ing positions substantially similar to the posi-
tion held by this individual.
‘‘(C) Long-standing recognized practice of
a significant segment of the industry in which
such individual was engaged.
‘‘(3) SUBSEQUENT TREATMENT BY TAXPAYER
OF INDIVIDUAL AS AN EMPLOYEE.—If—
‘‘(A) an individual is deemed not to be an
employee of the taxpayer under paragraph (1)
for any prior period, and
‘‘(B) such individual is treated by the tax-
payer as an employee for employment tax pur-
poses for any subsequent period,
then, notwithstanding paragraph (1), for purposes of
applying such taxes for such prior period with re-
spect to the taxpayer, the individual shall be deemed
not to be an employee.
‘‘(4) PROSPECTIVE
TERMINATION
OF
PRIOR
AUDIT SAFE HARBOR.—
‘‘(A) IN GENERAL.—If, after an employ-
ment tax audit (and after providing the tax-
payer an opportunity for an appeal within the
Internal Revenue Service), the taxpayer is noti-
fied in writing by the Internal Revenue Service
that an individual (or individuals holding sub-
stantially similar positions) should be treated as
employees for purposes of the employment
taxes, paragraph (2)(B) shall not apply with re-
spect to such individuals for any calendar
month beginning more than 180 days after the
date such notice is sent. The preceding sentence
shall not apply if the audit referred to para-
graph (2)(B) included an examination for em-
ployment tax purposes of individuals holding
positions substantially similar to the positions
held by the individual involved.
‘‘(B) EMPLOYMENT TAX AUDIT.—For pur-
poses of subparagraph (A), the term ‘employ-
ment tax audit’ means any audit by the Inter-
nal Revenue Service which—
‘‘(i) was conducted solely for employ-
ment tax purposes, and
‘‘(ii) included an examination for em-
ployment tax purposes of individuals hold-
ing positions substantially similar to the
positions held by the individual involved.
‘‘(5) CLARIFICATION OF SIGNIFICANT SEGMENT
OF
INDUSTRY.—In no event shall the ‘significant
segment’ requirement under paragraph (2)(C) be in-
terpreted to require a showing of the practice of
more than 25 percent of an industry. In applying
the preceding sentence, the Secretary shall allow tax-
payers maximum latitude in determining which in-
dustry is the appropriate industry for purposes of
applying such paragraph to the taxpayer.
‘‘(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
employee or as an independent contractor (or other
individual who is not an employee).’’
(b) RULES TO APPLY
FOR INCOME TAX PUR-
POSES.—Part I of subchapter B of chapter 1 of such Code
is amended by adding at the end the following new section:
‘‘SEC. 69. DETERMINATION OF EMPLOYMENT STATUS.
‘‘For purposes of this subtitle, an individual shall not
be treated as an employee of a person for any period if,
under the rules of section 3510, such individual is treated
as not being an employee of such person for such period.’’
(c) CONFORMING AMENDMENT.—Section 530 of the
Revenue Act of 1978 is hereby repealed.
(d) CLERICAL AMENDMENTS.—
(1) The table of sections for chapter 25 of such
Code is amended by adding at the end the following
new item:
‘‘Sec. 3510. Determination of employment status.’’
(2) The table of sections for part I of sub-
chapter B of chapter 1 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 69. Determination of employment status.’’
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall take effect beginning on the first day of the
first calendar year beginning after the date of the
enactment of this Act.
(2) REPEAL OF SECTION 530.—The amendment
made by subsection (c) shall apply to periods in cal-
endar years beginning after the date of the enact-
ment of this Act.
(3) 
CONSISTENCY
RULES.—In 
determining
whether the requirements of subsection (b)(1)(B) of
section 3510 of the Internal Revenue Code of 1986
(as added by subsection (a)) are met with respect to
any individual described in section 530(d) of the
Revenue Act of 1978 (as in effect on the day before
the date of the enactment of this Act), there shall
be disregarded any period for which such individual
(or any other individual holding a substantially simi-
lar position) was treated as an employee by reason
of such section 530(d).
SEC. 3. COMPLIANCE PROVISIONS.
(a) INCREASE IN PENALTY ON SERVICE-RECIPIENT
FOR FAILURE TO FURNISH FORM 1099’S TO INDEPEND-
ENT CONTRACTORS.—
(1) IN GENERAL.—Section 6722 of the Internal
Revenue Code of 1986 (relating to failure to file cor-
rect payee statements) is amended by adding at the
end the following new subsection:
‘‘(d) INCREASE
IN PENALTY WITH RESPECT
TO
STATEMENTS FOR SERVICES.—In the case of any state-
ment required by section 6041(d) or section 6041A(e) to
show payments for services, subsection (a) shall be applied
by substituting ‘$75’ for ‘$50’ and subsection (c) shall be
applied by substituting ‘$125’ for ‘$100’.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to statements the due
date for which (determined without regard to exten-
sions) is after December 31, 1996.
(b) SEPARATE LISTING OF PAYMENTS REPORTED ON
FORM 1099’S.—The Secretary of the Treasury or his dele-
gate shall modify the forms for returns of income tax so
as to require the reporting for information purposes on
a separate line of each amount for which the taxpayer re-
ceived a statement under section 6041(d) or section
6041A(e) showing payments for services.
(c) INFORMATION
TO SERVICE-RECIPIENTS WITH
RESPECT TO INDEPENDENT CONTRACTORS.—The Sec-
retary of the Treasury or his delegate shall take such steps
as the Secretary determines appropriate to inform service-
recipients of—
(1) their obligations with respect to independent
contractors,
(2) the modifications made by this Act in the
rules for determining whether or not an individual is
an employee, and
(3) the increase made by this Act in the pen-
alties for failures to furnish correct statements re-
quired by sections 6041(d) and section 6041A(e) of
the Internal Revenue Code of 1986.
SEC. 4. DEPARTMENT OF THE TREASURY REQUIRED TO
PROPOSE LEGISLATION.
Not later than the date which is 180 days after the
date of the enactment of this Act, the Secretary of the
Treasury or his delegate shall submit a report to the Con-
gress proposing legislation which specifies objectively
measurable criteria for determining whether an individual
(not otherwise treated as not being an employee under sec-