197 
the plan (within the meaning of section 
72(o)(5)).’’. 
(2) Section 3405(e) is amended by striking 
paragraph (8). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions after December 31, 
2014. 
SEC. 1422. CONSISTENT BASIS REPORTING BETWEEN ES-
TATE AND PERSON ACQUIRING PROPERTY 
FROM DECEDENT. 
(a) PROPERTY ACQUIRED FROM A DECEDENT.—Sec-
tion 1014 is amended by adding at the end the following 
new subsection: 
‘‘(f) BASIS MUST BE CONSISTENT WITH ESTATE 
TAX RETURN.—For purposes of this section— 
‘‘(1) IN GENERAL.—The basis of any property 
to which subsection (a) applies shall not exceed— 
‘‘(A) in the case of property the final value 
of which has been determined for purposes of 
the tax imposed by chapter 11 on the estate of 
such decedent, such value, and 
‘‘(B) in the case of property not described 
in subparagraph (A) and with respect to which 
a statement has been furnished under section 
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6035(a) identifying the value of such property, 
such value. 
‘‘(2) EXCEPTION.—Paragraph (1) shall only 
apply to any property whose inclusion in the dece-
dent’s estate increased the liability for the tax im-
posed by chapter 11 (reduced by credits allowable 
against such tax) on such estate. 
‘‘(3) REGULATIONS.—The Secretary may by 
regulations provide exceptions to the application of 
this subsection.’’. 
(b) INFORMATION REPORTING.— 
(1) IN GENERAL.—Subpart A of part III of 
subchapter A of chapter 61 is amended by inserting 
after section 6034A the following new section: 
‘‘SEC. 6035. BASIS INFORMATION TO PERSONS ACQUIRING 
PROPERTY FROM DECEDENT. 
‘‘(a) INFORMATION WITH RESPECT TO PROPERTY 
ACQUIRED FROM DECEDENTS.— 
‘‘(1) IN GENERAL.—The executor of any estate 
required to file a return under section 6018(a) shall 
furnish to the Secretary and to each person acquir-
ing any interest in property included in the dece-
dent’s gross estate for Federal estate tax purposes 
a statement identifying the value of each interest in 
such property as reported on such return and such 
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other information with respect to such interest as 
the Secretary may prescribe. 
‘‘(2) STATEMENTS
BY
BENEFICIARIES.—Each 
person required to file a return under section 
6018(b) shall furnish to the Secretary and to each 
other person who holds a legal or beneficial interest 
in the property to which such return relates a state-
ment identifying the information described in para-
graph (1). 
‘‘(3) TIME FOR FURNISHING STATEMENT.— 
‘‘(A) IN
GENERAL.—Each statement re-
quired to be furnished under paragraph (1) or 
(2) shall be furnished at such time as the Sec-
retary may prescribe, but in no case at a time 
later than the earlier of— 
‘‘(i) the date which is 30 days after 
the date on which the return under section 
6018 was required to be filed (including 
extensions, if any), or 
‘‘(ii) the date which is 30 days after 
the date such return is filed. 
‘‘(B) ADJUSTMENTS.—In any case in 
which there is an adjustment to the information 
required to be included on a statement filed 
under paragraph (1) or (2) after such state-
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ment has been filed, a supplemental statement 
under such paragraph shall be filed not later 
than the date which is 30 days after such ad-
justment is made. 
‘‘(b) REGULATIONS.—The Secretary shall prescribe 
such regulations as necessary to carry out this section, in-
cluding regulations relating to— 
‘‘(1) the application of this section to property 
with regard to which no estate tax return is required 
to be filed, and 
‘‘(2) situations in which the surviving joint ten-
ant or other recipient may have better information 
than the executor regarding the basis or fair market 
value of the property.’’. 
