I

107TH CONGRESS

1ST SESSION H. R. 1182

To amend the Internal Revenue Code of 1986 to expand the tip tax credit

to employers of cosmetologists and to promote tax compliance in the

cosmetology sector.

IN THE HOUSE OF REPRESENTATIVES

MARCH 22, 2001

Mrs. JOHNSON of Connecticut (for herself, Mr. MATSUI, Ms. DUNN, Mr.

LEWIS of Georgia, Mr. GREEN of Wisconsin, and Mr. MCDERMOTT) introduced the following bill; which was referred to the Committee on Ways

and Means

A BILL

To amend the Internal Revenue Code of 1986 to expand

the tip tax credit to employers of cosmetologists and

to promote tax compliance in the cosmetology sector.

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 ‘‘Cosmetology Tax Fair5 ness and Compliance Act of 2001’’.
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1 SEC. 2. EXPANSION OF CREDIT FOR PORTION OF SOCIAL

2 SECURITY TAXES PAID WITH RESPECT TO

3 EMPLOYEE TIPS.

4 (a) EXPANSION OF CREDIT TO OTHER LINES OF

5 BUSINESS.—Paragraph (2) of section 45B(b) of the Inter6 nal Revenue Code of 1986 is amended to read as follows:

7 ‘‘(2) APPLICATION ONLY TO CERTAIN LINES OF

8 BUSINESS.—In applying paragraph (1), there shall

9 be taken into account only tips received from cus10 tomers or clients in connection with—

11 ‘‘(A) the providing, delivering, or serving

12 of food or beverages for consumption if the tip13 ping of employees delivering or serving food or

14 beverages by customers is customary, or

15 ‘‘(B) the providing of any cosmetology

16 service for customers or clients at a facility li17 censed to provide such service if the tipping of

18 employees providing such service is customary.’’

19 (b) DEFINITION OF COSMETOLOGY SERVICE.—Sec20 tion 45B of such Code is amended by redesignating sub21 sections (c) and (d) as subsections (d) and (e), respec22 tively, and by inserting after subsection (b) the following

23 new subsection:

24 ‘‘(c) COSMETOLOGY SERVICE.—For purposes of this

25 section, the term ‘cosmetology service’ means—

26 ‘‘(1) hairdressing,
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1 ‘‘(2) haircutting,

2 ‘‘(3) manicures and pedicures,

3 ‘‘(4) body waxing, facials, mud packs, wraps,

4 and other similar skin treatments, and

5 ‘‘(5) any other beauty related service provided

6 at a facility at which a majority of the services pro7 vided (as determined on the basis of gross revenue)

8 are described in paragraphs (1) through (4).’’

9 (c) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to tips received for services per11 formed after December 31, 2001.

12 SEC. 3. INFORMATION REPORTING AND TAXPAYER EDU13 CATION FOR PROVIDERS OF COSMETOLOGY

14 SERVICES.

15 (a) IN GENERAL.—Subpart B of part III of sub16 chapter A of chapter 61 of the Internal Revenue Code of

17 1986 is amended by inserting after section 6050S the fol18 lowing new section:

19 ‘‘SEC. 6050T. RETURNS RELATING TO COSMETOLOGY SERV20 ICES AND INFORMATION TO BE PROVIDED TO

21 COSMETOLOGISTS.

22 ‘‘(a) IN GENERAL.—Every person (referred to in this

23 section as a ‘reporting person’) who—

24 ‘‘(1) employs 1 or more cosmetologists to pro25 vide any cosmetology service,
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1 ‘‘(2) rents a chair to 1 or more cosmetologists

2 to provide any cosmetology service on at least 5 cal3 endar days during a calendar year, or

4 ‘‘(3) in connection with its trade or business or

5 rental activity, otherwise receives compensation

6 from, or pays compensation to, 1 or more cosmetolo7 gists for the right to provide cosmetology services to,

8 or for cosmetology services provided to, third-party

9 patrons,

10 shall comply with the return requirements of subsection

11 (b) and the taxpayer education requirements of subsection

12 (c).

13 ‘‘(b) RETURN REQUIREMENTS.—The return require14 ments of this subsection are met by a reporting person

15 if the requirements of each of the following paragraphs

16 applicable to such person are met.

17 ‘‘(1) EMPLOYEES.—In the case of a reporting

18 person who employs 1 or more cosmetologists to pro19 vide cosmetology services, the requirements of this

20 paragraph are met if such person meets the require21 ments of sections 6051 (relating to receipts for em22 ployees) and 6053(b) (relating to tip reporting) with

23 respect to each such employee.

24 ‘‘(2) INDEPENDENT CONTRACTORS.—In the

25 case of a reporting person who pays compensation to
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1 1 or more cosmetologists (other than as employees)

2 for cosmetology services provided to third-party pa3 trons, the requirements of this paragraph are met if

4 such person meets the applicable requirements of

5 section 6041 (relating to returns filed by persons

6 making payments of $600 or more in the course of

7 a trade or business), section 6041A (relating to re8 turns to be filed by service-recipients who pay more

9 than $600 in a calendar year for services from a

10 service provider), and each other provision of this

11 subpart that may be applicable to such compensa12 tion.

