I
105TH CONGRESS
1ST SESSION
H. R. 1145
To amend the Internal Revenue Code of 1986 to increase the deduction
for health insurance costs of self-employed individuals, to provide clari-
fication for the deductibility of expenses incurred by a taxpayer in con-
nection with the business use of the home, to clarify the standards
used for determining that certain individuals are not employees, and
for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 20, 1997
Mr. TALENT (for himself, Mrs. SMITH of Washington, Mr. PORTMAN, Mrs.
EMERSON, Mr. PAPPAS, Mr. ENGLISH of Pennsylvania, Mr. EHRLICH,
Mrs. MORELLA, Mr. HILL, Mr. CHABOT, Mr. MANZULLO, Mrs. KELLY,
Mr. BARTLETT of Maryland, Mr. JONES, and Mr. MCINTOSH) 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 increase
the deduction for health insurance costs of self-employed
individuals, to provide clarification for the deductibility
of expenses incurred by a taxpayer in connection with
the business use of the home, to clarify the standards
used for determining that certain individuals are not
employees, and for other purposes.
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 ‘‘Home-Based Business
Fairness Act of 1997’’.
SEC. 2. DEDUCTION FOR HEALTH INSURANCE COSTS OF
SELF-EMPLOYED INDIVIDUALS INCREASED.
(a) IN GENERAL.—Section 162(l)(1) of the Internal
Revenue Code of 1986 (relating to special rules for health
insurance costs of self-employed individuals) is amended
to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case
of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed
as a deduction under this section an amount equal
to the amount paid during the taxable year for in-
surance which constitutes medical care for the tax-
payer, the taxpayer’s spouse, and dependents.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 3. CLARIFICATION OF DEFINITION OF PRINCIPAL
PLACE OF BUSINESS.
(a) IN GENERAL.—Subsection (f) of section 280A of
the Internal Revenue Code of 1986 (relating to definitions
and special rules) is amended by redesignating paragraphs
(2), (3), and (4) as paragraphs (3), (4), and (5), respec-
tively, and by inserting after paragraph (1) the following
new paragraph:
‘‘(2) PRINCIPAL
PLACE
OF
BUSINESS.—For
purposes of subsection (c), a home office shall in any
case qualify as the principal place of business if—
‘‘(A) the office is the location where the
taxpayer’s essential administrative or manage-
ment activities are conducted on a regular and
systematic (and not incidental) basis by the tax-
payer, and
‘‘(B) the office is necessary because the
taxpayer has no other location for the perform-
ance of the essential administrative or manage-
ment activities of the business.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 4. SAFE HARBOR FOR DETERMINING THAT CERTAIN
INDIVIDUALS ARE NOT EMPLOYEES.
(a) IN GENERAL.—Chapter 25 of the Internal Reve-
nue Code of 1986 (relating to general provisions relating
to employment taxes) is amended by adding after section
3510 the following new section:
‘‘SEC. 3511. SAFE HARBOR FOR DETERMINING THAT CER-
TAIN INDIVIDUALS ARE NOT EMPLOYEES.
‘‘(a) SAFE HARBOR.—
‘‘(1) IN GENERAL.—For purposes of this title,
if the requirements of subsections (b), (c), and (d),
or the requirements of subsections (d) and (e), are
met with respect to any service performed by any in-
dividual, then with respect to such service—
‘‘(A) the service provider shall not be
treated as an employee,
‘‘(B) the service recipient shall not be
treated as an employer,
‘‘(C) the payor shall not be treated as an
employer, and
‘‘(D) compensation paid or received for
such service shall not be treated as paid or re-
ceived with respect to employment.
‘‘(2) AVAILABILITY OF SAFE HARBOR NOT TO
LIMIT APPLICATION OF OTHER LAWS.—Nothing in
this section shall be construed—
‘‘(A) as limiting the ability of a service
provider, service recipient, or payor to apply
other applicable provisions of this title, section
530 of the Revenue Act of 1978, or the com-
mon law in determining whether an individual
is not an employee, or
‘‘(B) as a prerequisite for the application
of any provision of law described in subpara-
graph (A).
