September 15, 1999 The Honorable Spencer AbrahamUnited States Senate 329 Dirksen Building Washington, DC 20510 Dear Senator Abraham: I am writing on behalf of the Institute of Electrical and Electronics Engineers- United States Activities (IEEE-USA) to ask for your help with a tax classification problem that has been an unwarranted impediment to the cost-effective provision of technical services since 1986. Section 1706 of the 1986 Tax Reform Act arbitrarily deprived many engineers, computer programmers, systems analysts and other technical professionals of access to an employment tax safe harbor that continues to benefit taxpayers in all other professions and occupations. As a result, determinations of whether consulting engineers and computer specialists in three party relationships are classified as employees or as independent contractors for employment tax purposes have to be made using an extremely subjective facts and circumstances test. This test has proven to be so unpredictable that many firms have stopped using self-employed technical services workers, simply to avoid being targeted by the Internal Revenue Service for employment tax compliance audits and assessed for "unpaid" back taxes plus penalties should the IRS retrospectively decide that these workers should have been treated as employees rather than as independent contractors. The Small Business Administration, the House Government Operations Committee, the American Bar Association and the American Tax Policy Institute have all concluded that there is no justification for excluding technical service workers from the employment tax safe harbors and have recommended that Section 1706 be repealed. Congressional action to restore fairness and equity to the nation’s tax laws is long overdue. I urge you to support prompt enactment of the Independent Contractor Simplification and Relief Act of 1999 (S. 344). This bill will restore pre-1986 employment tax classification standards to providers of technical services, including consulting engineers and computer specialists. The Institute of Electrical and Electronics Engineers (IEEE) is a transnational technical professional society made up of more than 340,000 electrical and electronics and computer scientists throughout the world. IEEE-USA promotes the professional careers and technology policy interests of IEEE’s 220,000 U.S. members. Sincerely, Paul J. Kostek (Note: This letter was sent to all United States Senators) The Institute of Electrical and Electronics
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