text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Home-Based Business Fairness Act of 
  1997''.
  
  SEC. 2. DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED 
                INDIVIDUALS INCREASED.
  
      (a) In General.--Section 162(l)(1) of the Internal Revenue Code of 
  1986 (relating to special rules for health insurance costs of self-
  employed individuals) is amended to read as follows:
              ``(1) Allowance of deduction.--In the case of an individual 
          who is an employee within the meaning of section 401(c)(1), 
          there shall be allowed as a deduction under this section an 
          amount equal to the amount paid during the taxable year for 
          insurance which constitutes medical care for the taxpayer, the 
          taxpayer's spouse, and dependents.''
      (b) Effective Date.--The amendment made by this section shall apply 
  to taxable years beginning after December 31, 1996.
  
  SEC. 3. CLARIFICATION OF DEFINITION OF PRINCIPAL PLACE OF BUSINESS.
  
      (a) In General.--Subsection (f) of section 280A of the Internal 
  Revenue Code of 1986 (relating to definitions and special rules) is 
  amended by redesignating paragraphs (2), (3), and (4) as paragraphs 
  (3), (4), and (5), respectively, and by inserting after paragraph (1) 
  the following new paragraph:
              ``(2) Principal place of business.--For purposes of 
          subsection (c), a home office shall in any case qualify as the 
          principal place of business if--
                      ``(A) the office is the location where the 
                  taxpayer's essential administrative or management 
                  activities are conducted on a regular and systematic 
                  (and not incidental) basis by the taxpayer, and
                      ``(B) the office is necessary because the taxpayer 
                  has no other location for the performance of the 
                  essential administrative or management activities of 
                  the business.''
      (b) Effective Date.--The amendment made by this section shall apply 
  to taxable years beginning after December 31, 1996.
  
  SEC. 4. SAFE HARBOR FOR DETERMINING THAT CERTAIN INDIVIDUALS ARE NOT 
                EMPLOYEES.
  
      (a) In General.--Chapter 25 of the Internal Revenue Code of 1986 
  (relating to general provisions relating to employment taxes) is 
  amended by adding after section 3510 the following new section:
  
  ``SEC. 3511. SAFE HARBOR FOR DETERMINING THAT CERTAIN INDIVIDUALS ARE 
                NOT EMPLOYEES.
  