(2) PENALTY FOR FAILURE TO FILE.— 
(A) 
RETURN.—Section 
6724(d)(1) 
is 
amended by striking ‘‘and’’ at the end of sub-
paragraph (B), by striking the period at the 
end of subparagraph (C) and inserting ‘‘, and’’, 
and by adding at the end the following new sub-
paragraph: 
‘‘(D) any statement required to be filed 
with the Secretary under section 6035.’’. 
(B) STATEMENT.—Section 6724(d)(2) is 
amended by striking ‘‘or’’ at the end of sub-
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paragraph (GG), by striking the period at the 
end of subparagraph (HH) and inserting ‘‘, 
or’’, and by adding at the end the following new 
subparagraph: 
‘‘(II) section 6035 (other than a statement 
described in paragraph (1)(D)).’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart A of part III of subchapter A of 
chapter 61 is amended by inserting after the item 
relating to section 6034A the following new item: 
‘‘Sec. 6035. Basis information to persons acquiring property from decedent.’’. 
(c) PENALTY FOR INCONSISTENT REPORTING.— 
(1) IN
GENERAL.—Subsection (b) of section 
6662 is amended by inserting after paragraph (7) 
the following new paragraph: 
‘‘(8) Any inconsistent estate basis.’’. 
(2) INCONSISTENT BASIS REPORTING.—Section 
6662 is amended by adding at the end the following 
new subsection: 
‘‘(k) INCONSISTENT ESTATE BASIS REPORTING.— 
For purposes of this section, the term ‘inconsistent estate 
basis’ means the portion of the understatement which is 
attributable to in the case of property acquired from a 
decedent, a basis determination with respect to such prop-
erty which is not consistent with the value of such prop-
erty as determined under section 1014(f).’’. 
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers for which an estate 
tax return is filed after the date of the enactment of this 
Act. 
Subtitle F—Employment Tax 
Modifications 
SEC. 1501. MODIFICATIONS OF DEDUCTION FOR SOCIAL SE-
CURITY TAXES IN COMPUTING NET EARN-
INGS FROM SELF-EMPLOYMENT. 
(a) IN
GENERAL.—Paragraph (12) of section 
1402(a) is amended to read as follows: 
‘‘(12) in lieu of the deduction allowable under 
section 164(f) (relating to deduction for one-half of 
self-employment taxes), there shall be allowed as a 
deduction an amount equal to the sum of— 
‘‘(A) 7.1064 percent of so much of the in-
dividual’s net earnings from self-employment 
for the taxable year (determined without regard 
to this paragraph) as does not exceed an 
amount equal to the product of 1.0765 and the 
excess (if any) of— 
‘‘(i) the contribution and benefit base 
(as determined under section 230 of the 
Social Security Act) in effect for the cal-
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endar year in which the taxable year be-
gins, over 
‘‘(ii) the wages (within the meaning of 
subsection (b)(1)) paid to the individual 
during such taxable year, plus 
‘‘(B) 1.4293 percent of the excess (if any) 
of the individual’s net earnings from self-em-
ployment for the taxable year (determined with-
out regard to this paragraph) over the amount 
of such net earnings taken into account under 
subparagraph (A);’’. 
(b) COORDINATION WITH BENEFITS.—Paragraph 
(11) of section 211(a) of the Social Security Act is amend-
ed to read as follows: 
‘‘(11) in lieu of the deduction allowable under 
section 164(f) of the Internal Revenue Code of 1986 
(relating to deduction for one-half of self-employ-
ment taxes), there shall be allowed as a deduction an 
amount equal to the sum of— 
‘‘(A) 7.1064 percent of so much of the in-
dividual’s net-earnings from self-employment 
for the taxable year (determined without regard 
to this paragraph) as does not exceed an 
amount equal to the product of 1.0765 and the 
excess (if any) of— 
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‘‘(i) the contribution and benefit base 
(as determined under section 230) in effect 
for the calendar year in which the taxable 
year begins, 
‘‘(ii) the wages (within the meaning of 
section 1402(b)(1) of the Internal Revenue 
Code of 1986) paid to the individual dur-
ing such taxable year, plus 
‘‘(B) 1.4293 percent of the excess (if any) 
of such net earnings over the amount of such 
net earnings taken into account under subpara-
graph (A);’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1502. DETERMINATION OF NET EARNINGS FROM SELF- 
EMPLOYMENT. 
