II 

112TH CONGRESS 

2D SESSION S. 2145 

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 SENATE OF THE UNITED STATES 

MARCH 1, 2012 

Mr. KERRY (for himself, Mrs. MURRAY, Mr. AKAKA, Mr. LEAHY, Mr. 

FRANKEN, Mr. BLUMENTHAL, Mr. BROWN of Ohio, Mrs. BOXER, and 

Mr. DURBIN) introduced the following bill; which was read twice and referred to the Committee on Finance 

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, 

3 SECTION 1. SHORT TITLE; FINDINGS; PURPOSES. 

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

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


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1 (b) FINDINGS.—Congress makes the following find2 ings: 

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

4 of clarity as to the proper classification of some 

5 workers, increased IRS enforcement activity, and 

6 retroactive application by IRS of interpretations that 

7 were arguably new had caused hardships for some 

8 small businesses and other taxpayers and confusion 

9 as to the applicable rules. 

10 (2) To allow time to develop a comprehensive 

11 approach to the problem, Congress enacted section 

12 530 of the Revenue Act of 1978 as an interim meas13 ure protecting taxpayers from liability for 

14 misclassification if the taxpayer has a reasonable 

15 basis for classifying a worker as an independent con16 tractor and meets certain other conditions. In addi17 tion, the Act prohibited the Secretary of the Treas18 ury from publishing regulations or revenue rulings 

19 on workers’ employment tax status pending the ex20 pected near-term enactment of clarifying legislation. 

21 (3) During the ensuing 33 years, Congress 

22 made section 530 of the Revenue Act of 1978 per23 manent, however, changes in working relationships 

24 and the continued prohibition on new guidance have 


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1 increased the uncertainty as to the proper classifica2 tion of workers. 

3 (4) Many workers are properly classified as 

4 independent contractors. In other instances, workers 

5 who are employees are being treated as independent 

6 contractors. Such misclassification for tax purposes 

7 contributes to inequities in the competitive positions 

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

9 and may also result in misclassification for other 

10 purposes, such as denial of unemployment benefits, 

11 workplace health and safety protections, and retire12 ment or other benefits or protections available to 

13 employees. 

14 (5) Workers, businesses, and other taxpayers 

15 will benefit from clear guidance regarding employ16 ment tax status. In the interest of fairness and in 

17 view of many service recipients’ reliance on current 

18 section 530, such guidance should apply only pro19 spectively. 

20 (c) PURPOSES.—The purposes of this Act are to per21 mit the Secretary of the Treasury to provide guidance al22 lowing workers and businesses to clearly understand the 

23 proper federal tax classification of workers and to provide 

24 relief allowing an orderly transition to new rules designed 

25 to increase certainty and uniformity of treatment. 


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1 SEC. 2. AUTHORITY TO ISSUE GUIDANCE CLARIFYING EM2 PLOYMENT STATUS FOR PURPOSES OF EM3 PLOYMENT TAXES. 

4 (a) IN GENERAL.—Chapter 25 of the Internal Rev5 enue Code of 1986 is amended by adding at the end the 

6 following new section: 

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

8 EMPLOYMENT STATUS. 

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

10 regulations or other guidance as the Secretary determines 

11 to be necessary or appropriate to clarify the proper em12 ployment status of individuals for purposes of any tax im13 posed by this subtitle. 

14 ‘‘(b) PROHIBITION ON RETROACTIVE ASSESS15 MENTS.— 

16 ‘‘(1) IN GENERAL.—If— 

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

18 this subtitle, the taxpayer did not treat an indi19 vidual as an employee for any period before the 

20 reclassification date with respect to such indi21 vidual, and 

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

23 31, 1978, and before such reclassification date, 

24 all Federal tax returns (including information 

25 returns) required to be filed by the taxpayer 

26 with respect to such individual for such period 


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1 are filed on a basis consistent with the tax2 payer’s treatment of such individual as not 

3 being an employee, 

4 then, for purposes of applying such taxes for periods 

5 before such reclassification date with respect to the 

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

7 employee unless the taxpayer had no reasonable 

8 basis for not treating such individual as an em9 ployee. 

