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Bill targets independent contractor safe harbor

December 18 2009
Staffing Industry Analysts North American Daily News

A Senate bill that would cut back on a safe harbor for users of independent contractors among other things was introduced this week by Sen. John Kerry, D-MA.

"The Taxpayer Responsibility, Accountability and Consistency Act of 2009," would effectively repeal the safe harbor for independent contractor users found in Section 530 of the Revenue Act of 1978, said Russell Hollrah, executive director of the Coalition to Preserve Independent Contractor Status. The Senate bill, S. 2882, is essentially a Senate version of H.R. 3408, which was introduced in the House back in July, he said.

The Senate bill limits what would be considered a "reasonable basis" for classifying a person as an independent contractor instead of an employee.

Hollrah said the new bill provides for only an IRS determination or IRS audit as a reasonable basis. In addition, it would allow the IRS to change its mind even after a determination or audit.

Presently, reasonable basis may be established by a longstanding industry practice, court decision or other method -- such as the advice of a tax provider -- as well as an IRS audit, Hollrah said.

"At the end of the day I view this as a de facto appeal of section 530," he said. The "new safe harbor is much of a diminished version; it's not much of a safe harbor at all."

The new bill would take away much of the certainty companies enjoy under the current law, Hollrah said. Congress had enacted the 1978 law to prevent the IRS from re-auditing companies time and time again and reaching different conclusions as to who was an independent contractor, he said.

This could impact companies whose business model is based on the use of independent contractors as well as the independent contractors themselves, Hollrah said. The person recently laid off from a job who seeks to get work as a self-employed service provider might find it more difficult under the proposed bill.

Sen. Kerry, who introduced the bill, described it as a way to close a tax loophole that allows employers to misclassify some workers as independent contractors.

"This is about leveling the playing field and ensuring that America's workers receive the protections and pay they deserve," Kerry said in a statement.

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