(a) PRO RATA SHARE OF S CORPORATION ITEMS IN-
CLUDED AS NET EARNINGS FROM SELF-EMPLOYMENT.— 
(1) IN GENERAL.—Section 1402(a) is amended 
by inserting ‘‘, plus (notwithstanding subsection 
(c)(2)) his pro rata share of nonseparately computed 
income or loss (as defined in section 1366(a)(2)) 
from any trade or business carried on by an S cor-
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poration in which he is a shareholder’’ before ‘‘; ex-
cept that’’ in the matter preceding paragraph (1). 
(2) APPLICATION
OF
ADJUSTMENTS.—Section 
1402(a) is amended by inserting ‘‘and such pro rata 
share of S corporation nonseparately computed in-
come or loss’’ after ‘‘such distributive share of part-
nership ordinary income or loss’’ in the matter pre-
ceding paragraph (1). 
(3) 
CONFORMING
AMENDMENTS.—Section 
211(a) of the Social Security Act is amended in the 
matter preceding paragraph (1)— 
(A) by inserting ‘‘, plus (notwithstanding 
subsection (c)(2)) his pro rata share of non-
separately computed income or loss (as defined 
in section 1366(a)(2) of the Internal Revenue 
Code of 1986)from any trade or business car-
ried on by an S corporation in which he is a 
shareholder’’ before ‘‘; except that’’, and 
(B) by inserting ‘‘and such pro rata share 
of S corporation nonseparately computed in-
come or loss’’ after ‘‘such distributive share of 
partnership ordinary income or loss’’. 
(b) REPEAL OF EXCEPTION FOR LIMITED PART-
NERS.— 
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(1) IN GENERAL.—Section 1402(a) is amended 
by striking paragraph (13). 
(2) 
CONFORMING
AMENDMENT.—Section 
211(a) of the Social Security Act is amended by 
striking paragraph (12). 
(c) DEDUCTION FOR RETURN ON INVESTED CAP-
ITAL.— 
(1) IN GENERAL.—Section 1402 is amended by 
adding at the end the following new subsection: 
‘‘(m) DEDUCTION FOR RETURN ON INVESTED CAP-
ITAL.— 
‘‘(1) IN GENERAL.—An individual’s net earn-
ings from self-employment shall be reduced (but not 
below zero) by the lesser of— 
‘‘(A) 30 percent of the sum of— 
‘‘(i) such individual’s pass-through net 
earnings from self-employment, and 
‘‘(ii) such individual’s wages (as de-
fined in section 3121) paid with respect to 
any trade or business carried on by an S 
corporation in which he is a shareholder, 
or 
‘‘(B) such individual’s pass-through net 
earnings from self-employment. 
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‘‘(2) PASS-THROUGH
NET
EARNINGS
FROM 
SELF-EMPLOYMENT.—For purposes of this sub-
section, the term ‘pass-through net earnings from 
self-employment’ means net earnings from self-em-
ployment (as computed under subsection (a) without 
regard to this subsection) determined without regard 
to any trade or business carried on by the individual. 
