Clarify Workers Misclassification in the Construction Industry Act

To direct the Secretary of the Treasury to improve tax compliance in the construction industry, including clarifying the employment status of service providers in the construction industry, and for other purposes. 1. Short title; findings; purposes (a) Short title This Act may be cited as the Clarify Workers Misclassification in the Construction Industry Act (b) Findings Congress makes the following findings: (1) Worker misclassification in the construction industry has reached epidemic proportions. Studies from California, Tennessee, Florida, Texas, New Jersey, and other States detail hundreds of millions of dollars in lost employment and income taxes because of improper classification of workers for taxation in the construction industry. New Jersey revenue collection officials have indicated that $535 million in taxes in the State are lost due to worker misclassification. (2) Worker misclassification takes place at construction projects involving military bases, hospitals, universities, convention centers, and major hotels. (3) There is significant anecdotal evidence that a large number of workers in the construction industry are currently being misclassified as independent contractors in order to avoid tax withholding and other employer responsibilities, but the Internal Revenue Service is barred from issuing rules or guidance to reclassify these workers by section 530 of the Revenue Act of 1978. (4) Legitimate construction contractors are unable to compete with contractors who avoid employment and income taxes through misclassification. This creates competitive pressure on other contractors to also misclassify employees to remain competitive. States, leading contractors, and construction labor leaders agree that government action is needed to reverse this spiral. (5) According to the Internal Revenue Service, a dollar spent on tax enforcement typically yields an additional six dollars in revenue to the Treasury. This figure does not include revenue gained from deterring misclassification which would increase tax revenue significantly beyond the level projected. (c) Purposes The purposes of this Act are to increase efforts to identify and reduce misclassification, to prosecute tax evasion in the construction industry, and provide the Secretary of the Treasury the resources necessary to accomplish these objectives. 2. Directives and authorities to improve tax compliance in the construction industry (a) Enforcement actions The Secretary of the Treasury shall initiate an enforcement initiative aimed at increasing tax compliance in the construction industry. Measures taken to implement this initiative shall include: (1) Consultations with industry experts and leaders on the scope and priorities of this initiative, including the Secretary of Labor, State government officials, the General Accountability Office, leading private sector construction organizations, and labor organizations involved in the construction industry. (2) Targeted tax audits of major construction contractors that the Secretary finds reason to believe may not be in compliance with applicable Federal tax laws. (3) Civil and criminal tax enforcement actions under existing legal authorities. (4) Educational efforts aimed at entities in the construction industry to increase voluntary tax compliance. (b) Authority To issue guidance clarifying employment status for purposes of employment taxes (1) In general Notwithstanding any other provision of law including section 530 of the Revenue Act of 1978, the Secretary shall promulgate rules and issue guidance to reclassify individuals who are not currently being treated as employees consistent with the proper classification of employees under common law standards within the construction industry. (2) Restriction to construction industry Any rules or guidance under paragraph (1) shall apply only with respect to services provided within the construction industry. (3) Effective date Any rules or guidance under paragraph (1) shall not take effect before the date which is 180 days after the date of the enactment of this Act. (c) Resources The Secretary shall reassign personnel and resources from other activities to carry out this Act. (d) Oversight and review (1) Annual reports by Treasury The Secretary shall submit an annual written report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate regarding the implementation of this Act together with any recommendations for further action by Congress which would be consistent with the purposes of this Act. (2) Study and report by Comptroller General The Comptroller General of the United States shall conduct a comprehensive study of the various forms of tax fraud, including employee misclassification, in the construction industry, efforts to combat such fraud, and recommendations for further action. Not later than June 30, 2017, the Comptroller General shall submit a written report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate detailing the results of such study. (e) Definitions For purposes of this section— (1) Construction industry The term construction industry (2) Secretary of the Treasury The terms Secretary of the Treasury Secretary (f) Termination This section, and any rules promulgated or guidance issued under subsection (b), shall cease to have any force or effect after September 30, 2021.

Summary: Clarify Workers Misclassification in the Construction Industry Act This bill requires the Department of the Treasury to initiate an enforcement initiative to increase tax compliance in the construction industry. The initiative must include: consultations with industry experts and leaders on its scope and priorities, targeted tax audits of major construction contractors that may not be in compliance with federal tax laws, civil and criminal tax enforcement actions under existing authorities, and educational efforts aimed at increasing voluntary tax compliance in the construction industry. Treasury must promulgate rules and issue guidance to reclassify individuals who are not currently being treated as employees consistent with the proper classification of employees under common law standards within the construction industry. In implementing this bill, Treasury must: (1) reassign personnel and resources from other activities to carry out this bill, and (2) report to Congress on the implementation and recommendations for further congressional action. The Government Accountability Office must study the various forms of tax fraud (including employee misclassification) in the construction industry, efforts to combat fraud, and recommendations for further action.