(4) Many workers are properly classified as 
independent contractors. In other instances, workers 
who are employees are being treated as independent 
contractors. Such misclassification for tax purposes 
contributes to inequities in the competitive positions 
of businesses and to the Federal and State tax gap, 
and may also result in misclassification for other 
purposes, such as denial of unemployment benefits, 
workplace health and safety protections, and retire-
ment or other benefits or protections available to 
employees. 
(5) Workers, businesses, and other taxpayers 
will benefit from clear guidance regarding employ-
ment tax status. In the interest of fairness and in 
view of many service recipients’ reliance on current 
section 530, such guidance should apply only pro-
spectively. 
(c) PURPOSES.—The purposes of this Act are to per-
mit the Secretary of the Treasury to provide guidance al-
lowing workers and businesses to clearly understand the 
proper Federal tax classification of workers and to provide 
relief allowing an orderly transition to new rules designed 
to increase certainty and uniformity of treatment. 
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SEC. 2. AUTHORITY TO ISSUE GUIDANCE CLARIFYING EM-
PLOYMENT STATUS FOR PURPOSES OF EM-
PLOYMENT TAXES. 
(a) IN GENERAL.—Chapter 25 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following new section: 
‘‘SEC. 3511. AUTHORITY TO ISSUE GUIDANCE CLARIFYING 
EMPLOYMENT STATUS. 
‘‘(a) IN GENERAL.—The Secretary shall issue such 
regulations or other guidance as the Secretary determines 
to be necessary or appropriate to clarify the proper em-
ployment status of individuals for purposes of any tax im-
posed by this subtitle. 
‘‘(b) 
PROHIBITION
ON
RETROACTIVE
ASSESS-
MENTS.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) for purposes of any tax imposed by 
this subtitle, the taxpayer did not treat an indi-
vidual as an employee for any period before the 
reclassification date with respect to such indi-
vidual, and 
‘‘(B) in the case of periods after December 
31, 1978, and before such reclassification date, 
all Federal tax returns (including information 
returns) required to be filed by the taxpayer 
with respect to such individual for such period 
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are filed on a basis consistent with the tax-
payer’s treatment of such individual as not 
being an employee, 
then, for purposes of applying such taxes for periods 
before such reclassification date with respect to the 
taxpayer, the individual shall be deemed not to be an 
employee unless the taxpayer had no reasonable 
basis for not treating such individual as an em-
ployee. 
‘‘(2) STATUTORY STANDARDS PROVIDING ONE 
METHOD
OF
SATISFYING
THE
REQUIREMENTS
OF 
PARAGRAPH (1).—For purposes of paragraph (1), a 
taxpayer shall in any case be treated as having a 
reasonable basis for not treating an individual as an 
employee for a period if the taxpayer’s treatment of 
such individual for such period was in reasonable re-
liance on any of the following: 
‘‘(A) Judicial precedent, published rulings, 
technical advice with respect to the taxpayer, or 
a letter ruling to the taxpayer. 
‘‘(B) A past Internal Revenue Service 
audit of the taxpayer in which there was no as-
sessment attributable to the treatment (for pur-
poses of any tax imposed by this subtitle) of the 
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individuals holding positions substantially simi-
lar to the position held by such individual. 
‘‘(C) Long-standing recognized practice of 
a significant segment of the industry in which 
such individual was engaged. 