‘‘(3) 100 PERCENT DEDUCTION WHERE NO MA-
TERIAL PARTICIPATION.— 
‘‘(A) IN GENERAL.—If an individual does 
not have material participation with respect to 
an entity (as determined under subparagraph 
(B)), in lieu of the reduction provided under 
paragraph (1) such individual’s net earnings 
from self-employment shall be reduced (but not 
below zero) by the sum of— 
‘‘(i) the reduction determined under 
paragraph (1) applied— 
‘‘(I) by substituting ‘100 percent’ 
for ‘30 percent’ in subparagraph (A) 
thereof, and 
‘‘(II) 
by 
determining 
pass- 
through net earnings from self-em-
ployment by only taking into account 
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distributive and pro rata shares from 
non-participation entities, and 
‘‘(III) by only taking into ac-
count under subparagraph (A)(ii) 
thereof wages paid with respect to 
trades or businesses carried on by S 
corporations which are non-participa-
tion entities, plus 
‘‘(ii) the reduction determined under 
paragraph (1) applied— 
‘‘(I) by determining pass-through 
net earnings from self-employment by 
not taking into account any distribu-
tive or pro rata share from a non-par-
ticipation entity, and 
‘‘(II) by not taking into account 
under subparagraph (A)(ii) thereof 
any wages paid with respect to trades 
or businesses carried on by an S cor-
poration which is a non-participation 
entity. 
‘‘(B) 
MATERIAL
PARTICIPATION.—For 
purposes of this paragraph— 
‘‘(i) IN GENERAL.—An individual does 
not have material participation with re-
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spect to an entity (hereafter referred to as 
the top-tier entity) if such individual dem-
onstrates to the satisfaction of the Sec-
retary that such individual— 
‘‘(I) does not materially partici-
pate (as determined under section 
469(h) without regard to paragraph 
(2) thereof) in any activity carried on 
by such top-tier entity, and 
‘‘(II) does not materially partici-
pate (as so determined) in any activity 
carried on by any entity in which such 
top-tier entity holds (directly or indi-
rectly) any interest. 
‘‘(ii) 
FAMILY
ATTRIBUTION.—For 
purposes of applying clause (i), the partici-
pation of any individual in any activity 
shall also be treated as performed by such 
individual’s spouse and the lineal descend-
ants of such individual and such individ-
ual’s spouse. 
‘‘(C) NON-PARTICIPATION
ENTITY.—For 
purposes of this paragraph, the term ‘non-par-
ticipation entity’ means, with respect to any in-
dividual, any entity with respect to which such 
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individual does not have material participation 
(as determined under subparagraph (B)).’’. 
(2) CONFORMING
AMENDMENT.—Section 211 
of the Social Security Act is amended by adding at 
the end the following new subsection: 
‘‘(l) DEDUCTION FOR RETURN ON INVESTED CAP-
ITAL.— 
‘‘(1) IN GENERAL.—An individual’s net earn-
ings from self-employment shall be reduced (but not 
below zero) by the lesser of— 
‘‘(A) 30 percent of the sum of— 
‘‘(i) such individual’s pass-through net 
earnings from self-employment, and 
‘‘(ii) such individual’s wages (as de-
fined in section 209) paid with respect to 
any trade or business carried on by an S 
corporation in which he is a shareholder, 
or 
‘‘(B) such individual’s pass-through net 
earnings from self-employment. 
‘‘(2) PASS-THROUGH
NET
EARNINGS
FROM 
SELF-EMPLOYMENT.—For purposes of this sub-
section, the term ‘pass-through net earnings from 
self-employment’ means net earnings from self-em-
ployment (as computed under subsection (a) without 
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regard to this subsection) determined without regard 
to any trade or business carried on by the individual. 
‘‘(3) 100 PERCENT DEDUCTION WHERE NO MA-
TERIAL PARTICIPATION.— 
‘‘(A) IN GENERAL.—If an individual does 
not have material participation with respect to 
an entity (as determined under subparagraph 
(B)), in lieu of the reduction provided under 
paragraph (1) such individual’s net earnings 
from self-employment shall be reduced (but not 
below zero) by the sum of— 
‘‘(i) the reduction determined under 
paragraph (1) applied— 
‘‘(I) by substituting ‘100 percent’ 
for ‘30 percent’ in subparagraph (A) 
thereof, and 
‘‘(II) 
by 
determining 
pass- 
through net earnings from self-em-
ployment by only taking into account 
distributive and pro rata shares from 
non-participation entities, and 
‘‘(III) by only taking into ac-
count under subparagraph (A)(ii) 
thereof wages paid with respect to 
trades or businesses carried on by S 
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corporations which are non-participa-
tion entities, plus 
‘‘(ii) the reduction determined under 
paragraph (1) applied— 
‘‘(I) by determining pass-through 
net earnings from self-employment by 
not taking into account any distribu-
tive or pro rata share from a non-
participation entity, and 
‘‘(II) by not taking into account 
under subparagraph (A)(ii) thereof 
any wages paid with respect to trades 
or businesses carried on by an S cor-
poration which is a nonparticipation 
entity. 
