I

104TH CONGRESS

1ST SESSION H. R. 1972

To amend the Internal Revenue Code of 1986 to clarify the standards used

for determining whether individuals are not employees.

IN THE HOUSE OF REPRESENTATIVES

JUNE 30, 1995

Mr. CHRISTENSEN (for himself, Mr. ARMEY, Mr. DELAY, Mr. BLILEY, Mr.

HYDE, Mr. KASICH, Mr. LIVINGSTON, Mrs. MEYERS of Kansas, Mr.

ROBERTS, Mr. WALKER, Mr. CRANE, Mr. THOMAS, Mr. BUNNING of

Kentucky, Mr. MCCRERY, Mr. HANCOCK, Mr. CAMP, Mr. RAMSTAD, Mr.

ZIMMER, Mr. SAM JOHNSON of Texas, Ms. DUNN of Washington, Mr.

PORTMAN, Mr. ENGLISH of Pennsylvania, Mr. ENSIGN, Mr. BARTLETT

of Maryland, Mr. BILIRAKIS, Mr. BLUTE, Mr. BREWSTER, Mr.

BROWNBACK, Mr. BRYANT of Tennessee, Mr. BUNN of Oregon, Mr.

BURR, Mr. CANADY of Florida, Mr. CHRYSLER, Mr. COBLE, Mr. COX of

California, Mr. CRAMER, Mrs. CUBIN, Mr. CUNNINGHAM, Mr. DAVIS, Mr.

DEAL of Georgia, Mr. DICKEY, Mr. DOOLITTLE, Mr. DORNAN, Mr.

DREIER, Mr. EMERSON, Mr. EWING, Mr. FOX of Pennsylvania, Mr.

GALLEGLY, Mr. GANSKE, Mr. GILCHREST, Mr. GUTKNECHT, Mr.

HASTERT, Mr. HAYWORTH, Mr. HEINEMAN, Mr. HILLEARY, Mr.

HOEKSTRA, Mr. HOSTETTLER, Mr. HUNTER, Mr. HUTCHINSON, Mr.

INGLIS of South Carolina, Mr. JONES, Mr. KIM, Mr. KINGSTON, Mr.

LARGENT, Mr. LATHAM, Mr. LATOURETTE, Mr. LINDER, Mr. LONGLEY,

Mr. LUCAS, Mr. MCINTOSH, Mr. MARTINEZ, Mr. METCALF, Mr. MICA,

Mr. MOORHEAD, Mrs. MYRICK, Mr. NEUMANN, Mr. NORWOOD, Mr. PORTER, Mr. RIGGS, Mr. ROHRABACHER, Mr. ROTH, Mr. SCARBOROUGH,

Mr. SHADEGG, Mr. SMITH of Michigan, Mr. SMITH of New Jersey, Mr.

SMITH of Texas, Mrs. SMITH of Washington, Mr. SOUDER, Mr. STOCKMAN, Mr. STUMP, Mr. TALENT, Mr. TIAHRT, Mr. TOWNS, Mr. UPTON,

Mr. WALSH, Mr. WAMP, Mr. WATTS of Oklahoma, Mr. WELDON of Florida, Mr. WICKER, Mr. WOLF, and Mr. ZELIFF) introduced the following

bill; which was referred to the Committee on Ways and Means
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A BILL

To amend the Internal Revenue Code of 1986 to clarify

the standards used for determining whether individuals

are not employees.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Independent Contrac5 tor Tax Simplification Act of 1995’’.

6 SEC. 2. FINDINGS.

7 The Congress finds that:

8 (1) Simplifying the tax rules with respect to

9 independent contractors was the top vote-getter at

10 the 1995 White House Conference on Small Busi11 ness. Conference delegates recommended that Con12 gress ‘‘should recognize the legitimacy of an inde13 pendent contractor’’. The Conference found that the

14 current common law is ‘‘too subjective’’ and called

15 upon the Congress to establish ‘‘realistic and con16 sistent guidelines’’.

17 (2) It is in the best interests of taxpayers and

18 the Federal Government to have fair and objective

19 rules for determining who is an employee and who

20 is an independent contractor.
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1 SEC. 3. STANDARDS FOR DETERMINING WHETHER INDIVID2 UALS ARE NOT EMPLOYEES.

3 (a) IN GENERAL.—Chapter 25 of the Internal Reve4 nue Code of 1986 (general provisions relating to employ5 ment taxes) is amended by adding after section 3510 the

6 following new section:

7 ‘‘SEC. 3511. STANDARDS FOR DETERMINING WHETHER IN8 DIVIDUALS ARE NOT EMPLOYEES.

9 ‘‘(a) GENERAL RULE.—For purposes of this subtitle,

10 and notwithstanding any provision of this subtitle to the

11 contrary, if the requirements of subsections (b), (c), and

12 (d) are met with respect to any service performed by any

13 individual, then with respect to such service—

14 ‘‘(1) the service provider shall not be treated as

15 an employee,

16 ‘‘(2) the service recipient shall not be treated as

17 an employer, and

18 ‘‘(3) the payor shall not be treated as an em19 ployer.