10 ‘‘(2) STATUTORY STANDARDS PROVIDING ONE

11 METHOD OF SATISFYING THE REQUIREMENTS OF

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

13 taxpayer shall in any case be treated as having a 

14 reasonable basis for not treating an individual as an 

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

16 such individual for such period was in reasonable re17 liance on any of the following: 

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

19 technical advice with respect to the taxpayer, or 

20 a letter ruling to the taxpayer. 

21 ‘‘(B) A past Internal Revenue Service 

22 audit of the taxpayer in which there was no as23 sessment attributable to the treatment (for pur24 poses of any tax imposed by this subtitle) of the 


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1 individuals holding positions substantially simi2 lar to the position held by such individual. 

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

4 a significant segment of the industry in which 

5 such individual was engaged. 

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

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

8 apply with respect to the treatment of any individual 

9 (hereafter in this paragraph referred to as the re10 classified individual) for purposes of any tax im11 posed by this subtitle for any period ending after 

12 December 31, 1978, if the taxpayer (or a prede13 cessor) has treated any individual holding a substan14 tially similar position as an employee for purposes of 

15 any tax imposed by this subtitle for any period be16 ginning after December 31, 1977, and ending before 

17 the reclassification date with respect to such reclas18 sified individual. 

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

20 ‘‘(1) RECLASSIFICATION DATE.— 

21 ‘‘(A) IN GENERAL.—The term ‘reclassifica22 tion date’ means, with respect to any individual, 

23 the earlier of— 

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

25 quarter beginning more than 180 days 


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1 after the date of an employee classification 

2 determination with respect to such indi3 vidual, or 

4 ‘‘(ii) the effective date of the first ap5 plicable final regulation issued by the Sec6 retary under subsection (a) with respect to 

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

8 the first calendar quarter beginning more 

9 than 180 days after such regulation is 

10 issued). 

11 ‘‘(B) EMPLOYEE CLASSIFICATION DETER12 MINATION.—The term ‘employee classification 

13 determination’ means, with respect to any indi14 vidual, a determination by the Secretary, in 

15 connection with an audit of the taxpayer which 

16 is described in section 7436 and which com17 mences after the date which is 1 year after the 

18 date of the enactment of this section, that a 

19 class of individuals holding positions with such 

20 taxpayer which are substantially similar to the 

21 position held by such individual are employees. 

22 ‘‘(C) FIRST APPLICABLE FINAL REGULA23 TION.—The term ‘first applicable final regula24 tion’ means, with respect to any individual, the 

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1 eral applicability) which sets forth the factors 

2 for determining the employment status of a 

3 class of individuals holding positions substan4 tially similar to the position held by such indi5 vidual. 

6 ‘‘(2) EMPLOYMENT STATUS.—The term ‘em7 ployment status’ means the status of an individual, 

8 under the usual common law rules applicable in de9 termining the employer-employee relationship, as an 

10 employee or as an independent contractor (or other 

11 individual who is not an employee). 

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

13 ‘‘(1) EXCEPTION FOR CERTAIN SKILLED WORK14 ERS.—Subsection (b) shall not apply in the case of 

15 an individual who, pursuant to an arrangement be16 tween the taxpayer and another person, provides 

17 services for such other person as an engineer, de18 signer, drafter, computer programmer, systems ana19 lyst, or other similarly skilled worker engaged in a 

20 similar line of work. 

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

22 An officer or employee of the Internal Revenue Serv23 ice shall, before or at the commencement of any 

24 audit inquiry relating to the employment status of 

25 one or more individuals who perform services for the 


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1 taxpayer, provide the taxpayer with a written notice 

2 of the provisions of this section. 

3 ‘‘(3) RULES RELATING TO STATUTORY STAND4 ARDS.—For purposes of subsection (b)(2)— 

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

6 commenced after December 31, 1996, for pur7 poses of subparagraph (B) thereof unless such 

8 audit included an examination for purposes of 

9 any tax imposed by this subtitle whether the in10 dividual involved (or any individual holding a 

11 position substantially similar to the position 

12 held by the individual involved) should be treat13 ed as an employee of the taxpayer, 

14 ‘‘(B) in no event shall the significant seg15 ment requirement of subparagraph (C) thereof 

16 be construed to require a reasonable showing of 

17 the practice of more than 25 percent of the in18 dustry (determined by not taking into account 

19 the taxpayer), and 

20 ‘‘(C) in applying the long-standing recog21 nized practice requirement of subparagraph (C) 

22 thereof— 

23 ‘‘(i) such requirement shall not be 

24 construed as requiring the practice to have 

25 continued for more than 10 years, and 


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

2 treated as long-standing merely because 

3 such practice began after 1978. 

