H. R. 5008
IN THE HOUSE OF REPRESENTATIVES
April 20, 2016
Mr. MacArthur (for himself and Mr. Kind) introduced the following bill; which was referred to the Committee on Ways and Means
To direct the Secretary of the Treasury to improve tax compliance in the construction industry, including clarifying the employment status of service providers in the construction industry, and for other purposes.
Short title; findings; purposes
This Act may be cited as the
Clarify Workers Misclassification in the Construction Industry Act.
Congress makes the following findings:
Worker misclassification in the construction industry has reached epidemic proportions. Studies from California, Tennessee, Florida, Texas, New Jersey, and other States detail hundreds of millions of dollars in lost employment and income taxes because of improper classification of workers for taxation in the construction industry. New Jersey revenue collection officials have indicated that $535 million in taxes in the State are lost due to worker misclassification.
Worker misclassification takes place at construction projects involving military bases, hospitals, universities, convention centers, and major hotels.
There is significant anecdotal evidence that a large number of workers in the construction industry are currently being misclassified as independent contractors in order to avoid tax withholding and other employer responsibilities, but the Internal Revenue Service is barred from issuing rules or guidance to reclassify these workers by section 530 of the Revenue Act of 1978.
Legitimate construction contractors are unable to compete with contractors who avoid employment and income taxes through misclassification. This creates competitive pressure on other contractors to also misclassify employees to remain competitive. States, leading contractors, and construction labor leaders agree that government action is needed to reverse this spiral.
According to the Internal Revenue Service, a dollar spent on tax enforcement typically yields an additional six dollars in revenue to the Treasury. This figure does not include revenue gained from deterring misclassification which would increase tax revenue significantly beyond the level projected.
The purposes of this Act are to increase efforts to identify and reduce misclassification, to prosecute tax evasion in the construction industry, and provide the Secretary of the Treasury the resources necessary to accomplish these objectives.
Directives and authorities to improve tax compliance in the construction industry
The Secretary of the Treasury shall initiate an enforcement initiative aimed at increasing tax compliance in the construction industry. Measures taken to implement this initiative shall include:
Consultations with industry experts and leaders on the scope and priorities of this initiative, including the Secretary of Labor, State government officials, the General Accountability Office, leading private sector construction organizations, and labor organizations involved in the construction industry.
Targeted tax audits of major construction contractors that the Secretary finds reason to believe may not be in compliance with applicable Federal tax laws.
Civil and criminal tax enforcement actions under existing legal authorities.
Educational efforts aimed at entities in the construction industry to increase voluntary tax compliance.
Authority To issue guidance clarifying employment status for purposes of employment taxes
Notwithstanding any other provision of law including section 530 of the Revenue Act of 1978, the Secretary shall promulgate rules and issue guidance to reclassify individuals who are not currently being treated as employees consistent with the proper classification of employees under common law standards within the construction industry.
Restriction to construction industry
Any rules or guidance under paragraph (1) shall apply only with respect to services provided within the construction industry.
Any rules or guidance under paragraph (1) shall not take effect before the date which is 180 days after the date of the enactment of this Act.
The Secretary shall reassign personnel and resources from other activities to carry out this Act.
Oversight and review
Annual reports by Treasury
The Secretary shall submit an annual written report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate regarding the implementation of this Act together with any recommendations for further action by Congress which would be consistent with the purposes of this Act.
Study and report by Comptroller General
The Comptroller General of the United States shall conduct a comprehensive study of the various forms of tax fraud, including employee misclassification, in the construction industry, efforts to combat such fraud, and recommendations for further action. Not later than June 30, 2017, the Comptroller General shall submit a written report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate detailing the results of such study.
For purposes of this section—
construction industry means all general contractors and operative builders primarily engaged in the remodeling, addition, or construction of residential, farm, industrial, commercial, or other buildings including wharves or other structures attached to land.
Secretary of the Treasury
Secretary of the Treasury and
Secretary mean the Secretary of the Treasury or the Secretary’s designee.
This section, and any rules promulgated or guidance issued under subsection (b), shall cease to have any force or effect after September 30, 2021.