‘‘(B) 
MATERIAL
PARTICIPATION.—For 
purposes of this paragraph— 
‘‘(i) IN GENERAL.—An individual does 
not have material participation with re-
spect to an entity (hereafter referred to as 
the top-tier entity) if such individual dem-
onstrates to the satisfaction of the Sec-
retary of the Treasury under section 
1402(m) of the Internal Revenue Code of 
1986 that such individual— 
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213 
‘‘(I) does not materially partici-
pate (as determined under section 
469(h) of the Internal Revenue Code 
of 1986 without regard to paragraph 
(2) thereof) in any activity carried on 
by such top-tier entity, and 
‘‘(II) does not materially partici-
pate (as so determined) in any activity 
carried on by any entity in which such 
top-tier entity holds (directly or indi-
rectly) any interest. 
‘‘(ii) 
FAMILY
ATTRIBUTION.—For 
purposes of applying clause (i), the partici-
pation of any individual in any activity 
shall also be treated as performed by such 
individual’s spouse and the lineal descend-
ants of such individual and such individ-
ual’s spouse. 
‘‘(C) NONPARTICIPATION
ENTITY.—For 
purposes of this paragraph, the term ‘non-
participation entity’ means, with respect to any 
individual, any entity with respect to which 
such individual does not have material partici-
pation (as determined under subparagraph 
(B)).’’. 
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1503. REPEAL OF EXEMPTION FROM FICA TAXES FOR 
CERTAIN FOREIGN WORKERS. 
(a) IN GENERAL.—Subsection (b) of section 3121 is 
amended by striking paragraphs (1) and (19). 
(b) COORDINATION WITH BENEFITS.—Subsection 
(a) of section 210 of the Social Security Act is amended 
by striking paragraphs (1) and (19). 
(c) RAILROAD RETIREMENT TAX.—Paragraph (1) of 
section 3231(e) is amended by striking the third sentence. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to remuneration received for serv-
ices performed after December 31, 2014. 
SEC. 1504. REPEAL OF EXEMPTION FROM FICA TAXES FOR 
CERTAIN STUDENTS. 
(a) IN
GENERAL.—Paragraph (10) of section 
3121(b) is amended— 
(1) by inserting ‘‘during any calendar year’’ 
after ‘‘service performed’’ in the matter preceding 
subparagraph (A), and 
(2) by inserting ‘‘, and the remuneration paid 
by the employer with respect to such service during 
such calendar year is less than the dollar amount in 
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effect under section 213(d) of the Social Security 
Act (relating to amount required for a quarter of 
coverage) with respect to such year’’ before the 
semicolon at the end. 
(b) COLLEGE CLUBS, FRATERNITIES, AND SORORI-
TIES.—Paragraph (2) of section 3121(b) is amended— 
(1) by inserting ‘‘during any calendar year’’ 
after ‘‘domestic service performed’’, and 
(2) by inserting ‘‘, if the remuneration paid by 
the employer with respect to such service during 
such calendar year is less than the dollar amount in 
effect under section 213(d) of the Social Security 
Act (relating to amount required for a quarter of 
coverage) with respect to such year’’ before the 
semicolon at the end. 
(c) DEDUCTION OF TAX FROM WAGES.—Subsection 
(a) of section 3102 is amended by inserting ‘‘; and an em-
ployer who in any calendar year pays to an employee re-
muneration to which paragraph (2) or (10) of section 
3121(b) is applicable may deduct an amount equivalent 
to such tax from any such payment of remuneration, even 
though at the time of payment the total amount of such 
remuneration paid to the employee by the employer in the 
calendar year is less than the dollar amount in effect 
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under section 213(d) of the Social Security Act with re-
spect to such year’’ before the period at the end. 