4 ‘‘(4) AVAILABILITY OF SAFE HARBORS.—Noth5 ing in this section shall be construed to provide that 

6 subsection (b) only applies where the individual in7 volved is otherwise an employee of the taxpayer. 

8 ‘‘(5) BURDEN OF PROOF.— 

9 ‘‘(A) IN GENERAL.—If— 

10 ‘‘(i) a taxpayer establishes a prima 

11 facie case that it was reasonable not to 

12 treat an individual as an employee for pur13 poses of subsection (b), and 

14 ‘‘(ii) the taxpayer has fully cooperated 

15 with reasonable requests from the Sec16 retary, 

17 then the burden of proof with respect to such 

18 treatment shall be on the Secretary. 

19 ‘‘(B) EXCEPTION FOR OTHER REASONABLE

20 BASIS.—In the case of any issue involving 

21 whether the taxpayer had a reasonable basis 

22 not to treat an individual as an employee for 

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

24 shall only apply for purposes of determining 

25 whether the taxpayer meets the requirements of 


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

2 (b)(2). 

3 ‘‘(6) PRESERVATION OF PRIOR PERIOD SAFE

4 HARBOR.—If— 

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

6 treatment referred to in subparagraph (B)) be 

7 deemed not to be an employee of the taxpayer 

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

9 ‘‘(B) such individual is treated by the tax10 payer as an employee for purposes of the taxes 

11 imposed by this subtitle for any subsequent pe12 riod, 

13 then, for purposes of applying such taxes for such 

14 prior period with respect to the taxpayer, the indi15 vidual shall be deemed not to be an employee. 

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

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

18 determination as to whether an individual holds a 

19 position substantially similar to a position held by 

20 another individual shall include consideration of the 

21 relationship between the taxpayer and such individ22 uals. 

23 ‘‘(8) TREATMENT OF TEST ROOM SUPERVISORS

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1 TION OF COLLEGE ENTRANCE AND PLACEMENT

2 EXAMS.— 

3 ‘‘(A) IN GENERAL.—In the case of an indi4 vidual described in subparagraph (B) who is 

5 providing services as a test proctor or room su6 pervisor by assisting in the administration of 

7 college entrance or placement examinations, 

8 subsection (b) shall be applied to such services 

9 performed after December 31, 2006 (and remu10 neration paid for such services) without regard 

11 to paragraph (3) thereof. 

12 ‘‘(B) APPLICABILITY.—An individual is de13 scribed in this subparagraph if the individual— 

14 ‘‘(i) is providing the services described 

15 in subsection (b) to an organization de16 scribed in section 501(c) and exempt from 

17 tax under section 501(a), and 

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

19 employee of such organization for purposes 

20 of this subtitle. 

21 ‘‘(9) TREATMENT OF SECURITIES BROKER

22 DEALERS.—In determining for purposes of this title 

23 whether a registered representative of a securities 

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

25 3121(d)), no weight shall be given to instructions 


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1 from the service recipient which are imposed only in 

2 compliance with investor protection standards im3 posed by the Federal Government, any State govern4 ment, or a governing body pursuant to a delegation 

5 by a Federal or State agency. 

6 ‘‘(e) STATEMENTS TO INDEPENDENT CONTRAC7 TORS.— 

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

9 for the services of an independent contractor on a 

10 regular and ongoing basis, within the scope of such 

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

12 statement to such independent contractor notifying 

13 such independent contractor of the Federal tax obli14 gations of an independent contractor, the labor and 

15 employment law protections that do not apply to 

16 independent contractors, and the right of such inde17 pendent contractor to seek a status determination 

18 from the Internal Revenue Service. 

19 ‘‘(2) INDEPENDENT CONTRACTOR.—For pur20 poses of this subsection, the term ‘independent con21 tractor’ means any individual who is not treated as 

22 an employee by the person receiving the services re23 ferred to in paragraph (1). 

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1 quired under paragraph (1) shall be provided within 

2 a reasonable period of entering into the contract re3 ferred to in paragraph (1). 

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

5 The Secretary shall develop model materials for pro6 viding the statement required under paragraph 

7 (1).’’. 

