Origins of the Tax Compliance Law
In 1986, a law was introduced by Senator Daniel Patrick Moynihan, Democrat of N.Y. that was estimated to realize more than 60 million dollars in revenue over 5 years and affect only a the relatively small group of tax payers: Independent technical contractors. A sufficient justification for the enactment of his law, at the time, was provided by an application by IBM for tax concessions for its overseas operations The estimated revenue from the new legislation would make up the amount of the deficit created by tax breaks for IBM. Under the Gramm-Rudman deficit control act of the previous year Congress was required to compensate for any tax dispensations given with comparable revenue increases or spending cuts.
A year after the law regarding contractors was enacted, the Senator tried to repeal it, but without success. In 1994, Senator William V Roth, Republican of Delaware (the sponsor of the current hearings), recommended to Moynihan that technology contractors should not be subject to special restrictions. More than 60 other senators have pleaded a similar case since 1994 but the legislation has not been changed.
An obstacle to repeal is the belief existing within the congressional Joint committee on Taxation that, in general, employees cheat less on their taxes than independent contractors. The IRS estimates that it collects appropriate taxes due from 90% of employees and only 15% of independent contractors. Essentially the IRS does not believe that Independent Contractors are paying the proper amount of taxes.
Increasingly restrictive legislation effectively excludes programmers and other technical contractors from statutes allowing discretionary use of Independent contractors. In reaction many companies have revised their hiring practices to expressly prohibit the engagement of professionals in the technology industry on a contract basis These audit documents were made available by Harvey J. Shulman, a Washington lawyer for the National Association of Computer Consultant Businesses. He commented that companies would not expose themselves to risk by hiring people who may attract the unfavorable attention of the IRS.
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