Title: To amend the Internal Revenue Code of 1986 to change the classification of employers and employees for services providers.
Policy area: Taxation

Summary:
This bill amends the Internal Revenue Code to establish a test for determining if a service provider should be classified as an independent contractor rather than as an employee for tax purposes.
If the requirements of the test are met, the provider may not be treated as an employee, the recipient or any payor may not be treated as an employer, and compensation for the service may not be treated as paid or received with respect to employment.
The factors of the test include:
The bill also sets forth: (1) reporting requirements for service recipients who meet the requirements of the test, and (2) procedures for the reclassification of employment status by the Internal Revenue Service.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3396 Introduced in House (IH)]

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115th CONGRESS
  1st Session
                                H. R. 3396

To amend the Internal Revenue Code of 1986 to change the classification 
           of employers and employees for services providers.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 25, 2017

 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 change the classification 
           of employers and employees for services providers.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. DETERMINATION OF WORKER CLASSIFICATION.

    (a) In General.--Chapter 79 of the Internal Revenue code of 1986 is 
amended by adding at the end the following new section:

``SEC. 7706. DETERMINATION OF WORKER CLASSIFICATION.

    ``(a) In General.--For purposes of this title (and notwithstanding 
any provision of this title not contained in this section to the 
contrary), if the requirements of subsections (b), (c), and (d) are met 
with respect to any service performed by a 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) any payor shall not be treated as an employer, and
            ``(4) the compensation paid or received for such service 
        shall not be treated as paid or received with respect to 
        employment.
    ``(b) General Service Provider Requirements.--
            ``(1) In general.--The requirements of this subsection are 
        met with respect to any service if the service provider 
        either--
                    ``(A) meets the requirements of paragraph (2) with 
                respect to such service, or
                    ``(B) in the case a service provider engaged in the 
                trade or business of selling (or soliciting the sale 
                of) goods or services, meets the requirements of 
                paragraph (3) with respect to such service.
            ``(2) General requirements.--The requirements of this 
        paragraph are met with respect to any service if the service 
        provider, in connection with performing the service--
                    ``(A) either--
                            ``(i) incurs significant unreimbursed 
                        expenses as it relates to total expense, or
                            ``(ii) risks income fluctuations because 
                        remuneration with respect to such service is 
                        not related to the expenses incurred,
                    ``(B) agrees to perform the service for a 
                particular amount of time, to achieve a specific 
                result, or to complete a specific task, and
                    ``(C) at least one of the following:
                            ``(i) has an significant unreimbursed 
                        expenses as it relates to total expense in 
                        assets or training,
                            ``(ii) is not required to perform services 
                        exclusively for the service recipient, or
                            ``(iii) has not performed services for the 
                        service recipient as an employee during the 1-
                        year period ending with the date of the 
                        commencement of services under the contract 
                        described in subsection (d).
            ``(3) Alternative requirements with respect to sales 
        persons.--In the case of a service provider engaged in the 
        trade or business of selling (or soliciting the sale of) goods 
        or services, the requirements of this paragraph are met with 
        respect to any service if--
                    ``(A) the service provider is compensated primarily 
                on a commission basis, and
                    ``(B) substantially all the compensation for such 
                service is directly related to sales of goods or 
                services rather than to the number of hours worked to a 
                certain level or limit of highly compensated 
                individuals.
    ``(c) Place of Business or Own Equipment Requirement.--The 
requirement of this subsection is met with respect to any service if 
the service provider--
            ``(1) has a principal place of business, which can be home 
        or mobile-based, or,
            ``(2) provides the service primarily using equipment for 
        which the service provider bears the ultimate financial 
        responsibility.
    ``(d) Written Contract Requirement.--The requirements of this 
subsection are met with respect to any service if such service is 
performed pursuant to a written contract between the service provider 
and the service recipient (or payor) which meets the following 
requirements:
            ``(1) The contract includes each of the following:
                    ``(A) The service provider's name and address.
                    ``(B) A statement that the service provider will 
                not be treated as an employee with respect to the 
                services provided pursuant to the contract for purposes 
                of this title.
                    ``(C) A statement that the service recipient (or 
                the payor) will report to the Internal Revenue Service 
                the compensation payable pursuant to the contract 
                consistent with the requirements of this title.
                    ``(D) A statement that the service provider is 
                responsible for payment of Federal, State, and local 
                taxes, including self-employment taxes, on compensation 
                payable pursuant to the contract.
                    ``(E) A statement that the contract is intended to 
                be considered a contract described in this subsection.
            ``(2) The term of the contract does not exceed 1 year. The 
        preceding sentence shall not prevent one or more subsequent 
        written renewals of the contract from satisfying the 
        requirements of this subsection if the term of each such 
        renewal does not exceed 1 year and if the information required 
        under paragraph (1)(A) is updated as needed in connection with 
        each such renewal.
            ``(3) The contract (or renewal) is signed by both the 
        service recipient (or payor) and the service provider not later 
        than the date on which the aggregate payments made by the 
        service recipient to the service provider exceeds $600 for the 
        year covered by the contract (or renewal).
    ``(e) Reporting Requirements.--If any service recipient or payor 
fails to meet the applicable reporting requirements of section 6041(a) 
or 6041A(a) for any taxable year with respect to any service provider, 
