I
104TH CONGRESS
1ST SESSION
H. R. 582
To amend the Internal Revenue Code of 1986 to revise the rules for determin-
ing the employment status of individuals as employees or independent
contractors.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 19, 1995
Mr. KIM 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 revise
the rules for determining the employment status of indi-
viduals as employees or independent contractors.
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 Fairness Act of 1995’’.
SEC. 2. CLARIFICATION OF EMPLOYMENT STATUS OF CER-
TAIN INDIVIDUALS; CODIFICATION OF SEC-
TION 530 SAFE HARBOR RULES.
(a) GENERAL RULE.—Chapter 25 of the Internal
Revenue Code of 1986 (relating to general provisions ap-
plicable to employment taxes) is amended by adding at
the end the following new section:
‘‘SEC. 3510. DETERMINATION OF EMPLOYMENT STATUS.
‘‘(a) CERTAIN INDIVIDUALS NOT TREATED AS EM-
PLOYEES.—
‘‘(1) IN GENERAL.—For purposes of this title,
in the case of an individual who meets the require-
ments of one of the subparagraphs of paragraph (2)
and who performs services pursuant to a qualified
agreement—
‘‘(A) such individual shall not be treated as
an employee, and
‘‘(B) the person for whom such services
are performed (hereafter in this subsection re-
ferred to as the ‘service-recipient’) shall not be
treated as an employer.
‘‘(2) REQUIREMENTS.—
‘‘(A) REALIZATION OF PROFIT OR LOSS.—
An individual meets the requirements of this
subparagraph if the individual can realize a
profit or loss as a result of the individual’s serv-
ices (in addition to the profit or loss ordinarily
realized by employees) performed for the serv-
ice-recipient.
‘‘(B) SEPARATE
PRINCIPAL
PLACE
OF
BUSINESS.—An individual meets the require-
ments of this subparagraph if the individual—
‘‘(i) maintains his principal place of
business other than at a place of business
of the service-recipient, and
‘‘(ii) has a significant investment in
facilities or tools which are used by such
individual to perform services of the type
performed for the service-recipient and
which are not typically maintained by em-
ployees.
‘‘(C) MAKING
SERVICES
AVAILABLE
TO
THE
GENERAL
PUBLIC.—An individual meets
the requirements of this subparagraph if—
‘‘(i) the services performed by the in-
dividual for the service-recipient are made
available to the general public on a regular
and consistent basis, and
‘‘(ii) the individual has performed
such services other than as an employee
(determined without regard to this sub-
paragraph) for at least 1 other service-re-
cipient during such year or the preceding
calendar year.
‘‘(D) PAID ON COMMISSION BASIS, ETC.—
An individual meets the requirements of this
subparagraph if—
‘‘(i) the individual is paid exclusively
on a commission basis, and
‘‘(ii)(I) maintains his principal place
of business other than at a place of busi-
ness of the service-recipient, or
‘‘(II) pays fair market rental value for
his principal place of business if such place
is at a place of business of the service-re-
cipient.
‘‘(3) QUALIFIED AGREEMENT.—For purposes of
this subsection, the term ‘qualified agreement’
means a written agreement—
‘‘(A) which specifies the services to be pro-
vided, the duration those services are to be pro-
vided, and the remuneration to be paid for
those services,
‘‘(B) which specifies that—
‘‘(i) the service provider reasonably
believes that such provider meets the re-
quirements under this section for being
treated not as an employee with respect to
such services and will not be treated by the
service-recipient as an employee with re-
spect to such services for Federal tax pur-
poses, and
‘‘(ii) the service provider is aware of
the Federal tax obligations resulting from
such treatment, and
‘‘(C) which specifies that the service-recipi-
ent will maintain a separate accounting of the
income and expenses related to such agreement.
‘‘(4) CONSEQUENCE
OF
FAILING
TO
MEET
TEST.—Failure to meet the requirements of this
subsection shall not be construed as indicating that
an individual is an employee of the service-recipient
for purposes of this title.
‘‘(b) TERMINATION OF CERTAIN EMPLOYMENT TAX
LIABILITY.—
‘‘(1) IN GENERAL.—If—
‘‘(A) for purposes of employment taxes, the
taxpayer did not treat an individual as an em-
ployee for any period, and
‘‘(B) in the case of periods after December
31, 1978, all Federal tax returns (including in-
formation returns) required to be filed by the
taxpayer with respect to such individual for
such period are filed on a basis consistent with
the taxpayer’s treatment of such individual as
not being an employee,
then for purposes of applying such taxes for such
period 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 employee.
‘‘(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 em-
ployment tax purposes) of the individuals hold-