‘‘(3) CONSISTENCY REQUIRED IN THE CASE OF 
PRIOR TAX TREATMENT.—Paragraph (1) shall not 
apply with respect to the treatment of any individual 
(hereafter in this paragraph referred to as the re-
classified individual) for purposes of any tax im-
posed by this subtitle for any period ending after 
December 31, 1978, if the taxpayer (or a prede-
cessor) has treated any individual holding a substan-
tially similar position as an employee for purposes of 
any tax imposed by this subtitle for any period be-
ginning after December 31, 1977, and ending before 
the reclassification date with respect to such reclas-
sified individual. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) RECLASSIFICATION DATE.— 
‘‘(A) IN GENERAL.—The term ‘reclassifica-
tion date’ means, with respect to any individual, 
the earlier of— 
‘‘(i) the first day of the first calendar 
quarter beginning more than 180 days 
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after the date of an employee classification 
determination with respect to such indi-
vidual, or 
‘‘(ii) the effective date of the first ap-
plicable final regulation issued by the Sec-
retary under subsection (a) with respect to 
such individual (or, if later, the first day of 
the first calendar quarter beginning more 
than 180 days after such regulation is 
issued). 
‘‘(B) EMPLOYEE CLASSIFICATION DETER-
MINATION.—The term ‘employee classification 
determination’ means, with respect to any indi-
vidual, a determination by the Secretary, in 
connection with an audit of the taxpayer which 
is described in section 7436 and which com-
mences after the date which is 1 year after the 
date of the enactment of this section, that a 
class of individuals holding positions with such 
taxpayer which are substantially similar to the 
position held by such individual are employees. 
‘‘(C) FIRST APPLICABLE FINAL REGULA-
TION.—The term ‘first applicable final regula-
tion’ means, with respect to any individual, the 
first final regulation (or other guidance of gen-
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eral applicability) which sets forth the factors 
for determining the employment status of a 
class of individuals holding positions substan-
tially similar to the position held by such indi-
vidual. 
‘‘(2) EMPLOYMENT
STATUS.—The term ‘em-
ployment status’ means the status of an individual, 
under the usual common law rules applicable in de-
termining the employer-employee relationship, as an 
employee or as an independent contractor (or other 
individual who is not an employee). 
‘‘(d) CONTINUATION OF CERTAIN SPECIAL RULES.— 
‘‘(1) EXCEPTION FOR CERTAIN SKILLED WORK-
ERS.—Subsection (b) shall not apply in the case of 
an individual who, pursuant to an arrangement be-
tween the taxpayer and another person, provides 
services for such other person as an engineer, de-
signer, drafter, computer programmer, systems ana-
lyst, or other similarly skilled worker engaged in a 
similar line of work. 
‘‘(2) NOTICE OF AVAILABILITY OF SECTION.— 
An officer or employee of the Internal Revenue Serv-
ice shall, before or at the commencement of any 
audit inquiry relating to the employment status of 
one or more individuals who perform services for the 
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taxpayer, provide the taxpayer with a written notice 
of the provisions of this section. 
‘‘(3) RULES RELATING TO STATUTORY STAND-
ARDS.—For purposes of subsection (b)(2)— 
‘‘(A) a taxpayer may not rely on an audit 
commenced after December 31, 1996, for pur-
poses of subparagraph (B) thereof unless such 
audit included an examination for purposes of 
any tax imposed by this subtitle whether the in-
dividual involved (or any individual holding a 
position substantially similar to the position 
held by the individual involved) should be treat-
ed as an employee of the taxpayer, 
‘‘(B) in no event shall the significant seg-
ment requirement of subparagraph (C) thereof 
be construed to require a reasonable showing of 
the practice of more than 25 percent of the in-
dustry (determined by not taking into account 
the taxpayer), and 
‘‘(C) in applying the long-standing recog-
nized practice requirement of subparagraph (C) 
thereof— 
‘‘(i) such requirement shall not be 
construed as requiring the practice to have 
continued for more than 10 years, and 
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‘‘(ii) a practice shall not fail to be 
treated as long-standing merely because 
such practice began after 1978. 
‘‘(4) AVAILABILITY OF SAFE HARBORS.—Noth-
ing in this section shall be construed to provide that 
subsection (b) only applies where the individual in-
volved is otherwise an employee of the taxpayer. 