this section shall not apply for purposes of making any determination 
with respect to the liability of such service recipient or payor for 
any tax with respect to such service provider for such period. For 
purposes of the preceding sentence, such reporting requirements shall 
be treated as met if the failure to satisfy such requirements is due to 
reasonable cause and not willful neglect.
    ``(f) Exception for Services Provided by Owner.--This section shall 
not apply with respect to any service provided by a service provider to 
a service recipient if the service provider owns any interest in the 
service recipient or any payor with respect to the service provided. 
The preceding sentence shall not apply in the case of a service 
recipient the stock of which is regularly traded on an established 
securities market.
    ``(g) Limitation on Reclassification by Secretary.--For purposes of 
this title--
            ``(1) Effect of reclassification on service recipients and 
        payors.--A determination by the Secretary that a service 
        recipient or a payor should have treated a service provider as 
        an employee shall be effective with respect to the service 
        recipient or payor no earlier than the notice date if--
                    ``(A) the service recipient or the payor entered 
                into a written contract with the service provider which 
                meets the requirements of subsection (d),
                    ``(B) the service recipient or the payor satisfied 
                the applicable reporting requirements of section (a) or 
                6041A(a) for all relevant taxable years with respect to 
                the service provider, and
                    ``(C) the service recipient or the payor 
                demonstrates a reasonable basis for having determined 
                that the service provider should not be treated as an 
                employee under this section and that such determination 
                was made in good faith.
            ``(2) Burden of proof.--
                    ``(A) In general.--If--
                            ``(i) a taxpayer establishes a prima facie 
                        case that it was reasonable not to treat an 
                        individual as an employee for purposes of this 
                        section, and
                            ``(ii) the taxpayer has fully cooperated 
                        with reasonable requests from the Secretary 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 subparagraph 
                (A), (B), or (C) of subsection (a)(2).
            ``(3) Effect of reclassification on service providers.--A 
        determination by the Secretary that a service provider should 
        have been treated as an employee shall be effective with 
        respect to the service provider no earlier than the notice date 
        if--
                    ``(A) the service provider entered into a written 
                contract with the service recipient or payor which 
                meets the requirements of subsection (d),
                    ``(B) the service recipient or payor satisfied the 
                applicable reporting requirements of sections 6012(a) 
                and 6017 for all relevant taxable years with respect to 
                the service provider, or
                    ``(C) the service recipient demonstrates a basis 
                for determining that the service provider is not an 
                employee under this section and that such determination 
                was made in good faith.
            ``(4) Notice date.--For purposes of this subsection, the 
        term `notice date' means the 30th day after the earliest of--
                    ``(A) the date on which the first letter of 
                proposed deficiency which allows the service provider, 
                the service recipient, or the payor an opportunity for 
                administrative review in the Internal Revenue Service 
                Office of Appeals is sent,
                    ``(B) the date on which a deficiency notice under 
                section 6212 is sent, or
                    ``(C) the date on which a notice of determination 
                under section 7436(b)(2) is sent.
            ``(5) No restriction on administrative or judicial 
        review.--Nothing in this subsection shall be construed as 
        limiting any provision of law which provides an opportunity for 
        administrative or judicial review of a determination by the 
        Secretary.
    ``(h) Definitions.--For purposes of this section--
            ``(1) Service provider.--
                    ``(A) In general.--The term `service provider' 
                means any qualified person who performs service for 
                another qualified person.
                    ``(B) Qualified person.--The term `qualified 
                person' means--
                            ``(i) any natural person, or
                            ``(ii) any entity.
            ``(2) Service recipient.--The term `service recipient' 
        means the person or entity for whom the service provider 
        performs such Service pursuant to a written contract.
            ``(3) Payor.--The term `payor' means any person or entity 
        who pays the service provider for performing such service.
    ``(i) Regulations.--Notwithstanding section 530(d) of the Revenue 
Act of 1978, the Secretary may issue regulations only to the extent 
that the Secretary determines are necessary to carry out the provisions 
of this section.
    ``(j) Rule of Construction.--No provision of this section may be 
construed to expand the circumstances under which a service provider 
may be treated as an employee or a service recipient may be treated as 
an employer.
    ``(k) Application in Ordinary Course of Trade or Business.--This 
section shall apply regardless of whether such service is performed in 
the ordinary or related course of a trade or business of the service 
recipient.''.
    (b) Reporting.--Section 6041A of such Code is amended by adding at 
the end the following new subsection:
    ``(g) Special Rules for Certain Persons Classified as Not 
Employees.--In the case of any service recipient required to make a 
return under subsection (a) with respect to compensation to which 
section 7706(a) applies--
            ``(1) such return shall include--
                    ``(A) the aggregate amount of such compensation 
                paid to each person or entity whose name is required to 
                be included on such return,
                    ``(B) the aggregate amount deducted and withheld 
                under section 3402(s) with respect to such 
                compensation, and
                    ``(C) an indication of whether a copy of the 
                contract described in section 7706(d) is on file with 
                the service recipient or payor, and
            ``(2) the statement required to be furnished under 
        subsection (e) shall include the information described in 
        paragraph (1) with respect to the service provider to whom such 
        statement is furnished.
Terms used in this subsection which are also used in section 7706 shall 
have the same meaning as when used in such section.''.
    (c) Clerical Amendment.--The table of sections for chapter 79 of 
such Code is amended by adding at the end the following new item:

``Sec. 7706. Determination of worker classification.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to services performed after December 31, 2016.
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