      ``(a) Safe Harbor.--
              ``(1) In general.--For purposes of this title, if the 
          requirements of subsections (b), (c), and (d), or the 
          requirements of subsections (d) and (e), are met with respect 
          to any service performed by any individual, then with respect 
          to such service--
                      ``(A) the service provider shall not be treated as 
                  an employee,
                      ``(B) the service recipient shall not be treated as 
                  an employer,
                      ``(C) the payor shall not be treated as an 
                  employer, and
                      ``(D) compensation paid or received for such 
                  service shall not be treated as paid or received with 
                  respect to employment.
              ``(2) Availability of safe harbor not to limit application 
          of other laws.--Nothing in this section shall be construed--
                      ``(A) as limiting the ability of a service 
                  provider, service recipient, or payor to apply other 
                  applicable provisions of this title, section 530 of the 
                  Revenue Act of 1978, or the common law in determining 
                  whether an individual is not an employee, or
                      ``(B) as a prerequisite for the application of any 
                  provision of law described in subparagraph (A).
      ``(b) Service Provider Requirements With Regard to the Service 
  Recipient.--For purposes of subsection (a), the requirements of this 
  subsection are met if the service provider, in connection with 
  performing the service--
              ``(1) has the ability to realize a profit or loss,
              ``(2) incurs unreimbursed expenses which are ordinary and 
          necessary to the service provider's industry and which 
          represent an amount at least equal to 2 percent of the service 
          provider's adjusted gross income attributable to services 
          performed pursuant to 1 or more contracts described in 
          subsection (d), and
              ``(3) agrees to perform services for a particular amount of 
          time or to complete a specific result or task.
      ``(c) Additional Service Provider Requirements With Regard to 
  Others.--For the purposes of subsection (a), the requirements of this 
  subsection are met if the service provider--
              ``(1) has a principal place of business,
              ``(2) does not primarily provide the service at a single 
          service recipient's facilities,
              ``(3) pays a fair market rent for use of the service 
          recipient's facilities, or
              ``(4) operates primarily with equipment not supplied by the 
          service recipient.
      ``(d) Written Document Requirements.--For purposes of subsection 
  (a), the requirements of this subsection are met if the services 
  performed by the service provider are performed pursuant to a written 
  contract between such service provider and the service recipient, or 
  the payor, and such contract provides that the service provider will 
  not be treated as an employee with respect to such services for Federal 
  tax purposes.
      ``(e) Business Structure and Benefits Requirement.--For purposes of 
  subsection (a), the requirements of this subsection are met if the 
  service provider--
              ``(1) conducts business as a properly constituted 
          corporation or limited liability company under applicable State 
          laws, and
              ``(2) does not receive from the service recipient or payor 
          benefits that are provided to employees of the service 
          recipient.
      ``(f) 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 section 6041(a) or 
          6041A(a) with respect to a service provider, then, unless the 
          failure is due to reasonable cause and not willful neglect, the 
          safe harbor provided by this section for determining whether 
          individuals are not employees shall not apply to such service 
          recipient or payor with respect to that service provider.
              ``(2) Burden of proof.--For purposes of subsection (a), 
          if--
                      ``(A) a service provider, service recipient, or 
                  payor establishes a prima facie case that it was 
                  reasonable not to treat a service provider as an 
                  employee for purposes of this section, and
                      ``(B) the service provider, service recipient, or 
                  payor has fully cooperated with reasonable requests 
                  from the Secretary or his delegate,
          then the burden of proof with respect to such treatment shall 
          be on the Secretary.
              ``(3) Related entities.--If the service provider is 
          performing services through an entity owned in whole or in part 
          by such service provider, the references to `service provider' 
          in subsections (b) through (e) may include such entity, 
          provided that the written contract referred to in subsection 
          (d) is with such entity.
      ``(g) Determinations by the Secretary.--For purposes of this 
  title--
              ``(1) In general.--
                      ``(A) Determinations with respect to a service 
                  recipient or a payor.--A determination by the Secretary 
                  that a service recipient or a payor should have treated 
                  a service provider as an employee shall be effective no 
                  earlier than the notice date if--
                              ``(i) the service recipient or the payor 
                          entered into a written contract satisfying the 
                          requirements of subsection (d),
                              ``(ii) the service recipient or the payor 
                          satisfied the applicable reporting requirements 
                          of section 6041(a) or 6041A(a) for all taxable 
                          years covered by the agreement described in 
                          clause (i), and
                              ``(iii) the service recipient or the payor 
                          demonstrates a reasonable basis for determining 
                          that the service provider is not an employee 
                          and that such determination was made in good 
                          faith.
                      ``(B) Determinations with respect to a service 
                  provider.--A determination by the Secretary that a 
                  service provider should have been treated as an 
                  employee shall be effective no earlier than the notice 
                  date if--
                              ``(i) the service provider entered into a 
                          contract satisfying the requirements of 
                          subsection (d),
                              ``(ii) the service provider satisfied the 