(d) COORDINATION WITH BENEFITS.— 
(1) Paragraph (10) of section 210(a) of the So-
cial Security Act is amended— 
(A) by inserting ‘‘during any calendar 
year’’ after ‘‘Service performed’’ in the matter 
preceding subparagraph (A), and 
(B) by inserting ‘‘, and the remuneration 
paid by the employer with respect to such serv-
ice during such calendar year is less than the 
dollar amount in effect under section 213(d) 
(relating to amount required for a quarter of 
coverage) with respect to such year’’ before the 
semicolon at the end. 
(2) Paragraph (2) of section 210(a) of the So-
cial Security Act is amended— 
(A) by inserting ‘‘during any calendar 
year’’ after ‘‘Domestic service performed’’, and 
(B) by inserting ‘‘, if the remuneration 
paid by the employer with respect to such serv-
ice during such calendar year is less than the 
dollar amount in effect under section 213(d) 
(relating to amount required for a quarter of 
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coverage) with respect to such year’’ before the 
semicolon at the end. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to remuneration received for serv-
ices performed after December 31, 2014. 
SEC. 1505. OVERRIDE OF TREASURY GUIDANCE PROVIDING 
THAT CERTAIN EMPLOYER-PROVIDED SUP-
PLEMENTAL UNEMPLOYMENT BENEFITS ARE 
NOT SUBJECT TO EMPLOYMENT TAXES. 
(a) IN GENERAL.—Effective with respect to amounts 
paid after December 31, 2014— 
(1) Revenue Ruling 56–249, 
(2) Revenue Ruling 58–128, 
(3) Revenue Ruling 60–330, 
(4) so much of the holding of Revenue Ruling 
77–347 as relates to Plan (1) and Plan (2), 
(5) Revenue Ruling 90–72, and 
(6) any other ruling, regulation, or other guid-
ance provided by the Secretary of the Treasury, or 
his designee, to the extent that such ruling, regula-
tion, or guidance provides that any payment made 
by an employer by reason of involuntary termination 
of employment shall not be treated as wages or com-
pensation for purposes of any provision of the Inter-
nal Revenue Code of 1986, 
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shall be null and void. The preceding sentence shall not 
apply to the extent a ruling, regulation, or other guidance 
implements a statutory exception to wages or compensa-
tion. 
(b) REPEAL OF WITHHOLDING REQUIREMENT.— 
(1) 
IN
GENERAL.—Section 
3402(o)(1) 
is 
amended by striking subparagraph (A) and by redes-
ignating subparagraphs (B) and (C) as subpara-
graphs (A) and (B), respectively. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 3402(o)(2) is amended by 
striking subparagraph (A) and by redesignating 
subparagraphs (B) and (C) as subparagraphs 
(A) and (B), respectively. 
(B) Section 3402(o)(5)(A) is amended by 
striking ‘‘paragraph (1)(C)’’ and inserting 
‘‘paragraph (1)(B)’’. 
(3) EFFECTIVE DATE.— 
(A) IN GENERAL.—The amendments made 
by this subsection shall apply to amounts paid 
after December 31, 2013. 
(B) 
NO
INFERENCE.—No 
amendment 
made by this subsection shall be construed to 
create any inference with respect to any 
amounts paid before January 1, 2014. 
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SEC. 1506. CERTIFIED PROFESSIONAL EMPLOYER ORGANI-
ZATIONS. 
(a) EMPLOYMENT TAXES.—Chapter 25 is amended 
by adding at the end the following new section: 
‘‘SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANI-
ZATIONS. 
