxpayer to treat an individual as not being an
employee for employment tax purposes regardless of the
individual's actual status under the common-law test, unless the
taxpayer has no reasonable basis for such treatment and if
certain additional requirements are satisfied. Section 530 does
not apply for income tax purposes. Thus, the determination of
whether an individual is an employee for income tax purposes is
made without regard to section 530.

The present-law rules for determining whether a worker is an
employee or an independent contractor continue to result in
misclassification of workers and uncertainty among taxpayers.
While the section 530 safe harbor provides a relatively clear
rule for determining worker status for employment tax purposes,
the safe harbor does not apply in all.cases, so many employers
must rely on the subjective common-law test.

Health care reform proposals do not create the issue of
proper worker classification, but put more pressure on the
determination of worker status. To the extent that a health care

2 There also may be nontax consequences, such as the
applicability of wage and hour laws.



13
and the IRS.

Another way to deal with the misclassification issue, other
than clarifying the rules, would be to reduce the differences
between the treatment of employees and independent contractors.
The more the two groups of workers are treated the same for
purposes of the employer mandate and the receipt of Federal
subsidies, the less pressure there will be on the definition of
employee. It has also been suggested that compliance problems
could be addressed, such as requiring withholding on payments to
independent contractors.*

Under present law, section 530 applies only for employment
tax purposes. In general, the provision would apply the same
definition of employee for income tax purposes and employment tax
purposes. This would likely reduce taxpayer confusion and ease
administration of the tax rules. Under present law, some
individuals who are treated as not being employees under the safe
harbor mistakenly use that status in filing their income tax
returns. A single definition would avoid such mistakes.

Health care policy issues

The question of who is an employee is fundamental to the
provisions of the bill because it has a mandated employer
contribution.® The question of whether there should be such a
mandate and whether or not health care should be delivered
through the employer is obviously a central issue in health care
reform.” From an administrative perspective, if there is an
employer mandate, a clear definition of employee would make the
system easier to administer both for the private sector and
government agencies involved. The greater differences there are
between the consequences of being an employee and not being an
employee, the more likely employers and individuals would take
aggressive positions in order to achieve the outcome they desire.

Even if there is to be an employer mandate or employer-based
system, it is not clear that the definition of employee for

4 See, U.S. General Accounting Office, Approaches for
Improving Independent Contractor Compliance, GAO/GGD-92-108 (July
1992).

% Worker classification issues also may arise in health care

proposals that do not have a mandated employer contribution.

1 Discussion of issues relating to employer mandates and use
of an employer-based health care delivery system is beyond the
scope of this pamphlet.



15

$600 or more. Also, the service-recipient must furnish to the
person receiving such payments a statement setting forth the
name, address, and taxpayer identification number of the
service-recipient, and the aggregate amount of payments made to
the payee during the year."

ilure ti e info: on returns

Any person that fails to file a correct information return’
with the IRS on or before the prescribed filing date is subject
to a penalty that varies based on when, if at all, the correct
information return is filed (sec. 6721). If a person files a
correct information return after the prescribed filing date but
on or before the date that is 30 days after the prescribed filing
date, the penalty is $15 per return, with a maximum penalty of
$75,000 per calendar year. If a person files a correct
information return after the date that is after 30 days after the
prescribed filing date but on or before August 1, the penalty is
$30 per return, with a maximum penalty of $150,000 per calendar
year. If a correct information return is not filed on or before
August 1 of any year, the amount of the penalty is $50 per
return, with a maximum penalty of $250,000 per calendar year.

There is a special rule for de minimis failures to include
the required, correct information. This exception applies to
incorrect information returns that are corrected on or before
August 1. Under the exception, if an information return is
originally filed without all the required information or with
incorrect information and the return is corrected on or before
August 1, then the original return is treated as having been
filed with all of the correct required information. The number of
information returns that may qualify for this exception for any
calendar year is limited to the greater of (1} 10 returns or (2)
one-half of one percent of the total number of information
returns that are required to be filed by the person during the
calendar year.

In addition, special, lower maximum penalty levels apply for

3 Sec. 6041A(a).

4 Sec. 6041A(e).

1 This term is defined in sec. 6724(d)(1), and refers to 21
information reporting requirements in the Code, including secs.
6041(a) and 6041A(a).



