I
105TH CONGRESS
2D SESSION
H. R. 4622
To amend the Internal Revenue Code of 1986 to clarify the standards used
for determining whether individuals are not employees.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 24, 1998
Ms. DUNN 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 clarify
the standards used for determining whether individuals
are not employees.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Independent Contrac-
tor Tax Simplification Act of 1998’’.
SEC. 2. FINDINGS.
The Congress finds that:
(1) Simplifying the tax rules with respect to
independent contractors was the top vote-getter at
the 1995 White House Conference on Small Busi-
ness. Conference delegates recommended that Con-
gress ‘‘should recognize the legitimacy of an inde-
pendent contractor’’. The Conference found that the
current common law is ‘‘too subjective’’ and called
upon the Congress to establish ‘‘realistic and con-
sistent guidelines’’.
(2) It is in the best interests of taxpayers and
the Federal Government to have fair and objective
rules for determining who is an employee and who
is an independent contractor.
SEC. 3. STANDARDS FOR DETERMINING WHETHER INDIVID-
UALS ARE NOT EMPLOYEES.
(a) IN GENERAL.—Chapter 25 of the Internal Reve-
nue Code of 1986 (general provisions relating to employ-
ment taxes) is amended by adding after section 3510 the
following new section:
‘‘SEC. 3511. STANDARDS FOR DETERMINING WHETHER IN-
DIVIDUALS ARE NOT EMPLOYEES.
‘‘(a) GENERAL RULE.—For purposes of this subtitle,
and notwithstanding any provision of this subtitle to the
contrary, if the requirements of subsections (b), (c), and
(d) are met with respect to any service performed by any
individual, then with respect to such service—
‘‘(1) the service provider shall not be treated as
an employee,
‘‘(2) the service recipient shall not be treated as
an employer, and
‘‘(3) the payor shall not be treated as an em-
ployer.
‘‘(b) SERVICE PROVIDER REQUIREMENTS WITH RE-
GARD TO SERVICE RECIPIENT.—For the purposes of sub-
section (a), the requirements of this subsection are met
if the service provider, in connection with performing the
service—
‘‘(1) has a significant investment in assets and/
or training,
‘‘(2) incurs significant unreimbursed expenses,
‘‘(3) agrees to perform the service for a particu-
lar amount of time or to complete a specific result
and is liable for damages for early termination with-
out cause,
‘‘(4) is paid primarily on a commissioned basis,
or
‘‘(5) purchases products for resale.
‘‘(c) ADDITIONAL SERVICE PROVIDER REQUIRE-
MENTS WITH REGARD TO OTHERS.—For the purposes of
subsection (a), the requirements of this subsection are met
if—
‘‘(1) the service provider—
‘‘(A) has a principal place of business,
‘‘(B) does not primarily provide the service
in the service recipient’s place of business, or
‘‘(C) pays a fair market rent for use of the
service recipient’s place of business; or
‘‘(2) the service provider—
‘‘(A) is not required to perform service ex-
clusively for the service recipient, and
‘‘(B) in the year involved, or in the preced-
ing or subsequent year—
‘‘(i) has performed a significant
amount of service for other persons,
‘‘(ii) has offered to perform service for
other persons through—
‘‘(I) advertising,
‘‘(II) individual written or oral
solicitations,
‘‘(III) 
listing 
with 
registries,
agencies, brokers, and other persons
in the business of providing referrals
to other service recipients, or
‘‘(IV) other similar activities, or
‘‘(iii) provides service under a busi-
ness name which is registered with (or for
which a license has been obtained from) a
State, a political subdivision of a State, or
such entity, provided that the written contract re-
ferred to in paragraph (1) of subsection (d) may be
with either the service provider or such entity and
need not be with both.
‘‘(f) DEFINITIONS.—For the purposes of this sec-
tion—
‘‘(1) SERVICE
PROVIDER.—The term ‘service
provider’ means any individual who performs service
for another person.
‘‘(2) SERVICE RECIPIENT.—Except as provided
in paragraph (5), the term ‘service recipient’ means
the person for whom the service provider performs
such service.
‘‘(3) PAYOR.—Except as provided in paragraph
(5), the term ‘payor’ means the person who pays the
service provider for the performance of such service
in the event that the service recipients do not pay
the service provider.
‘‘(4) IN CONNECTION WITH PERFORMING THE
SERVICE.—The term ‘in connection with performing
the service’ means in connection or related to—
‘‘(A) the actual service performed by the
service provider for the service recipients or for
other persons for whom the service provider has
performed similar service, or
‘‘(B) the operation of the service provider’s
trade or business.
‘‘(5) EXCEPTIONS.—The terms ‘service recipi-
ent’ and ‘payor’ do not include any entity which is
owned in whole or in part by the service provider.’’
(b) CLERICAL AMENDMENT.—The table of sections
for chapter 25 of such Code is amended by adding at the
end the following new item:
‘‘Sec. 3511. Standards for determining whether individuals are
not employees.’’
(c) EFFECTIVE DATE.—The amendments made by
this Act shall apply to services performed after December
31, 1998.
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