I 

111TH CONGRESS 

1ST SESSION H. R. 3408 

To amend the Internal Revenue Code of 1986 to modify the rules relating 

to the treatment of individuals as independent contractors or employees, 

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 30, 2009 

Mr. MCDERMOTT (for himself, Mr. NEAL of Massachusetts, and Mr. 

TIERNEY) 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 modify 

the rules relating to the treatment of individuals as independent contractors or employees, and for other purposes. 

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 ‘‘Taxpayer Responsi5 bility, Accountability, and Consistency Act of 2009’’. 


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1 SEC. 2. INFORMATION REPORTING FOR PAYMENTS TO COR2 PORATIONS. 

3 (a) IN GENERAL.—Section 6041 of the Internal Rev4 enue Code of 1986 (relating to information at source) is 

5 amended by adding at the end the following new sub6 section: 

7 ‘‘(h) PAYMENTS TO CORPORATIONS.— 

8 ‘‘(1) IN GENERAL.—Notwithstanding any regu9 lations prescribed by the Secretary before the date 

10 of the enactment of this subsection, subsection (a) 

11 shall apply to payments made to a corporation. 

12 ‘‘(2) EXCEPTION.—Paragraph (1) shall not 

13 apply to payments made to a hospital or extended 

14 care facility described in section 501(c)(3) which is 

15 exempt from taxation under section 501(a) or to a 

16 hospital or extended care facility owned and oper17 ated by the United States, a State, the District of 

18 Columbia, a possession of the United States, or a 

19 political subdivision, agency or instrumentality of 

20 any of the foregoing.’’. 

21 (b) EFFECTIVE DATE.—The amendment made by 

22 this section shall apply to payments made more than 1 

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


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1 SEC. 3. DETERMINATION OF ELIGIBILITY FOR SAFE HAR2 BOR TREATMENT OF INDIVIDUALS AS NON3 EMPLOYEES FOR PURPOSES OF EMPLOY4 MENT TAXES. 

5 (a) IN GENERAL.—Chapter 25 of the Internal Rev6 enue Code of 1986 (relating to general provisions relating 

7 to employment taxes) is amended by adding at the end 

8 the following new section: 

9 ‘‘SEC. 3511. SAFE HARBOR. 

10 ‘‘(a) TERMINATION OF CERTAIN EMPLOYMENT TAX

11 LIABILITY.— 

12 ‘‘(1) IN GENERAL.—If— 

13 ‘‘(A) for purposes of employment taxes, the 

14 taxpayer did not treat an individual as an em15 ployee for any period, and 

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

17 31, 1978, all Federal tax returns (including in18 formation returns) required to be filed by the 

19 taxpayer with respect to such individual for 

20 such period are filed on a basis consistent with 

21 the taxpayer’s treatment of such individual as 

22 not being an employee, 

23 then, for purposes of applying such taxes for such 

24 period with respect to the taxpayer, the individual 

25 shall be deemed not to be an employee unless the 

26 taxpayer had no reasonable basis for not treating 


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1 such individual as an employee. This paragraph shall 

2 not apply with respect to an individual for any peri3 ods beginning after the date of notice of a deter4 mination that such individual should be treated as 

5 an employee of the taxpayer. 

6 ‘‘(2) STATUTORY STANDARDS FOR SATISFYING

7 THE REQUIREMENTS OF PARAGRAPH (1).—For pur8 poses of paragraph (1), a taxpayer shall be treated 

9 as having a reasonable basis for not treating an indi10 vidual as an employee only if— 

11 ‘‘(A) the taxpayer’s treatment of such indi12 vidual was in reasonable reliance on— 

13 ‘‘(i) a written determination issued to 

14 the taxpayer addressing the employment 

15 status of such individual or another indi16 vidual holding a substantially similar posi17 tion with the taxpayer, or 

18 ‘‘(ii) a concluded examination (for em19 ployment tax purposes) of whether such in20 dividual (or another individual holding a 

21 substantially similar position) should be 

22 treated as an employee of the taxpayer, 

23 with respect to which there was no deter24 mination that such individual (or another 

25 individual holding a substantially similar 


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1 position) should be treated as an employee, 

2 and 

3 ‘‘(B) the taxpayer (or a predecessor) has 

4 not treated any other individual holding a sub5 stantially similar position as an employee for 

6 purposes of employment taxes for any period 

7 beginning after December 31, 1977. 

8 ‘‘(b) DEFINITIONS.—For purposes of this section— 

9 ‘‘(1) EMPLOYMENT TAX.—The term ‘employ10 ment tax’ means any tax imposed by this subtitle. 