8 (b) REDUCED PENALTY NOT APPLICABLE IN CASES

9 OF NONCOMPLIANCE WITH GUIDANCE WITHOUT REA10 SONABLE BASIS.—Subsection (c) of section 3509 of the 

11 Internal Revenue Code of 1986 is amended— 

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

13 ‘‘if— 

14 ‘‘(1) such liability’’, and 

15 (2) by striking the period at the end and insert16 ing ‘‘, or 

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

18 is treated as an employee under regulations or other 

19 guidance issued by the Secretary under section 

20 3511(a) and the taxpayer lacks a reasonable basis 

21 for treating the individual as other than an em22 ployee. 

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

24 determination from the Internal Revenue Service holding 

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1 other individual who holds a position with the taxpayer 

2 substantially similar to the position held by such indi3 vidual) is an employee, such taxpayer shall be treated for 

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

5 for treating such individual as other than an employee 

6 with respect to periods beginning on and after the first 

7 day of the first calendar quarter beginning more than 180 

8 days after the date of such written determination unless 

9 the taxpayer establishes by clear and convincing evidence 

10 that the taxpayer has a reasonable basis for such treat11 ment.’’. 

12 (c) CONFORMING AMENDMENTS.— 

13 (1) Paragraph (2) of section 6724(d) of the In14 ternal Revenue Code of 1986 is amended by striking 

15 ‘‘or’’ at the end of subparagraph (GG), by striking 

16 the period at the end of subparagraph (HH) and in17 serting ‘‘, or’’, and by inserting after subparagraph 

18 (HH) the following new subparagraph: 

19 ‘‘(II) section 3511(e) (relating to state20 ments to independent contractors).’’. 

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

22 Code is amended by striking ‘‘subsection (a) of sec23 tion 530 of the Revenue Act of 1978’’ and inserting 

24 ‘‘section 3511(b)’’. 


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

2 Code is amended by adding at the end the following 

3 new item: 

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

4 (d) TERMINATION OF SECTION 530 OF THE REV5 ENUE ACT OF 1978.—The Revenue Act of 1978 is amend6 ed by striking section 530. 

7 (e) REPORTS ON WORKER MISCLASSIFICATION.—Be8 ginning with the first fiscal year beginning after the date 

9 the first regulation or other guidance is issued for public 

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

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

12 (1) A report each fiscal year on worker classi13 fication which shall include the total number of ex14 aminations of employers initiated because of sus15 pected worker classification issues, the total number 

16 of examinations that included determinations on 

17 worker classification issues, the amount of additional 

18 tax liabilities associated with worker classification 

19 enforcement actions, the number of workers reclassi20 fied as a result of these actions, the number of re21 quests for Determination of Worker Status (Form 

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

23 the data provided in the report. 

24 (2) A report each fiscal year in which new sta25 tistically valid data is compiled and interpreted on 


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1 worker classification, prepared on the basis of infor2 mation gathered during an Employment Tax Study 

3 conducted by the National Research Program (NRP) 

4 of the Internal Revenue Service. Such report shall 

5 provide statistical estimates of the number of em6 ployers misclassifying workers, the number of work7 ers misclassified, the industries involved, data inter8 pretations and conclusions, and a description of the 

9 impact of improper worker classification on the em10 ployment tax gap. 

11 (f) EFFECTIVE DATES.— 

12 (1) DELAYED EFFECTIVE DATE OF REGULA13 TIONS AND GUIDANCE.—Except as provided in para14 graph (2), any regulation or other guidance issued 

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

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

17 services rendered before the date which is 1 year 

18 after the date of the enactment of this Act. 

19 (2) TREATMENT OF SECURITIES BROKER DEAL20 ERS.—Paragraph (9) of section 3511(d) of the In21 ternal Revenue Code of 1986, as added by this sec22 tion, shall apply to services performed after Decem23 ber 31, 1997. 

24 (3) AUTHORITY TO ISSUE REGULATIONS AND

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1 ment made by subsection (d) as relates to subsection 

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

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

4 (4) DELAYED TERMINATION OF REMAINDER OF

5 SECTION 530 OF THE REVENUE ACT OF 1978.—Ex6 cept as provided in paragraph (3), the amendments 

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

8 services rendered on or after the date which is 1 

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

Æ 


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