13 ‘‘(3) CHAIR RENTERS.—

14 ‘‘(A) IN GENERAL.—In the case of a re15 porting person who receives rent or other fees

16 or compensation from 1 or more cosmetologists

17 for use of a chair or for rights to provide any

18 cosmetology service at a salon or other similar

19 facility for more than 5 days in a calendar year,

20 the requirements of this paragraph are met if

21 such person—

22 ‘‘(i) makes a return, according to the

23 forms or regulations prescribed by the Sec24 retary, setting forth the name, address,

25 and TIN of each such cosmetologist and
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1 the amount received from each such cos2 metologist, and

3 ‘‘(ii) furnishes to each cosmetologist

4 whose name is required to be set forth on

5 such return a written statement showing—

6 ‘‘(I) the name, address, and

7 phone number of the information con8 tact of the reporting person,

9 ‘‘(II) the amount received from

10 such cosmetologist, and

11 ‘‘(III) a statement informing

12 such cosmetologist that (as required

13 by this section), the reporting person

14 has advised the Internal Revenue

15 Service that the cosmetologist pro16 vided cosmetology services during the

17 calendar year to which the statement

18 relates.

19 ‘‘(B) METHOD AND TIME FOR PROVIDING

20 STATEMENT.—The written statement required

21 by clause (ii) of subparagraph (A) shall be fur22 nished (either in person or by first-class mail

23 which includes adequate notice that the state24 ment or information is enclosed) to the person

25 on or before January 31 of the year following
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1 the calendar year for which the return under

2 clause (i) of subparagraph (A) is to be made.

3 ‘‘(c) TAXPAYER EDUCATION REQUIREMENTS.—In

4 the case of a reporting person who is required to provide

5 a statement pursuant to subsection (b), the requirements

6 of this subsection are met if such person provides to each

7 such cosmetologist annually a publication, as designated

8 by the Secretary, describing—

9 ‘‘(1) in the case of an employee, the tax and tip

10 reporting obligations of employees, and

11 ‘‘(2) in the case of a cosmetologist who is not

12 an employee of the reporting person, the tax obliga13 tions of independent contractors or proprietorships.

14 The publications shall be furnished either in person or by

15 first-class mail which includes adequate notice that the

16 publication is enclosed.

17 ‘‘(d) DEFINITIONS.—For purposes of this section—

18 ‘‘(1) COSMETOLOGIST.—

19 ‘‘(A) IN GENERAL.—The term ‘cosmetolo20 gist’ means an individual who provides any cos21 metology service.

22 ‘‘(B) ANTI-AVOIDANCE RULE.—The Sec23 retary may by regulation or ruling expand the

24 term ‘cosmetologist’ to include any entity or ar25 rangement if the Secretary determines that en-
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1 tities are being formed to circumvent the re2 porting requirements of this section.

3 ‘‘(2) COSMETOLOGY SERVICE.—The term ‘cos4 metology service’ has the meaning given to such

5 term by section 45B(c).

6 ‘‘(3) CHAIR.—The term ‘chair’ includes a chair,

7 booth, or other furniture or equipment from which

8 an individual provides a cosmetology service (deter9 mined without regard to whether the cosmetologist

10 is entitled to use a specific chair, booth, or other

11 similar furniture or equipment or has an exclusive

12 right to use any such chair, booth, or other similar

13 furniture or equipment).

14 ‘‘(e) EXCEPTIONS FOR CERTAIN EMPLOYEES.—Sub15 section (c) shall not apply to a reporting person with re16 spect to an employee who is employed in a capacity for

17 which tipping (or sharing tips) is not customary.’’

18 (b) CONFORMING AMENDMENTS.—

19 (1) Section 6724(d)(1)(B) of such Code (relat20 ing to the definition of information returns) is

21 amended by redesignating clauses (xi) through (xvii)

22 as clauses (xii) through (xviii), respectively and by

23 inserting after clause (x) the following new clause:

24 ‘‘(xi) section 6050T(a) (relating to re25 turns by cosmetology service providers).’’
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1 (2) Section 6724(d)(2) of such Code is

2 amended—

3 (A) by striking ‘‘or’’ at the end of subpara4 graph (Z) and inserting a comma,

5 (B) by striking the period at the end of

6 subparagraph (AA) and inserting ‘‘, or’’, and

7 (C) by inserting after subparagraph (AA)

8 the following new subparagraph:

9 ‘‘(BB) subsections (b)(3)(A)(ii) and (c) of

10 section 6050T (relating to cosmetology service

11 providers) even if the recipient is not a payee.’’

12 (3) The table of sections for subpart B of part

13 III of subchapter A of chapter 61 of the Internal

14 Revenue Code of 1986 is amended by adding after

15 section 6050S the following new item:

‘‘Sec. 6050T. Returns relating to cosmetology services and information to be provided to cosmetologists.’’

16 (c) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to calendar years after 2001.

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