I
107TH CONGRESS
1ST SESSION
H. R. 1182
To amend the Internal Revenue Code of 1986 to expand the tip tax credit
to employers of cosmetologists and to promote tax compliance in the
cosmetology sector.
IN THE HOUSE OF REPRESENTATIVES
MARCH 22, 2001
Mrs. JOHNSON of Connecticut (for herself, Mr. MATSUI, Ms. DUNN, Mr.
LEWIS of Georgia, Mr. GREEN of Wisconsin, and Mr. MCDERMOTT) in-
troduced the following bill; which was referred to the Committee on Ways
and Means
A BILL
To amend the Internal Revenue Code of 1986 to expand
the tip tax credit to employers of cosmetologists and
to promote tax compliance in the cosmetology sector.
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 ‘‘Cosmetology Tax Fair-
ness and Compliance Act of 2001’’.
SEC. 2. EXPANSION OF CREDIT FOR PORTION OF SOCIAL
SECURITY TAXES PAID WITH RESPECT TO
EMPLOYEE TIPS.
(a) EXPANSION OF CREDIT TO OTHER LINES OF
BUSINESS.—Paragraph (2) of section 45B(b) of the Inter-
nal Revenue Code of 1986 is amended to read as follows:
‘‘(2) APPLICATION ONLY TO CERTAIN LINES OF
BUSINESS.—In applying paragraph (1), there shall
be taken into account only tips received from cus-
tomers or clients in connection with—
‘‘(A) the providing, delivering, or serving
of food or beverages for consumption if the tip-
ping of employees delivering or serving food or
beverages by customers is customary, or
‘‘(B) the providing of any cosmetology
service for customers or clients at a facility li-
censed to provide such service if the tipping of
employees providing such service is customary.’’
(b) DEFINITION OF COSMETOLOGY SERVICE.—Sec-
tion 45B of such Code is amended by redesignating sub-
sections (c) and (d) as subsections (d) and (e), respec-
tively, and by inserting after subsection (b) the following
new subsection:
‘‘(c) COSMETOLOGY SERVICE.—For purposes of this
section, the term ‘cosmetology service’ means—
‘‘(1) hairdressing,
‘‘(2) haircutting,
‘‘(3) manicures and pedicures,
‘‘(4) body waxing, facials, mud packs, wraps,
and other similar skin treatments, and
‘‘(5) any other beauty related service provided
at a facility at which a majority of the services pro-
vided (as determined on the basis of gross revenue)
are described in paragraphs (1) through (4).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to tips received for services per-
formed after December 31, 2001.
SEC. 3. INFORMATION REPORTING AND TAXPAYER EDU-
CATION FOR PROVIDERS OF COSMETOLOGY
SERVICES.
(a) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 61 of the Internal Revenue Code of
1986 is amended by inserting after section 6050S the fol-
lowing new section:
‘‘SEC. 6050T. RETURNS RELATING TO COSMETOLOGY SERV-
ICES AND INFORMATION TO BE PROVIDED TO
COSMETOLOGISTS.
‘‘(a) IN GENERAL.—Every person (referred to in this
section as a ‘reporting person’) who—
‘‘(1) employs 1 or more cosmetologists to pro-
vide any cosmetology service,
‘‘(2) rents a chair to 1 or more cosmetologists
to provide any cosmetology service on at least 5 cal-
endar days during a calendar year, or
‘‘(3) in connection with its trade or business or
rental activity, otherwise receives compensation
from, or pays compensation to, 1 or more cosmetolo-
gists for the right to provide cosmetology services to,
or for cosmetology services provided to, third-party
patrons,
shall comply with the return requirements of subsection
(b) and the taxpayer education requirements of subsection
(c).
‘‘(b) RETURN REQUIREMENTS.—The return require-
ments of this subsection are met by a reporting person
if the requirements of each of the following paragraphs
applicable to such person are met.
‘‘(1) EMPLOYEES.—In the case of a reporting
person who employs 1 or more cosmetologists to pro-
vide cosmetology services, the requirements of this
paragraph are met if such person meets the require-
ments of sections 6051 (relating to receipts for em-
ployees) and 6053(b) (relating to tip reporting) with
respect to each such employee.
