The Carter administration, citing evidence of $1 billion in tax evasion by salesmen and other so-called "independent contractors," asked Congress yesterday to take a series of new steps to prevent further abuses.
In testimony before a House Ways and Means subcommittee, the Treasury proposed that the government for the first time require tax withholding for these workers, and that it substantially stiffen penalties for not reporting income.
Officials also unveiled results of a new Internal Revenue Service audit which showed at least 46.9 percent of the workers now classified as independent contractors do not ever report the income they earn in these jobs.
The study also showed that 62 percent of these men and women - salesmen, taxi drivers, real estate agents and other semi-independent workers - do not pay Social Security taxes either, even though some later apply for benefits.
The IRS figures, based on audits conducted in late 1978, constituted the strongest case the administration has made yet for a crackdown on workers who are classified as independent contractors.
Current law requires tax-withholding for workers who are considered employees, and for self-employed persons, but it exempts those who fall between the two categories.As a result, there's been a rush ot claim independent" status.
The Treasury sought to crack down on these abuses in previous years, but ran into opposition in Congress, in part because of pressure from the independent contractors involved. Opponents denied there was widespread tax-evasion
However, Donald C. Lubick, assistant secretary of the Treasury for tax policy, estimated yesterday that by 'conservative" calculations the tax evasion in this area probably is costing the Treasury $1 billion or more a year.
Lubick said the Treasury's plan to require that these workers be subject to withholding tax would recoup about $600 million of that each year. The Treasury dropped its earlier effort to redefine who qualifies as independent.
The Treasury's presentation yesterday appeared to win some converts in the subcommittee. Sources predicted the panel probably would send a modified version of the plan to the full committee as part of a compromise package.
The only other major proposal in this area is a bill by Rep. Richard Gephardt (D-Mo.) that would provide guidelines for determining who can qualify as an "independent contractor" for tax purposes. It would not significantly change current law.
The Treasury's proposal would require those who hire "independent contractors" to withhold for tax purposes 10 percent of the charges or fees paid. The money would go first toward Social Security taxes and then toward income taxes.
Independent contractors who received compensation from five or more sources would be exempt from the requirement, and those who would suffer from overwithholding under the plan could escape by registering with the IRS.
The plan to stiffen the penalties would raise the fine or penalty for failing to report income earned as an independent contractor to 5 percent of the payments not reported. The current penalty is $1 per incident.