I 
112TH CONGRESS 
2D SESSION 
H. R. 6653 
To amend the Internal Revenue Code of 1986 to provide standards for 
determining employment status, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
DECEMBER 12, 2012 
Mr. PAULSEN 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 provide 
standards for determining employment status, 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 ‘‘Independent Con-
tractor Tax Fairness and Simplification Act of 2012’’. 
SEC. 2. FINDINGS. 
The Congress finds the following: 
(1) Independent contractors play a vital role in 
our economy. 
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(2) Independent contractors embrace the entre-
preneurial spirit of our country and are free to seek 
economic opportunities that best fit their needs. 
(3) Many small businesses start as an inde-
pendent contractor and grow creating jobs for other 
individuals. 
(4) The proper classification of individuals as 
employees and independent contractors is a signifi-
cant responsibility for businesses. 
(5) The rules and guidelines for determining 
whether an individual is an independent contractor 
or an employee lack clarity and consistency. 
(6) It is in the best interests of taxpayers, the 
Federal Government and the business community to 
have fair and objective rules for determining who is 
an independent contractor and who is an employee. 
SEC. 3. STANDARDS FOR DETERMINING EMPLOYMENT STA-
TUS. 
(a) IN GENERAL.—Chapter 25 of the Internal Rev-
enue Code of 1986 (general provisions relating to employ-
ment taxes) is amended by adding after section 3510 the 
following new sections: 
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‘‘SEC. 3511. CONTROVERSIES INVOLVING WHETHER INDI-
VIDUALS ARE EMPLOYEES FOR PURPOSES OF 
THE EMPLOYMENT TAXES. 
‘‘(a) 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 returns (including information re-
turns) 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 
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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 assess-
ment attributable to the treatment (for employ-
ment tax purposes) of the individuals holding 
positions substantially similar to the position 
held by this individual, or 
‘‘(C) long-standing recognized practice of a 
significant segment of the industry in which 
such individual was engaged. 
‘‘(3) CONSISTENCY REQUIRED IN THE CASE OF 
PRIOR TAX TREATMENT.—Paragraph (1) shall not 
apply with respect to the treatment of any individual 
for employment tax purposes for any period ending 
after December 31, 2012, if the taxpayer (or a pred-
ecessor) has treated any individual holding a sub-
stantially similar position as an employee for pur-
poses of the employment taxes for any period begin-
ning after December 31, 2011. 
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‘‘(4) REFUND OR CREDIT OF OVERPAYMENT.— 
If refund or credit of any overpayment of an employ-
ment tax resulting from the application of paragraph 
(1) is not barred on the date of the enactment of 
this section by any law or rule of law, the period for 
filing a claim for refund or credit of such overpay-
ment (to the extent attributable to the application of 
paragraph (1)) shall not expire before the date 1 
year after the date of the enactment of this section. 
‘‘(b) PROHIBITION
AGAINST
REGULATIONS
AND 
RULINGS ON EMPLOYMENT STATUS.—Except for pur-
poses of providing Revenue Rulings with respect to section 
3512, no regulation or Revenue Ruling shall be published 
on or after the date of the enactment of this section by 
the Department of the Treasury (including the Internal 
Revenue Service) with respect to the employment status 
of any individual for purposes of the employment taxes. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) EMPLOYMENT
TAX.—The term ‘employ-
ment tax’ means any tax imposed by this subtitle. 
‘‘(2) EMPLOYMENT
STATUS.—The term ‘em-
ployment status’ means the status of an individual, 
under the usual common law rules applicable in de-
termining the employer-employee relationship, as an 
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employee or as an independent contractor (or other 
individual who is not an employee). 
‘‘(d) EXCEPTION.—This section shall not apply in the 
case of an individual who, pursuant to an arrangement 
between the taxpayer and another person, provides serv-
ices for such other person as an engineer, designer, draft-
er, computer programmer, systems analyst, or other simi-
larly skilled worker engaged in a similar line of work. 
‘‘(e) SPECIAL RULES
FOR APPLICATION
OF SEC-
TION.— 
‘‘(1) NOTICE OF AVAILABILITY OF SECTION.— 
An officer or employee of the Internal Revenue Serv-
ice shall, before or at the commencement of any 
audit inquiry relating to the employment status of 
one or more individuals who perform services for the 
taxpayer, provide the taxpayer with a written notice 
of the provisions of this section. 
‘‘(2) RULES RELATING TO STATUTORY STAND-
ARDS.—For purposes of subsection (a)(2)— 
‘‘(A) a taxpayer may not rely on an audit 
commenced after December 31, 1996, for pur-
poses of subparagraph (B) thereof unless such 
audit included an examination for employment 
tax purposes of whether the individual involved 
(or any individual holding a position substan-
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tially similar to the position held by the indi-
vidual involved) should be treated as an em-
ployee of the taxpayer, 
‘‘(B) in no event shall the significant seg-
ment requirement of subparagraph (C) thereof 
be construed to require a reasonable showing of 
the practice of more than 25 percent of the in-
dustry (determined by not taking into account 
the taxpayer), and 
‘‘(C) in applying the long-standing recog-
nized practice requirement of subparagraph (C) 
thereof— 
‘‘(i) such requirement shall not be 
construed as requiring the practice to have 
continued for more than 10 years, and 
‘‘(ii) a practice shall not fail to be 
treated as long-standing merely because 
such practice began after 1978. 