                          applicable reporting requirements of sections 
                          6012(a) and 6017 for all taxable years covered 
                          by the agreement described in clause (i), and
                              ``(iii) the service provider demonstrates a 
                          reasonable basis for determining that the 
                          service provider is not an employee and that 
                          such determination was made in good faith.
                      ``(C) Reasonable cause exception.--The requirements 
                  of subparagraph (A)(ii) or (B)(ii) shall be treated as 
                  being met if the failure to satisfy the applicable 
                  reporting requirements is due to reasonable cause and 
                  not willful neglect.
              ``(2) Construction.--Nothing in this subsection shall be 
          construed as limiting any provision of law that provides an 
          opportunity for administrative or judicial review of a 
          determination by the Secretary.
              ``(3) Notice date.--For purposes of this subsection, the 
          notice date is the 30th day after the earlier of--
                      ``(A) the date on which the first letter of 
                  proposed deficiency that 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, or
                      ``(B) the date on which the deficiency notice under 
                  section 6212 is sent.
      ``(h) Definitions.--For the purposes of this section--
              ``(1) Service provider.--The term `service provider' means 
          any individual who performs a service for another person.
              ``(2) Service recipient.--Except as provided in paragraph 
          (4), the term `service recipient' means the person for whom the 
          service provider performs such service.
              ``(3) Payor.--Except as provided in paragraph (4), the term 
          `payor' means the person who pays the service provider for the 
          performance of such service in the event that the service 
          recipient does not pay the service provider.
              ``(4) Exceptions.--The terms `service recipient' and 
          `payor' do not include any entity in which the service provider 
          owns in excess of 5 percent of--
                      ``(A) in the case of a corporation, the total 
                  combined voting power of stock in the corporation, or
                      ``(B) in the case of an entity other than a 
                  corporation, the profits or beneficial interests in the 
                  entity.
              ``(5) In connection with performing the service.--The term 
          `in connection with performing the service' means in connection 
          or related to the operation of the service provider's trade or 
          business.
              ``(6) Principal place of business.--For purposes of 
          subsection (c), a home office shall in any case qualify as the 
          principal place of business if--
                      ``(A) the office is the location where the service 
                  provider's essential administrative or management 
                  activities are conducted on a regular and systematic 
                  (and not incidental) basis by the service provider, and
                      ``(B) the office is necessary because the service 
                  provider has no other location for the performance of 
                  the essential administrative or management activities 
                  of the business.
              ``(7) Fair market rent.--The term `fair market rent' means 
          a periodic, fixed minimum rental fee which is based on the fair 
          rental value of the facilities and is established pursuant to a 
          written agreement with terms similar to those offered to 
          unrelated persons for facilities of similar type and quality.''
      (b) Clarification of Rules Regarding Evidence of Control.--For 
  purposes of determining whether an individual is an employee under the 
  Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.), compliance with 
  statutory or regulatory standards shall not be treated as evidence of 
  control.
      (c) Repeal of Section 530(d) of the Revenue Act of 1978.--Section 
  530(d) of the Revenue Act of 1978 (as added by section 1706 of the Tax 
  Reform Act of 1986) is repealed.
      (d) 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. Safe harbor for determining 
                                          that certain individuals are 
                                          not employees.''
      (e) Effective Dates.--
              (1) In general.--The amendments made by, and the provisions 
          of, this section shall apply to services performed after the 
          date of enactment of this Act.
              (2) Determinations by secretary.--Section 3511(g) of the 
          Internal Revenue Code of 1986 (as added by subsection (a)) 
          shall apply to determinations after the date of enactment of 
          this Act.
              (3) Section 530(d).--The amendment made by subsection (c) 
          shall apply to periods ending after the date of enactment of 
          this Act.
target: Home-Based Business Fairness Act of 1997 - Amends the Internal Revenue Code to increase the deduction allowed for the health insurance costs of a self-employed individual to allow as a deduction an amount equal to the amount paid by such individual for insurance which constitutes medical care for such individual, such individual's spouse, and dependents. 
  Adds to provisions defining the disallowance of certain expenses in connection the business use of the home to provide that a home office shall in any case qualify as the principal place of business if the office is: (1) in the location where the taxpayer's essential administrative or management activities are conducted on a regular and systematic basis; and (2) necessary because the taxpayer has no other location for the performance of the essential management or administrative activities of the business. 
  Considers a service provider as not being an employee if the provider:  (1) can realize a profit or loss, can incur unreimbursed expenses, and makes a time-limited or task-limited agreement; (2) has a principal place of business, does not primarily provide service at a single service recipient's facilities, pays fair rent for the use of the recipient's facilities, or operates primarily with equipment not supplied by the recipient; and (3) if there is a written contract providing that the provider will not be treated as an employee for Federal tax purposes.  Considers (in addition) a provider as not an employee if:  (1) there is such a written contract; and (2) the provider is a corporation or limited liability company and does not receive benefits that the recipient's employees receive.  Regulates the treatment of determinations by the Secretary of the Treasury that a service provider should have been treated as an employee.
feat_title: Home-Based Business Fairness Act of 1997