11 ‘‘(2) EMPLOYMENT STATUS.—The term ‘em12 ployment status’ means the status of an individual, 

13 under the usual common law rules applicable in de14 termining the employer-employee relationship, as an 

15 employee or as an independent contractor (or other 

16 individual who is not an employee). 

17 ‘‘(c) SPECIAL RULES FOR APPLICATION OF SEC18 TION.— 

19 ‘‘(1) NOTICE OF AVAILABILITY OF SECTION.— 

20 An officer or employee of the Internal Revenue Serv21 ice shall, before or at the commencement of any ex22 amination relating to the employment status of one 

23 or more individuals who perform services for the tax24 payer, provide the taxpayer with a written notice of 

25 the provisions of this section. 


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1 ‘‘(2) RULES RELATING TO STATUTORY STAND2 ARDS.—For purposes of subsection (a)(2), with re3 spect to any period beginning after the date of the 

4 enactment of this paragraph, a taxpayer may not 

5 rely on an examination commenced, or a written de6 termination issued, if— 

7 ‘‘(A) the controlling facts and cir8 cumstances that formed the basis of a deter9 mination of employment status have changed or 

10 were misrepresented by the taxpayer, or 

11 ‘‘(B) the Secretary subsequently issues 

12 contrary guidance relating to the determination 

13 of employment status that has bearing on the 

14 facts and circumstances that formed the basis 

15 of a determination of employment status. 

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

17 purposes of this section, the determination as to 

18 whether an individual holds a position substantially 

19 similar to a position held by another individual shall 

20 be made by the Secretary in a manner consistent 

21 with the Fair Labor Standards Act of 1938. 

22 ‘‘(d) BURDEN OF PROOF.—A taxpayer must establish 

23 entitlement to relief under this section by a preponderance 

24 of the evidence. 

25 ‘‘(e) PETITIONS FOR REVIEW OF STATUS.— 


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1 ‘‘(1) IN GENERAL.—Under procedures estab2 lished by the Secretary not later than 1 year after 

3 the date of the enactment of this section, any indi4 vidual who performs services for a taxpayer may pe5 tition (either personally or through a designated rep6 resentative or attorney) for a determination of the 

7 individual’s status for employment tax purposes. 

8 ‘‘(2) ADMINISTRATIVE PROCEDURES.—The pro9 cedures established under paragraph (1) shall pro10 vide for— 

11 ‘‘(A) a determination of status not later 

12 than 90 days after the filing of the petition 

13 with respect to employment in any industry 

14 (such as the construction industry) in which 

15 employment is transient, casual, or seasonal, 

16 and 

17 ‘‘(B) an administrative appeal of any de18 termination that an individual is not an em19 ployee of the taxpayer. 

20 ‘‘(3) DUTY TO SEEK SERVICE PROVIDER INFOR21 MATION.—In the case of a request by a taxpayer for 

22 a determination of an individual’s status for employ23 ment tax purposes, the Secretary shall, to the extent 

24 practicable— 


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1 ‘‘(A) seek to obtain from such individual 

2 information relating to the individual’s perform3 ance of services for the taxpayer, and 

4 ‘‘(B) provide written notice to the indi5 vidual detailing any written determination of 

6 the individual’s status for employment tax pur7 poses. 

8 ‘‘(f) RESULTS OF MISCLASSIFICATION DETERMINA9 TIONS.—In any case in which the Secretary determines 

10 that a taxpayer has misclassified an individual as not an 

11 employee for employment tax purposes, the Secretary shall 

12 inform the Secretary of Labor about such misclassification 

13 and notify the individual of any eligibility for the refund 

14 of self-employment taxes under chapter 2. 

15 ‘‘(g) REGULATIONS.—The Secretary shall, not later 

16 than 1 year after the date of the enactment of this section, 

17 prescribe such regulations as may be necessary and appro18 priate to carry out the purposes of this section.’’. 

19 (b) CONFORMING AMENDMENTS.— 

20 (1) Paragraph (2) of section 7436(a) of such 

21 Code is amendment by striking ‘‘section 530 of the 

22 Revenue Act of 1978’’ and inserting ‘‘section 3511’’. 

23 (2) The table of sections for chapter 25 of such 

24 Code is amended by adding at the end the following 

25 new item: 

‘‘Sec. 3511. Safe harbor.’’. 


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1 (c) TERMINATION OF SECTION 530 OF THE REV2 ENUE ACT OF 1978.—Section 530 of the Revenue Act of 

3 1978 shall not apply to services rendered more than 1 year 

4 after the date of the enactment of this Act. 

5 (d) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to services rendered more than 1 

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

8 SEC. 4. ANNUAL REPORTS ON WORKER 

9 MISCLASSIFICATION. 

10 The Secretary of the Treasury shall issue an annual 

11 report on worker misclassification. Such report shall in12 clude the following: 

13 (1) Information on the number and type of en14 forcement actions against, and examinations of, em15 ployers who have misclassified workers. 