20 ‘‘(b) SERVICE PROVIDER REQUIREMENTS WITH RE21 GARD TO SERVICE RECIPIENT.—For the purposes of sub22 section (a), the requirements of this subsection are met

23 if the service provider, in connection with performing the

24 service—

25 ‘‘(1) has a significant investment in assets and/

26 or training,
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1 ‘‘(2) incurs significant unreimbursed expenses,

2 ‘‘(3) agrees to perform the service for a particu3 lar amount of time or to complete a specific result

4 and is liable for damages for early termination with5 out cause,

6 ‘‘(4) is paid primarily on a commissioned basis,

7 or

8 ‘‘(5) purchases products for resale.

9 ‘‘(c) ADDITIONAL SERVICE PROVIDER REQUIRE10 MENTS WITH REGARD TO OTHERS.—For the purposes of

11 subsection (a), the requirements of this subsection are met

12 if—

13 ‘‘(1) the service provider—

14 ‘‘(A) has a principal place of business,

15 ‘‘(B) does not primarily provide the service

16 in the service recipient’s place of business, or

17 ‘‘(C) pays a fair market rent for use of the

18 service recipient’s place of business; or

19 ‘‘(2) the service provider—

20 ‘‘(A) is not required to perform service ex21 clusively for the service recipient, and

22 ‘‘(B) in the year involved, or in the preced23 ing or subsequent year—

24 ‘‘(i) has performed a significant

25 amount of service for other persons,
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1 ‘‘(ii) has offered to perform service for

2 other persons through—

3 ‘‘(I) advertising,

4 ‘‘(II) individual written or oral

5 solicitations,

6 ‘‘(III) listing with registries,

7 agencies, brokers, and other persons

8 in the business of providing referrals

9 to other service recipients, or

10 ‘‘(IV) other similar activities, or

11 ‘‘(iii) provides service under a busi12 ness name which is registered with (or for

13 which a license has been obtained from) a

14 State, a political subdivision of a State, or

15 any agency or instrumentality of 1 or more

16 States or political subdivisions.

17 ‘‘(d) WRITTEN DOCUMENT REQUIREMENTS.—For

18 purposes of subsection (a), the requirements of this sub19 section are met if the services performed by the individual

20 are performed pursuant to a written contract between

21 such individual and the person for whom the services are

22 performed, or the payor, and such contract provides that

23 the individual will not be treated as an employee with re24 spect to such services for purposes of this subtitle.
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1 ‘‘(e) SPECIAL RULES.—For purposes of this sec2 tion—

3 ‘‘(1) If for any taxable year any service recipi4 ent or payor fails to meet the applicable reporting

5 requirements of sections 6041(a), 6041A(a), or 6051

6 with respect to a service provider, then, unless such

7 failure is due to reasonable cause and not willful ne8 glect, this section shall not apply in determining

9 whether such service provider shall not be treated as

10 an employee of such service recipient or payor for

11 such year.

12 ‘‘(2) If the service provider is performing serv13 ices through an entity owned in whole or in part by

14 such service provider, then the references to ‘service

15 provider’ in subsections (b) through (d) may include

16 such entity, provided that the written contract re17 ferred to in paragraph (1) of subsection (d) may be

18 with either the service provider or such entity and

19 need not be with both.

20 ‘‘(f) DEFINITIONS.—For the purposes of this sec21 tion—

22 ‘‘(1) SERVICE PROVIDER.—The term ‘service

23 provider’ means any individual who performs service

24 for another person.
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1 ‘‘(2) SERVICE RECIPIENT.—Except as provided

2 in paragraph (5), the term ‘service recipient’ means

3 the person for whom the service provider performs

4 such service.

5 ‘‘(3) PAYOR.—Except as provided in paragraph

6 (5), the term ‘payor’ means the person who pays the

7 service provider for the performance of such service

8 in the event that the service recipients do not pay

9 the service provider.

10 ‘‘(4) IN CONNECTION WITH PERFORMING THE

11 SERVICE.—The term ‘in connection with performing

12 the service’ means in connection or related to—

13 ‘‘(A) the actual service performed by the

14 service provider for the service recipients or for

15 other persons for whom the service provider has

16 performed similar service, or

17 ‘‘(B) the operation of the service provider’s

18 trade or business.

19 ‘‘(5) EXCEPTIONS.—The terms ‘service recipi20 ent’ and ‘payor’ do not include any entity which is

21 owned in whole or in part by the service provider.’’

22 (b) CLERICAL AMENDMENT.—The table of sections

23 for chapter 25 of such Code is amended by adding at the

24 end the following new item:

‘‘Sec. 3511. Standards for determining whether individuals are

not employees.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this Act shall apply to services performed after December

3 31, 1995.

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