|  Home   |  Site Search   |  Tax News & Views  |

Worker Classification Language Doesn’t Go Far Enough, Johnson Says

Thursday, June 20, 1996

Deloitte & Touche OnLine

Proposed modifications made by the Senate Finance Committee don’t go far enough to correct independent contractor problems created by the current law, House Ways and Means Oversight Subcommittee Chair Nancy Johnson, R-Conn., said Thursday.

The language contained in the Senate Finance Committee’s version of the small business tax bill (HR 3448) clarifies Section 530 of the Revenue Act of 1978, and alters existing reporting requirements.

Determining who is an independent contractor has been a contentious issue between employers and the Internal Revenue Service for a long time. Under current law, employers must consult a 20-item checklist to determine if someone qualifies as an independent contractor. Because two seemingly identical cases might be judged differently by the IRS, employers have pushed for years to make the laws and regulations simpler and clearer.

"The Senate doesn’t go far enough," and for that reason the Treasury Department should forward legislative language on its proposals to Congress, Johnson told Assistant Treasury Secretary Donald Lubick at a subcommittee hearing on worker classification.

In particular, Johnson expressed interest in Lubick’s idea that the 20-factor test for determining worker status be repealed. "It would be a great accomplishment," she said.

It may be possible to improve understanding of the 20-factor standard through a revenue ruling or other guidance and Section 530 should be amended so that IRS can issue guidance, Lubick advised.

Another jurisdictional change proposed by Treasury would grant the U.S. Tax Court jurisdiction over worker classification issues. "Access to the Tax Court would permit disputes to be resolved more quickly and at lower cost than in Federal district court," he testified.

Treasury also proposed that, if a business fails to meet the requirements of Section 530 and misclassifies its workers as independent contractors, Congress permit the business to reclassify the workers prospectively with no employment tax liability for prior years.

No Capital Gains Cut On Small Business Tax Bill: A capital gains tax rate cut should not be added to the small business tax reform and minimum wage hike bill when and if the package reaches the Senate floor July 8 or 9, Senate Majority Leader Trent Lott, R-Miss., said Thursday.

"I personally don’t think that this is the place to put the capital gains tax cut issue ... I think I’m asking everybody to be reasonable and practical here," Lott told reporters.

The possible agreement to bring the legislation to the floor July 8 or 9 would include the House-passed minimum wage hike, the small business tax relief bill, and possibly the gas tax repeal.

Senators are divided over the issue of whether to repeal 4.3 cents of the gasoline excise tax, Lott said. Some believe that the tax should be repealed while others believe it should go into the transportation trust fund, he said.

Lott also discussed the possibility of devoting some of the tax to Amtrak. "I do think we have got to make up our minds whether we want a national rail-passenger system or not."

Regarding the first bill to reconcile the budget resolution with policy changes, Lott said his first preference would be for the measure to include Medicare and Medicaid reform and the $500 per child tax credit. At a minimum, however, he would settle for the reforms, and wait for passage of the child credit under a subsequent bill.