‘‘(5) BURDEN OF PROOF.— 
‘‘(A) IN GENERAL.—If— 
‘‘(i) a taxpayer establishes a prima 
facie case that it was reasonable not to 
treat an individual as an employee for pur-
poses of subsection (b), and 
‘‘(ii) the taxpayer has fully cooperated 
with reasonable requests from the Sec-
retary, 
then the burden of proof with respect to such 
treatment shall be on the Secretary. 
‘‘(B) EXCEPTION FOR OTHER REASONABLE 
BASIS.—In the case of any issue involving 
whether the taxpayer had a reasonable basis 
not to treat an individual as an employee for 
purposes of subsection (b), subparagraph (A) 
shall only apply for purposes of determining 
whether the taxpayer meets the requirements of 
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subparagraph (A), (B), or (C) of subsection 
(b)(2). 
‘‘(6) PRESERVATION
OF
PRIOR
PERIOD
SAFE 
HARBOR.—If— 
‘‘(A) an individual would (but for the 
treatment referred to in subparagraph (B)) be 
deemed not to be an employee of the taxpayer 
under subsection (b) for any prior period, and 
‘‘(B) such individual is treated by the tax-
payer as an employee for purposes of the taxes 
imposed by this subtitle for any subsequent pe-
riod, 
then, for purposes of applying such taxes for such 
prior period with respect to the taxpayer, the indi-
vidual shall be deemed not to be an employee. 
‘‘(7) SUBSTANTIALLY SIMILAR POSITION.—For 
purposes of subsection (b) and this subsection, the 
determination as to whether an individual holds a 
position substantially similar to a position held by 
another individual shall include consideration of the 
relationship between the taxpayer and such individ-
uals. 
‘‘(8) TREATMENT OF TEST ROOM SUPERVISORS 
AND PROCTORS WHO ASSIST IN THE ADMINISTRA-
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TION
OF
COLLEGE
ENTRANCE
AND
PLACEMENT 
EXAMS.— 
‘‘(A) IN GENERAL.—In the case of an indi-
vidual described in subparagraph (B) who is 
providing services as a test proctor or room su-
pervisor by assisting in the administration of 
college entrance or placement examinations, 
subsection (b) shall be applied to such services 
performed after December 31, 2006 (and remu-
neration paid for such services), without regard 
to paragraph (3) thereof. 
‘‘(B) APPLICABILITY.—An individual is de-
scribed in this subparagraph if the individual— 
‘‘(i) is providing the services described 
in subsection (b) to an organization de-
scribed in section 501(c) and exempt from 
tax under section 501(a), and 
‘‘(ii) is not otherwise treated as an 
employee of such organization for purposes 
of this subtitle. 
‘‘(9) TREATMENT
OF
SECURITIES
BROKER 
DEALERS.—In determining for purposes of this title 
whether a registered representative of a securities 
broker-dealer is an employee (as defined in section 
3121(d)), no weight shall be given to instructions 
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from the service recipient which are imposed only in 
compliance with investor protection standards im-
posed by the Federal Government, any State govern-
ment, or a governing body pursuant to a delegation 
by a Federal or State agency. 
‘‘(e) STATEMENTS
TO
INDEPENDENT
CONTRAC-
TORS.— 
‘‘(1) IN GENERAL.—Each person who contracts 
for the services of an independent contractor on a 
regular and ongoing basis, within the scope of such 
person’s trade or business, shall provide a written 
statement to such independent contractor notifying 
such independent contractor of the Federal tax obli-
gations of an independent contractor, the labor and 
employment law protections that do not apply to 
independent contractors, and the right of such inde-
pendent contractor to seek a status determination 
from the Internal Revenue Service. 
‘‘(2) INDEPENDENT
CONTRACTOR.—For pur-
poses of this subsection, the term ‘independent con-
tractor’ means any individual who is not treated as 
an employee by the person receiving the services re-
ferred to in paragraph (1). 
‘‘(3) TIMING OF STATEMENT.—Except as other-
wise provided by the Secretary, the statement re-
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