INTRODUCTION

As part of its continuing examination of health care reform
issues, the Senate Committee on Finance has scheduled a hearing
on May 3, 1994, regarding proposals contained in the Health
Security Act, (S. 1757 introduced by Sen. Mitchell and others and
S. 1775 introduced by Sen. Moynihan) relating to worker
classification and the tax treatment of certain S corporation
shareholders and partners. This document,' prepared by the staff
of the Joint Committee on Taxation, provides a description of
present law and of the proposals.

Part I of the document presents background and an overview
of the issues covered in the pamphlet in the context of health
care reform; Part II of the document relates to worker
classification; and Part III relates to the tax treatment of
certain S corporation shareholders and partners.

! This document may be cited as follows: Joint Committee on
Taxation, Description and Analysis of Proposals Relating to Worker
Classification and the Tax Treatment of Certain S Corporation
Shareholders and Partners (JCX-6-94), May 2, 1994. The description
and discussion is principally derived from the previous Joint
Committee pamphlet: Joint Committee on Taxation, Description and
Analysis of Title VII of H.R. 3600, S..1757, and S$. 1775 ("Health

Security Act") (JCS-20-93), December 20, 1993.



24

Material participation.--Under the bill, a 2-percent
shareholder need not include his or her pro rata share of S$

corporation earnings as NESE unless the shareholder materially
participates in the activities of the S corporation. This test
may be appropriate under the theory that a shareholder’s pro rata
share of S corporation earnings is not remuneration for the
services provided by the shareholder unless the shareholder
materially participates in the activities of the corporation.

In many instances, the material participation test may be
redundant with the 2-percent shareholder test (e.g., in the case
of an S corporation owned by a sole shareholder-employee) .
However, where there are multiple shareholders with multiple
duties, a determination as to the material participation of each
shareholder would be required. These determinations may be
difficult. The bill does not define "material participation."
The term is used under SECA to include certain farm rental income
as NESE (sec. 1402(a) (1)),” as well as elsewhere in the Code to
determine whether an individual may deduct losses from certain
activities in which he or she materially participates (the
passive loss rules of sec. 469). Under the passive loss rules,
"material participation" means involvement in the operations of
an activity on a basis that is "regular, continuous, and
substantial," a more rigorous test than under section 1402.”
Treasury regulations under sections 469 and 1402 provide further
guidance as to when a taxpayer’s involvement constitutes material
versus passive participation, for the respective purposes of the
two provisions. Despite this guidance, however, the
determination of "material participation" under either section is
often thought to be a difficult and subjective process.

The bill also would apply a material participation test (but
not the "2-percent shareholder" or "service-related trade or
business" tests) to limited partners. Section 469 provides that,

7 Under present law, the NESE of a owner or lessee generally
does not include rent paid in a share of agricultural or
horticultural production pursuant to an arrangement unless the
owner or lessee materially participates in the production or
Management of the commodity produced.

% It should be noted that "material participation" is used
for different purposes under sections 469 and 1402. Under section
1402, the term is used to expand the SECA tax base to include the
farm income of certain individuals. Under section 469, the term
is used to determine whether certain losses incurred by individuals
are deductible for income tax purposes. Thus, an individual
generally would want to be a "material participant" for income tax
purposes with respect to loss-generating activities, but would not
want to be a "material participant" for SECA purposes with respect
to certain farm income-generating activities.



CONTENTS

Page
INTRODUCTION 2. 1. ow 1 ee ew ee ee ke ee ee
I. BACKGROUND AND OVERVIEW. .......4...
A. Worker Classification. ...........
B. Self-employment Tax Treatment of Certain
S Corporation Shareholders and Partners .. .
Ir.

IIt.

WORKER CLASSIFICATION UNDER THE HEALTH SECURITY

AcT

A.

Definition of Employee and Protection Against
Retroactive Employment Tax Reclassifications

(secs. 7301 and 7303 of the bill) ......
1. Present Law... .....-.-.+-4-2-
2. Description of Bill ...........
3. Discussion of Issues ......

