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INDEPENDENT CONTRACTORS: REPEAL OF SECTION 1706 OF THE TAX REFORM ACT OF 1986 FOR TECHNICAL SERVICE WORKERS: S. 1924, May 19, 1998 1 (May 19, 1998)

handle is hein.tera/crstax0312 and id is 1 raw text is: 98-481 A May 19, 1998 CRS Report for Congress Received through the CRS Web Independent Contractors: Repeal of Section 1706 of the Tax Reform Act of 1986 for Technical Service Workers: S. 1924 Marie B. Morris Legislative Attorney American Law Division Summary In three-party employment situations involving technical service workers, companies that use the workers, and firms that supply or broker the services of workers, the common law rules, and only the common law rules, apply to determine whether or not the workers are employees of the placement firms. Section 530 of the Revenue Act of 19781 permits many firms to use a more liberal set of rules to determine the employment status of their workers. Among other things, section 530 prevents the Internal Revenue Service from challenging an employer's misclassification of a worker as an independent contractor if the employer has a reasonable basis for treating the worker as an independent contractor and certain other requirements are met (including consistent treatment of the worker and similarly situated workers.) Section 1706 of the Tax Reform Act of 1986 bars certain firms from claiming the protection of section 530. Section 1706 took away the statutory safe harbor for firms that place technical service workers (engineers, designers, drafters, computer programmers, systems analysts, and similarly skilled workers) with the companies that use the workers' services. S. 1924, 105th Congress, would repeal section 1706 of the Tax Reform Act of 1986 (which is section 530(d) of the Revenue Act of 1978, as amended). Entitled the Technical Workers Fairness Act of 1998, S. 1924 was introduced on April 2, 1998. This report discusses the background and possible effects of S. 1924. For further information about the classification of workers as employees or independent contractors, see CRS Report 93-622 A, Employees and Independent Contractors. For information about recent tax legislation affecting worker classification, see CRS Report 96-715A, Independent Contractors: Changes in the Small Business Tax Bill and ALD General Distribution Memorandum dated August 15, 1997, entitled Congressional Research Service 44 The Library of Congress Section 530 of the Revenue Act of 1978 is not part of the Internal Revenue Code. Neither is section 1706 of the Tax Reform Act of 1986.

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