Why Section 530 of the Revenue Act of 1978 Applies to the States

Washington Monument and the U.S. Capitol Building

Section 530 of the Revenue Act of 1978 may already apply to the states, the Affordable Care Act, and title 29 issues. Don’t be surprised if state unemployment agencies and DOL are rabid in pursuing independent contractor misclassification issues in your business or your clients’ businesses. But don’t give up the section 530 issue when those agencies claim it is limited to subtitle C employment taxes.

The Department of Labor and the Internal Revenue Service entered into a Memorandum of Understanding (MOU) on September 19, 2011. The next day, six states joined the MOU melee. Now, a few years later, the tale of the tape is in.

The Obama administration undertook a strategy to attack Section 530 of Revenue Act of 1978 by and through state unemployment agencies and a DOL attack which the executive branch ostensibly contends lies outside subtitle C. The President’s section 530 animus can be traced back to his days in the senate, by and through failed legislation he proposed shortly before he occupied the White House. The administration’s transparent goal is to reign in independent contractors to be covered as employees for Affordable Care Act purposes.

The Supreme Court’s Rowan decision may stand for the proposition Congress contextually qualified the subtitle C definition of employment and employee when it enacted section 530. Because the independent contractor safe harbor provision is not part of the Internal Revenue Code, per se, it may also be held to contextually qualify similar definitions in U. S. Code provisions other than those contained in Title 26. Moreover, longstanding dual federal-state taxing jurisprudence implicates contextually qualified subtitle C definitions extend to the states to ensure coterminous, uniform, and harmonious state enactments. For these reasons, the federal employment tax safe haven already applies to the states.

It is interesting to note there are conflicts among the states in recognizing the safe harbor provision’s applicability to state employment acts. For example, Indiana respects the coterminous, uniform, and harmonious requirement while Missouri does not. However, H.R. 1642 has been passed by the Missouri house and is dawdling before the Missouri senate. The provision will extend IRS section 530 determinations to matters before the Missouri employment agency.

It appears the Obama administration’s interference in the section 530 Congressional will to contextually qualify the unemployment tax definitional infrastructure implicates separated powers substantive due process. The caldron is currently boiling. Federal intervention looms on the horizon.

My paper, “Why Section 530 of the Revenue Act of 1978 Applies to the States,” is scheduled for publication in the San Jose State University’s online MST peer-reviewed The Contemporary Tax Journal in its soon to be released fall issue.[1] The topic also appeared in the 21st Century Taxation blog.[2]

[1] The journal’s URL is:

[2] The blog’s URL is:


*David Randall Jenkins, Ph.D., received his doctorate in accounting and a master’s in accounting with an emphasis in tax from the University of Arizona. He has taught financial, managerial, and tax accounting courses at both the graduate and undergraduate levels. Dr. Jenkins is an AACSB academically qualified business school and tax professor owing to his peer reviewed journal article publications. His company, Algorithm LLC (, is an IRS Approved Continuing Education Provider. Dr. Jenkins may be contacted at

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