SPECIAL RULES RELATING TO DETERMINATION WHETHER INDIVIDUALS ARE EMPLOYEES FOR PURPOSES OF EMPLOYMENT TAXES.

SEC. 1122. SPECIAL RULES RELATING TO DETERMINATION WHETHER INDIVIDUALS ARE EMPLOYEES FOR PURPOSES OF EMPLOYMENT TAXES. (a) In General.— Section 530 of the Revenue Act of 1978 is amended by adding at the end the following new subsection: “(e) Special Rules for Application of Section.— “(1) Notice of availability of section.— An officer or employee of the Internal Revenue Service shall, before or at the commencement of any audit inquiry relating to the employment status of one or more individuals who perform services for the taxpayer, provide the taxpayer with a written notice of the provisions of this section. “(2) Rules relating to statutory standards.— For purposes of subsection (a)(2)— “(A) a taxpayer may not rely on an audit commenced after December 31, 1996, for purposes of subparagraph (B) thereof unless such audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a position substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer, “(B) in no event shall the significant segment requirement of subparagraph (C) thereof be construed to require a reasonable showing of the practice of more than 25 percent of the industry (determined by not taking into account the taxpayer), and “(C) in applying the long-standing recognized practice requirement of subparagraph (C) thereof— 110 STAT. 1767 “(i) such requirement shall not be construed as requiring the practice to have continued for more than 10 years, and “(ii) a practice shall not fail to be treated as longstanding merely because such practice began after 1978. “(3) Availability of safe harbors.— Nothing in this section shall be construed to provide that subsection (a) only applies where the individual involved is otherwise an employee of the taxpayer. “(4) Burden of proof.— “(A) In general.— If— “(i) a taxpayer establishes a prima facie case that it was reasonable not to treat an individual as an employee for purposes of this section, and “(ii) the taxpayer has fully cooperated with reasonable requests from the Secretary of the Treasury or his delegate, then the burden of proof with respect to such treatment shall be on the Secretary. “(B) Exception for other reasonable basis.— In the case of any issue involving whether the taxpayer had a reasonable basis not to treat an individual as an employee for purposes of this section, subparagraph (A) shall only apply for purposes of determining whether the taxpayer meets the requirements of subparagraph (A), (B), or (C) of subsection (a)(2). “(5) Preservation of prior period safe harbor.— If— “(A) an individual would (but for the treatment referred to in subparagraph (B)) be deemed not to be an employee of the taxpayer under subsection (a) for any prior period, and “(B) such individual is treated by the taxpayer as an employee for employment tax purposes for any subsequent period, then, for purposes of applying such taxes for such prior period with respect to the taxpayer, the individual shall be deemed not to be an employee. “(6) Substantially similar position.— For purposes of this section, the determination as to whether an individual holds a position substantially similar to a position held by another individual shall include consideration of the relationship between the taxpayer and such individuals.”. (b) Effective Dates.— (1) In general.— The amendment made by this section shall apply to periods after December 31, 1996. (2) Notice by internal revenue service.— Section 530(e)(1) of the Revenue Act of 1978 (as added by subsection (a)) shall apply to audits which commence after December 31, 1996. (3) Burden of proof.— (A) In general.— Section 530(e)(4) of the Revenue Act of 1978 (as added by subsection (a)) shall apply to disputes involving periods after December 31, 1996. (B) No inference.— Nothing in the amendments made by this section shall be construed to infer the proper treatment110 STAT. 1768 of the burden of proof with respect to disputes involving periods before January 1, 1997.