‘‘(2) INDEPENDENT
CONTRACTORS.—In the
case of a reporting person who pays compensation to
the amount received from each such cos-
metologist, and
‘‘(ii) furnishes to each cosmetologist
whose name is required to be set forth on
such return a written statement showing—
‘‘(I) the name, address, and
phone number of the information con-
tact of the reporting person,
‘‘(II) the amount received from
such cosmetologist, and
‘‘(III) a statement informing
such cosmetologist that (as required
by this section), the reporting person
has advised the Internal Revenue
Service that the cosmetologist pro-
vided cosmetology services during the
calendar year to which the statement
relates.
‘‘(B) METHOD AND TIME FOR PROVIDING
STATEMENT.—The written statement required
by clause (ii) of subparagraph (A) shall be fur-
nished (either in person or by first-class mail
which includes adequate notice that the state-
ment or information is enclosed) to the person
on or before January 31 of the year following
the calendar year for which the return under
clause (i) of subparagraph (A) is to be made.
‘‘(c) TAXPAYER EDUCATION REQUIREMENTS.—In
the case of a reporting person who is required to provide
a statement pursuant to subsection (b), the requirements
of this subsection are met if such person provides to each
such cosmetologist annually a publication, as designated
by the Secretary, describing—
‘‘(1) in the case of an employee, the tax and tip
reporting obligations of employees, and
‘‘(2) in the case of a cosmetologist who is not
an employee of the reporting person, the tax obliga-
tions of independent contractors or proprietorships.
The publications shall be furnished either in person or by
first-class mail which includes adequate notice that the
publication is enclosed.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) COSMETOLOGIST.—
‘‘(A) IN GENERAL.—The term ‘cosmetolo-
gist’ means an individual who provides any cos-
metology service.
‘‘(B) ANTI-AVOIDANCE
RULE.—The Sec-
retary may by regulation or ruling expand the
term ‘cosmetologist’ to include any entity or ar-
rangement if the Secretary determines that en-
tities are being formed to circumvent the re-
porting requirements of this section.
‘‘(2) COSMETOLOGY SERVICE.—The term ‘cos-
metology service’ has the meaning given to such
term by section 45B(c).
‘‘(3) CHAIR.—The term ‘chair’ includes a chair,
booth, or other furniture or equipment from which
an individual provides a cosmetology service (deter-
mined without regard to whether the cosmetologist
is entitled to use a specific chair, booth, or other
similar furniture or equipment or has an exclusive
right to use any such chair, booth, or other similar
furniture or equipment).
‘‘(e) EXCEPTIONS FOR CERTAIN EMPLOYEES.—Sub-
section (c) shall not apply to a reporting person with re-
spect to an employee who is employed in a capacity for
which tipping (or sharing tips) is not customary.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 6724(d)(1)(B) of such Code (relat-
ing to the definition of information returns) is
amended by redesignating clauses (xi) through (xvii)
as clauses (xii) through (xviii), respectively and by
inserting after clause (x) the following new clause:
‘‘(xi) section 6050T(a) (relating to re-
turns by cosmetology service providers).’’
(2) Section 6724(d)(2) of such Code is
amended—
(A) by striking ‘‘or’’ at the end of subpara-
graph (Z) and inserting a comma,
(B) by striking the period at the end of
subparagraph (AA) and inserting ‘‘, or’’, and
(C) by inserting after subparagraph (AA)
the following new subparagraph:
‘‘(BB) subsections (b)(3)(A)(ii) and (c) of
section 6050T (relating to cosmetology service
providers) even if the recipient is not a payee.’’
(3) The table of sections for subpart B of part
III of subchapter A of chapter 61 of the Internal
Revenue Code of 1986 is amended by adding after
section 6050S the following new item:
‘‘Sec. 6050T. Returns relating to cosmetology services and infor-
mation to be provided to cosmetologists.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to calendar years after 2001.
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