16 (2) Relief obtained as a result of such actions 

17 against, and examinations of, employers who have 

18 misclassified workers. 

19 (3) An overall estimate of the number of em20 ployers misclassifying workers, the number of work21 ers affected, and the industries involved. 

22 (4) The impact of such misclassification on the 

23 Federal tax system. 


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1 (5) Information on the outcomes of the peti2 tions filed under section 3511(e) of the Internal 

3 Revenue Code of 1986. 

4 SEC. 5. INCREASE IN INFORMATION RETURN PENALTIES. 

5 (a) FAILURE TO FILE CORRECT INFORMATION RE6 TURNS.— 

7 (1) IN GENERAL.—Section 6721(a)(1) of the 

8 Internal Revenue Code of 1986 is amended— 

9 (A) by striking ‘‘$50’’ and inserting 

10 ‘‘$250’’, and 

11 (B) by striking ‘‘$250,000’’ and inserting 

12 ‘‘$3,000,000’’. 

13 (2) REDUCTION WHERE CORRECTION IN SPECI14 FIED PERIOD.— 

15 (A) CORRECTION WITHIN 30 DAYS.—Sec16 tion 6721(b)(1) of such Code is amended— 

17 (i) by striking ‘‘$15’’ and inserting 

18 ‘‘$50’’, 

19 (ii) by striking ‘‘$50’’ and inserting 

20 ‘‘$250’’, and 

21 (iii) by striking ‘‘$75,000’’ and insert22 ing ‘‘$500,000’’. 

23 (B) FAILURES CORRECTED ON OR BEFORE

24 AUGUST 1.—Section 6721(b)(2) of such Code is 

25 amended— 


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1 (i) by striking ‘‘$30’’ and inserting 

2 ‘‘$100’’, 

3 (ii) by striking ‘‘$50’’ and inserting 

4 ‘‘$250’’, and 

5 (iii) by striking ‘‘$150,000’’ and in6 serting ‘‘$1,500,000’’. 

7 (3) LOWER LIMITATION FOR PERSONS WITH

8 GROSS RECEIPTS OF NOT MORE THAN $5,000,000.— 

9 Section 6721(d)(1) of such Code is amended— 

10 (A) in subparagraph (A)— 

11 (i) by striking ‘‘$100,000’’ and insert12 ing ‘‘$1,000,000’’, and 

13 (ii) by striking ‘‘$250,000’’ and in14 serting ‘‘$3,000,000’’, 

15 (B) in subparagraph (B)— 

16 (i) by striking ‘‘$25,000’’ and insert17 ing ‘‘$175,000’’, and 

18 (ii) by striking ‘‘$75,000’’ and insert19 ing ‘‘$500,000’’, and 

20 (C) in subparagraph (C)— 

21 (i) by striking ‘‘$50,000’’ and insert22 ing ‘‘$500,000’’, and 

23 (ii) by striking ‘‘$150,000’’ and in24 serting ‘‘$1,500,000’’. 


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1 (4) PENALTY IN CASE OF INTENTIONAL DIS2 REGARD.—Section 6721(e) of such Code is amend3 ed— 

4 (A) by striking ‘‘$100’’ in paragraph (2) 

5 and inserting ‘‘$500’’, and 

6 (B) by striking ‘‘$250,000’’ in paragraph 

7 (3)(A) and inserting ‘‘$3,000,000’’. 

8 (b) FAILURE TO FURNISH CORRECT PAYEE STATE9 MENTS.— 

10 (1) IN GENERAL.—Section 6722(a) of such 

11 Code is amended— 

12 (A) by striking ‘‘$50’’ and inserting 

13 ‘‘$250’’, and 

14 (B) by striking ‘‘$100,000’’ and inserting 

15 ‘‘$1,000,000’’. 

16 (2) PENALTY IN CASE OF INTENTIONAL DIS17 REGARD.—Section 6722(c) of such Code is amend18 ed— 

19 (A) by striking ‘‘$100’’ in paragraph (1) 

20 and inserting ‘‘$500’’, and 

21 (B) by striking ‘‘$100,000’’ in paragraph 

22 (2)(A) and inserting ‘‘$1,000,000’’. 

23 (c) FAILURE TO COMPLY WITH OTHER INFORMA24 TION REPORTING REQUIREMENTS.—Section 6723 of such 

25 Code is amended— 


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1 (1) by striking ‘‘$50’’ and inserting ‘‘$250’’, 

2 and 

3 (2) by striking ‘‘$100,000’’ and inserting 

4 ‘‘$1,000,000’’. 

5 (d) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply with respect to information returns 

7 required to be filed after December 31, 2009. 

Æ 


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