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Latest News > Pension Protection Act of 2006 Provides Targeted IC Relief
Pension Protection Act of 2006 Provides Targeted IC Relief
September 2006
Tax-exempt organizations that engage test-room supervisors and proctors to assist in the administration of college entrance and placement exams were granted special relief under Section 530 of the Revenue Act of 1978 (“Section 530”) by the Pension Protection Act of 2006 (the “2006 Act”). The Act was signed into law by President Bush on August 17, 2006.
By way of background, Section 530 protects an entity against federal employment-tax liabilities with respect to a worker, provided that the entity:
- Since 1978 has consistently treated the worker (and all other workers holding “substantial similar” positions) as nonemployees (the “substantive consistency requirement”),
- For the tax year at issue, reported on a Form 1099 the amount of compensation paid the worker during the year (of at least $600), and
- Treated the worker as a nonemployee in reliance on a “reasonable basis.”
The 2006 Act provides that for services performed after December 31, 2006, a tax-exempt entity will qualify for Section 530 protection with respect to an individual who provides services as a test proctor or room supervisor by assisting in the administration of college entrance or placement examinations if:
- the entity does not treat the individual as its employee for purposes of federal employment taxes (i.e., it does not report the individual’s compensation on Forms W-2) and
- the entity satisfies all the other requirements of Section 530 (i.e., other than the “substantive consistency” requirement).
The provision is estimated to reduce federal tax receipts by $23 million over five years and $45 million over ten years.
The 2006 Act also authorizes the U.S. Tax Court to appoint special trial judges to hear and decide employment-status cases that qualify for the small-case proceedings described in Internal Revenue Code section 7436(c). This provision is effective with respect to any decisions that were not yet final prior to the date of enactment.
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