The Fair Playing Field Act of 2012, S. 2145 and H.R. 4123, was introduced on March 1, 2012, by Senator John Kerry (D-Mass) and Representative Jim McDermott (D-Wash), respectively. This 2012 bill is the same as the Fair Playing Field Act of 2010, S. 3786 and H.R. 6128, which Senator Kerry and Representative McDermott introduced on September 15, 2010, with one exception.
The one difference between the two versions of this bill is that the 2012 version contains a special provision for securities broker dealers. The 2012 version provides that in determining for purposes of the Internal Revenue Code (the “Code”) whether a registered representative of a securities broker-dealer is an employee (as defined in Code section 3121(d)), no weight shall be given to instructions from the service recipient which are imposed only in compliance with investor protection standards imposed by the Federal Government, any State government, or a governing body pursuant to a delegation by a Federal or State agency.
The essence of the bill is that it would repeal Section 530 of the Revenue Act of 1978 (“Section 530″).
The principal provisions of the bill are outlined below.
I. Repeal of Section 530
- Section 530 would be repealed for services performed on or after the date which is one year after the date of enactment.
- A taxpayer’s Section 530 protection would be grandfathered during a transition period, and apply with respect to a worker, on a retrospective basis only, until the earlier of:
- The first day of the first calendar quarter beginning more than 180 days after an IRS audit determination (commenced at least one year after the date of the bill’s enactment) that a class of individuals holding positions “substantially similar” to the position held by the worker at issue are employees, or
- The later of the effective date, or the first day of the first calendar quarter beginning more than 180 days after the issuance, of a final regulation or other guidance of general applicability which sets forth factors for determining the status of individuals holding positions “substantially similar” to the position held by the worker at issue. The IRS guidance would not be effective any earlier than one year after the date of the bill’s enactment.
- Treasury / IRS would be authorized to issue guidance interpreting the common-law test.
II. Narrowed Application of Code Section 3509
- The statutorily reduced federal employment-tax liabilities associated with worker misclassification contained in Code section 3509 would no longer apply with respect to workers whose status is addressed in Treasury regulations or guidance of general applicability, unless the taxpayer can otherwise establish a reasonable basis for classifying the workers as independent contractors (which, no doubt, would be very difficult to establish).
- If a taxpayer receives a final written determination from IRS that a worker, or another worker who hold a substantially similar position, is an employee, the taxpayer would be treated as lacking a reasonable basis for treating the worker as an independent contractor for purposes of Code section 3509 as of the first day of the first calendar quarter beginning more than 180 days after the issuance of the determination, unless the taxpayer establishes reasonable basis by clear and convincing evidence.
III. New Independent-Contractor Disclosure Document
- Each person that contracts with independent contractors “on a regular and ongoing basis within the scope of the person’s trade or business” would be required to provide each such independent contractor with a written statement (to be developed by the Treasury Department) describing (i) the federal tax obligations of independent contractors, (ii) the labor and employment-law protections that do not apply to independent contractors, and (iii) an individual’s right to obtain a Form SS-8 determination from IRS.
IV. New Annual Reports on Worker Classification
- Beginning with the first fiscal year beginning after the date of the first regulation or guidance of general applicability, the bill would require reports “presumably from IRS” that provide detailed information on IRS’s enforcement activities on worker classification.
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