text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Independent Contractor Tax 
  Simplification Act of 1996''.
  
  SEC. 2. FINDINGS.
  
      The Congress finds that:
              (1) Simplifying the tax rules with respect to independent 
          contractors was the top vote-getter at the 1995 White House 
          Conference on Small Business. Conference delegates recommended 
          that Congress ``should recognize the legitimacy of an 
          independent contractor''. The Conference found that the current 
          common law is ``too subjective'' and called upon the Congress 
          to establish ``realistic and consistent guidelines''.
              (2) It is in the best interests of taxpayers and the 
          Federal Government to have fair and objective rules for 
          determining who is an employee and who is an independent 
          contractor.
  
  SEC. 3. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS ARE NOT 
                EMPLOYEES.
  
      (a) In General.--Chapter 25 of the Internal Revenue Code of 1986 
  (general provisions relating to employment taxes) is amended by adding 
  after section 3510 the following new section:
  
  ``SEC. 3511. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS ARE NOT 
                EMPLOYEES.
  
      ``(a) General Rule.--For purposes of this title, and 
  notwithstanding any provision of this title to the contrary, if the 
  requirements of subsections (b), (c), and (d) are met with respect to 
  any service performed by any individual, 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 employer, and
              ``(4) compensation paid or received for such service shall 
          not be treated as paid or received with respect to employment.
      ``(b) Service Provider Requirements With Regard to Service 
  Recipient.--For the purposes of subsection (a), the requirements of 
  this subsection are met if the service provider, in connection with 
  performing the service--
              ``(1) has a significant investment in assets, training, or 
          both,
              ``(2) incurs significant unreimbursed expenses,
              ``(3) agrees to perform the service for a particular amount 
          of time or to complete a specific result and is liable for 
          damages for early termination without cause,
              ``(4) is paid primarily on a commissioned basis or per unit 
          basis, or
              ``(5) purchases products for resale.
      ``(c) Additional Service Provider Requirements With Regard to 
  Others.--For the purposes of subsection (a), the requirements of this 
  subsection are met if--
              ``(1) the service provider--
                      ``(A) has a principal place of business,
                      ``(B) does not primarily provide the service at the 
                  service recipient's facilities,
                      ``(C) pays a fair market rent for use of the 
                  service recipient's facilities, or
                      ``(D) operates primarily from equipment not 
                  supplied by the service recipient; or
              ``(2) the service provider--
                      ``(A) is not required to perform service 
                  exclusively for the service recipient, and
                      ``(B) in the year involved, or in the preceding or 
                  subsequent year--
                              ``(i) has performed a significant amount of 
                          service for other persons,
                              ``(ii) has offered to perform service for 
                          other persons through--
                                      ``(I) advertising,
                                      ``(II) individual written or oral 
                                  solicitations,
                                      ``(III) listing with registries, 
                                  agencies, brokers, and other persons in 
                                  the business of providing referrals to 
                                  other service recipients, or
                                      ``(IV) other similar activities, or
                              ``(iii) provides service under a business 
                          name which is registered with (or for which a 
                          license has been obtained from) a State, a 
                          political subdivision of a State, or any agency 
                          or instrumentality of 1 or more States or 
                          political subdivisions.
      ``(d) Written Document Requirements.--For purposes of subsection 
  (a), the requirements of this subsection are met if the services 
  performed by the individual are performed pursuant to a written 
  contract between such individual and the person for whom the services 
  are performed, or the payor, and such contract provides that the 
  individual will not be treated as an employee with respect to such 
  services for purposes of this subtitle.
      ``(e) Special Rules.--For purposes of this section--
              ``(1) Failure to meet reporting requirements.--If for any 
          taxable year any service recipient or payor fails to meet the 
          applicable reporting requirements of sections 6041(a), 
          6041A(a), or 6051 with respect to a service provider, then, 
          unless such failure is due to reasonable cause and not willful 
          neglect, this section shall not apply in determining whether 
          such service provider shall not be treated as an employee of 
          such service recipient or payor for such year.
              ``(2) Related entities.--If the service provider is 
          performing services through an entity owned in whole or in part 
          by such service provider, then the references to `service 
          provider' in subsections (b) through (d) may include such 
          entity, provided that the written contract referred to in 
          paragraph (1) of subsection (d) may be with either the service 
          provider or such entity and need not be with both.
      ``(f) Definitions.--For the purposes of this section--
              ``(1) Service provider.--The term `service provider' means 
          any individual who performs service for another person.
              ``(2) Service recipient.--Except as provided in paragraph 
          (5), the term `service recipient' means the person for whom the 
          service provider performs such service.
              ``(3) Payor.--Except as provided in paragraph (5), the term 
          `payor' means the person who pays the service provider for the 
          performance of such service in the event that the service 
          recipients do not pay the service provider.
              ``(4) In connection with performing the service.--The term 
          `in connection with performing the service' means in connection 
          or related to--
                      ``(A) the actual service performed by the service 
                  provider for the service recipients or for other 
                  persons for whom the service provider has performed 
                  similar service, or
                      ``(B) the operation of the service provider's trade 
                  or business.
              ``(5) Exceptions.--The terms `service recipient' and 
          `payor' do not include any entity which is owned in whole or in 
          part by the service provider.''
      (b) Clerical Amendment.--The table of sections for chapter 25 of 
  such Code is amended by adding at the end the following new item:
  
                                ``Sec. 3511. Standards for determining 
                                          whether individuals are not 
                                          employees.''
      (c) Effective Date.--The amendments made by this Act shall apply to 
  services performed before, on, or after the date of the enactment of 
  this Act.
target: Independent Contractor Tax Simplification Act of 1996 - Amends the Internal Revenue Code to provide that, for purposes of determining the employment status of individuals as employees, a service provider shall not be treated as an employee, a service recipient shall not be treated as an employer, a payor shall not be treated as an employer, and compensation paid or received for such service shall not be treated as paid or received with respect to employment if certain conditions are met.
feat_title: Independent Contractor Tax Simplification Act of 1996