‘‘(a) GENERAL RULES.—For purposes of the taxes 
and other obligations imposed by this subtitle— 
‘‘(1) a certified professional employer organiza-
tion shall be treated as the employer (and no other 
person shall be treated as the employer) of any work 
site employee performing services for any customer 
of such organization, but only with respect to remu-
neration remitted by such organization to such work 
site employee, and 
‘‘(2) the exemptions, exclusions, definitions, and 
other rules which are based on type of employer and 
which would (but for paragraph (1)) apply shall 
apply with respect to such taxes imposed on such re-
muneration. 
‘‘(b) SUCCESSOR EMPLOYER STATUS.—For purposes 
of sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)— 
‘‘(1) a certified professional employer organiza-
tion entering into a service contract with a customer 
with respect to a work site employee shall be treated 
as a successor employer and the customer shall be 
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treated as a predecessor employer during the term 
of such service contract, and 
‘‘(2) a customer whose service contract with a 
certified professional employer organization is termi-
nated with respect to a work site employee shall be 
treated as a successor employer and the certified 
professional employer organization shall be treated 
as a predecessor employer. 
‘‘(c) LIABILITY OF CERTIFIED PROFESSIONAL EM-
PLOYER ORGANIZATION.—Solely for purposes of its liabil-
ity for the taxes and other obligations imposed by this sub-
title— 
‘‘(1) a certified professional employer organiza-
tion shall be treated as the employer of any work 
site employee (other than a person described in sub-
section (e)) who is performing services covered by a 
contract meeting the requirements of section 
7706(e)(2), but only with respect to remuneration 
remitted by such organization to such individual, 
and 
‘‘(2) exemptions, exclusions, definitions, and 
other rules which are based on type of employer and 
which would (but for paragraph (1)) apply shall 
apply with respect to such taxes imposed on such re-
muneration. 
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‘‘(d) SPECIAL RULE FOR RELATED PARTY.—This 
section shall not apply in the case of a customer which 
bears a relationship to a certified professional employer 
organization described in section 267(b) or 707(b). For 
purposes of the preceding sentence, such sections shall be 
applied by substituting ‘10 percent’ for ‘50 percent’. 
‘‘(e) SPECIAL RULE FOR CERTAIN INDIVIDUALS.— 
For purposes of the taxes imposed under this subtitle, an 
individual with net earnings from self-employment derived 
from the customer’s trade or business (including a partner 
in a partnership that is a customer), is not a work site 
employee with respect to remuneration paid by a certified 
professional employer organization. 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(b) CERTIFIED PROFESSIONAL EMPLOYER ORGANI-
ZATION DEFINED.—Chapter 79, as amended by the pre-
ceding provisions of this Act, is amended by adding at the 
end the following new section: 
‘‘SEC. 7706. CERTIFIED PROFESSIONAL EMPLOYER ORGANI-
ZATIONS. 
‘‘(a) IN GENERAL.—For purposes of this title, the 
term ‘certified professional employer organization’ means 
a person who applies to be treated as a certified profes-
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sional employer organization for purposes of section 3511 
and who has been certified by the Secretary as meeting 
the requirements of subsection (b). 
‘‘(b) CERTIFICATION
REQUIREMENTS.—A person 
meets the requirements of this subsection if such person— 
‘‘(1) demonstrates that such person (and any 
owner, officer, and such other persons as may be 
specified in regulations) meets such requirements as 
the Secretary shall establish with respect to tax sta-
tus, background, experience, business location, and 
annual financial audits, 
‘‘(2) agrees that it will satisfy the bond and 
independent financial review requirements of sub-
sections (c) on an ongoing basis, 
‘‘(3) agrees that it will satisfy such reporting 
obligations as may be imposed by the Secretary, 
‘‘(4) computes its taxable income using an ac-
crual method of accounting unless the Secretary ap-
proves another method, 
‘‘(5) agrees to verify on such periodic basis as 
the Secretary may prescribe that it continues to 
meet the requirements of this subsection, and 
‘‘(6) agrees to notify the Secretary in writing, 
within such time as the of Secretary may prescribe, 
of any change that materially affects the continuing 
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