‘‘(b) SERVICE PROVIDER REQUIREMENTS WITH RE-
GARD TO THE SERVICE RECIPIENT.—For purposes of sub-
section (a), the requirements of this subsection are met
if the service provider, in connection with performing the
service—
‘‘(1) has the ability to realize a profit or loss,
‘‘(2) incurs unreimbursed expenses which are
ordinary and necessary to the service provider’s in-
dustry and which represent an amount at least equal
to 2 percent of the service provider’s adjusted gross
income attributable to services performed pursuant
to 1 or more contracts described in subsection (d),
and
‘‘(3) agrees to perform services for a particular
amount of time or to complete a specific result or
task.
‘‘(c) ADDITIONAL SERVICE PROVIDER REQUIRE-
MENTS WITH REGARD TO OTHERS.—For the purposes of
subsection (a), the requirements of this subsection are met
if the service provider—
‘‘(1) has a principal place of business,
‘‘(2) does not primarily provide the service at a
single service recipient’s facilities,
‘‘(3) pays a fair market rent for use of the serv-
ice recipient’s facilities, or
‘‘(4) operates primarily with equipment not
supplied by the service recipient.
‘‘(d) WRITTEN DOCUMENT REQUIREMENTS.—For
purposes of subsection (a), the requirements of this sub-
section are met if the services performed by the service
provider are performed pursuant to a written contract be-
tween such service provider and the service recipient, or
the payor, and such contract provides that the service pro-
vider will not be treated as an employee with respect to
such services for Federal tax purposes.
‘‘(e) BUSINESS STRUCTURE
AND BENEFITS RE-
QUIREMENT.—For purposes of subsection (a), the require-
ments of this subsection are met if the service provider—
‘‘(1) conducts business as a properly constituted
corporation or limited liability company under appli-
cable State laws, and
‘‘(2) does not receive from the service recipient
or payor benefits that are provided to employees of
the service recipient.
‘‘(f) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) FAILURE TO MEET REPORTING REQUIRE-
MENTS.—If for any taxable year any service recipi-
ent or payor fails to meet the applicable reporting
requirements of section 6041(a) or 6041A(a) with
respect to a service provider, then, unless the failure
is due to reasonable cause and not willful neglect,
the safe harbor provided by this section for deter-
mining whether individuals are not employees shall
not apply to such service recipient or payor with re-
spect to that service provider.
‘‘(2) BURDEN
OF
PROOF.—For purposes of
subsection (a), if—
‘‘(A) a service provider, service recipient,
or payor establishes a prima facie case that it
was reasonable not to treat a service provider
as an employee for purposes of this section, and
‘‘(B) the service provider, service recipient,
or payor has fully cooperated with reasonable
requests from the Secretary or his delegate,
then the burden of proof with respect to such treat-
ment shall be on the Secretary.
‘‘(3) RELATED ENTITIES.—If the service pro-
vider is performing services through an entity owned
in whole or in part by such service provider, the ref-
erences to ‘service provider’ in subsections (b)
through (e) may include such entity, provided that
the written contract referred to in subsection (d) is
with such entity.
‘‘(g) DETERMINATIONS BY THE SECRETARY.—For
purposes of this title—
‘‘(1) IN GENERAL.—
‘‘(A) DETERMINATIONS WITH RESPECT TO
A SERVICE RECIPIENT OR A PAYOR.—A deter-
mination by the Secretary that a service recipi-
ent or a payor should have treated a service
provider as an employee shall be effective no
earlier than the notice date if—
‘‘(i) the service recipient or the payor
entered into a written contract satisfying
the requirements of subsection (d),
‘‘(ii) the service recipient or the payor
satisfied the applicable reporting require-
ments of section 6041(a) or 6041A(a) for
all taxable years covered by the agreement
described in clause (i), and
‘‘(iii) the service recipient or the payor
demonstrates a reasonable basis for deter-
mining that the service provider is not an
employee and that such determination was
made in good faith.