Increase in Penalties for Failure to File
Correct Information Returns with Respect to
Non-employees (sec. 7302 of the bill)

1. Present Law... 2... 2... ee ee
2. Description of Bill .........4.02.
3. Discussion of Issues ..........

MODIFICATION OF SELF-EMPLOYMENT TAX TREATMENT
OF CERTAIN S CORPORATION SHAREHOLDERS AND

PARTNERS (sec. 7141 of the bill) rs
A. Present Law... ........2...2.04
B. Description of Bill. ..........4..
Cc. Discussion of Issues ...........-4

rs)

10

14
14
17

18

19
19
20

21


11

Misclassification of workers can be either inadvertent or
deliberate. At the extremes, it will be clear whether a worker is
properly characterized as an employee or an independent
contractor. However, many work situations involve the grey area
in between--some of the 20 factors may support employee status,
while some may indicate independent contractor status. Thus, it
may be difficult to determine whether a particular case of
misclassification was deliberate or inadvertent.

Inadvertent misclassifications can occur because the
determination of proper classification is factual and reasonable
people may differ as to the correct result given a certain set of
facts. Thus, even though a taxpayer in good faith determines that
a worker is an independent contractor, an IRS agent may reach a
different conclusion by, for example, weighing some of the 20
factors differently than the taxpayer. Taxpayers wishing
certainty can obtain a private letter ruling regarding the status
of workers. However, not all taxpayers may wish to undertake the
expense of obtaining a ruling or may not be able to wait for a
ruling from the IRS. Thus, although the prohibition on issuance
of general guidance by the IRS may make the likelihood of such
errors greater, the IRS is not permitted to publish guidance
stating which factors are more relevant than others. In the
absence of such guidance, not only may taxpayers and the IRS
differ, but different IRS agents may also reach different
conclusions, resulting in inconsistent enforcement.

Misclassification of workers as independent contractors may
also be deliberate. In some cases, workers and service recipients
may prefer to classify workers as independent contractors, both
for tax and nontax reasons. For example, the worker may wish to
take advantage of the ability to contribute on a deductible basis
to a pension plan or to deduct significant work-related expenses.
A service recipient may wish to avoid the administrative burden
associated with withholding income and employment taxes. The
service recipient also may wish to avoid coverage and
nondiscrimination requirements applicable to qualified retirement
plans by classifying lower-paid workers as independent
contractors.

The bill would place greater significance on the proper
classification of a worker as an independent contractor or an
employee.’ In addition to the consequences of present law, under

7 The health care provisions of the bill may also affect

whether firms out-source some of their work or hire subcontractors
to perform it because the amount of Federal subsidies and employer
premiums may vary based on whether work is performed by
subcontractors or through similar arrangements. While some of these
arrangements may involve questions as to whether the worker is an
employee of the service recipient, in many cases the question will



14

health care purposes should be the same as it is for other
purposes. Different policies may underlie the health care rules
and income and employment tax rules, and these policies could
lead to different conclusions about proper classification. Thus,
it may not be necessary to examine the question of worker status
for income and employment tax purposes in the context of health
care reform. On the other hand, overall administrative burdens on
employers, individuals, the IRS, and those responsible for
administering the health care system and the income and
employment tax systems would be less if the rules are the same.

B. Increase in Penalties for Failure to File Correct
Information Returns with Respect to Non-employees
(sec. 7302 of the bill)

1. Present Law
orti 2 2

The Code contains a number of information reporting
requirements. One requires that a person engaged in a trade or
business who makes payments during the calendar year of $600 or
more to a person for rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or
determinable gains, profits, and income, must file an information
return with the IRS reporting the amount of such payments, as
well as the name, address and taxpayer identification number of
the person to whom such payments were made.'' A similar statement
must also be furnished to the person to whom such payments were
made.

The Code contains an additional provision requiring that a
service recipient (i.e., a person for whom services are
performed) engaged in a trade or business who makes payments of
remuneration in the course of that trade or business to any
person for services performed must file with the IRS an
information return reporting such payments (and the name,
address, and taxpayer identification number of the recipient) if
the remuneration paid to the person during the calendar year is

"Sec. 6041(a). A number of exceptions to this requirement

are provided in Treasury regulations. In addition, to the extent
the general information reporting requirements of this provision
overlap specific information reporting requirements elsewhere in
the Code, taxpayers are generally required to report only once,
under the more specific information reporting provision.

2 Sec. 6041(d).