‘‘(3) AVAILABILITY OF SAFE HARBORS.—Noth-
ing in this section shall be construed to provide that 
subsection (a) only applies where the individual in-
volved is otherwise an employee of the taxpayer. 
‘‘(4) BURDEN OF PROOF.— 
‘‘(A) IN GENERAL.—If— 
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‘‘(i) a taxpayer establishes a prima 
facie case that it was reasonable not to 
treat an individual as an employee for pur-
poses of this section, and 
‘‘(ii) the taxpayer has fully cooperated 
with reasonable requests from the Sec-
retary of the Treasury or his delegate, 
then the burden of proof with respect to such 
treatment shall be on the Secretary. 
‘‘(B) EXCEPTION FOR OTHER REASONABLE 
BASIS.—In the case of any issue involving 
whether the taxpayer had a reasonable basis 
not to treat an individual as an employee for 
purposes of this section, subparagraph (A) shall 
only apply for purposes of determining whether 
the taxpayer meets the requirements of sub-
paragraph (A), (B), or (C) of subsection (a)(2). 
‘‘(5) PRESERVATION
OF
PRIOR
PERIOD
SAFE 
HARBOR.—If— 
‘‘(A) an individual would (but for the 
treatment referred to in subparagraph (B)) be 
deemed not to be an employee of the taxpayer 
under subsection (a) for any prior period, and 
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‘‘(B) such individual is treated by the tax-
payer as an employee for employment tax pur-
poses for any subsequent period, 
then, for purposes of applying such taxes for such 
prior period with respect to the taxpayer, the indi-
vidual shall be deemed not to be an employee. 
‘‘(6) SUBSTANTIALLY SIMILAR POSITION.—For 
purposes of this section, the determination as to 
whether an individual holds a position substantially 
similar to a position held by another individual shall 
include consideration of the relationship between the 
taxpayer and such individuals. 
‘‘SEC. 3512. SAFE HARBOR STANDARDS FOR DETERMINING 
EMPLOYMENT STATUS. 
‘‘(a) GENERAL RULE.—For purposes of this title, if 
the requirements of subsection (c) are met with respect 
to any service performed by any service provider, 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, 
‘‘(3) the payor shall not be treated as an em-
ployer, and 
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‘‘(4) compensation paid or received for such 
service shall not be treated as paid or received with 
respect to employment. 
‘‘(b) STATUTORY EMPLOYEES.—Nothing in this sec-
tion shall supersede the categories of employees described 
in section 3121(d)(3). 
‘‘(c) REQUIREMENTS.— 
‘‘(1) IN GENERAL.—The requirements of this 
subsection are met if the requirements of para-
graphs (2) and (3) are met. 
‘‘(2) INVESTMENT OR INCOME FLUCTUATION.— 
A service provider meets the requirements of this 
paragraph if the service provider— 
‘‘(A) incurs significant financial responsi-
bility for providing and maintaining the nec-
essary equipment and facilities to perform the 
work outlined in their qualified agreement, and 
‘‘(B) either— 
‘‘(i) incurs unreimbursed expenses, or 
‘‘(ii) risks income fluctuations because 
the remuneration with respect to such 
service is directly related to sales or other 
output rather than solely to the number of 
hours actually worked or expenses in-
curred. 
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‘‘(3) CONTROL
OF
TIME
WORKED
AND
PER-
FORMANCE OF SERVICES.—A service provider meets 
the requirements of this paragraph if the service 
provider— 
‘‘(A) is compensated upon factors related 
to the work performed, such as a percentage of 
revenue or scheduled rates, and not solely on 
the basis of hours or time expended, and 
‘‘(B) substantially controls the means and 
manner of performing the services, in conform-
ance with regulatory requirements, the speci-
fications of the service recipient or payor and 
any additional requirements specified in the 
qualified agreement. 
‘‘(d) DEFINITIONS.—For the purposes of this sec-
tion— 
‘‘(1) SERVICE
PROVIDER.—The term ‘service 
provider’ means any individual or entity that per-
forms service for another company under a qualified 
agreement. 
‘‘(2) SERVICE RECIPIENT.—The term ‘service 
recipient’ means the person or entity for whom the 
service provider performs such service. 
‘‘(3) PAYOR.—The term ‘payor’ means the per-
son or entity that pays the service provider for the 
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performance of such service in the event that the 
service recipients do not pay the service provider. 
‘‘(4) 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. 
‘‘(5) 
QUALIFIED
AGREEMENT.—The 
term 
‘qualified agreement’ means a written contract be-
tween a service provider and the service recipient for 
whom the services are performed or the payor that 
provides that the service provider— 
‘‘(A) will not be treated as an employee 
with respect to such services for the purpose of 
this title, and 
‘‘(B) has been informed of the Federal tax 
obligations resulting from such treatment.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 530 of the Revenue Act of 1978 is 
hereby repealed. 
(2) The table of sections for chapter 25 of such 
Code is amended by adding at the end the following 
new items: 
‘‘Sec. 3511. Controversies involving whether individuals are employees for pur-
poses of the employment taxes. 
‘‘Sec. 3512. Safe harbor standards for determining employment status.’’. 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this Act shall 
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take effect beginning on the first day of the first cal-
endar year beginning after the date of enactment of 
this Act. 
(2) REPEAL OF SECTION 530.—The amendment 
made by subsection (b)(1) shall apply to periods in 
calendar years beginning after the date of enactment 
of this Act. 
Æ 
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