Section 1706 of the Tax Reform Act of 1986 effectively devastated the market for independent computer consultants and similar technical service free-lancers who depended on brokers (bigger consulting firms etc.) for their marketing. By adding paragraph (d) to Section 530 of the Revenue Act of 1978, it removed §530's safe harbor for only certain technical workers in 3-party (brokered) arrangements. Although the literal effect only causes us to have to rely on the 20 Questions to determine independent contractor status vs. employee status, and only in brokered contracts, the net effect was to throw the brokers into a panic - "sorry, I know we've worked together for years, but we can't subcontract to you any more; you'll have to be our employee now even though it's only a 2 month contract. Otherwise the IRS will come after us." This probably drove many of the small independent contractors out of business - precisely the effect desired by the big consulting firms who conned Congress into passing 1706 in the first place!
The IRS has been told to back off a little, but apparently they are still reclassifying independent contractors as employees of the next firm up the chain, sometimes even if they're employees of their own corporations! The whole key to fighting this is to pass a good portion of the 20 Questions; and the key to avoiding the entire hassle is to walk, talk, look, feel, and smell like a business (which, again, boils down to the 20 Questions). Some of the strongest factors in these are multiple clients and multiple personnel, so again, getting beyond being a one-person business is even more important than incorporating.
Our members are part of our firm as surely as if they were employees of any other consulting firm. This avoids creating additional levels (additional parties in the relationship), and therefore makes it essentially impossible for §1706 to even apply to us. §1706 does not apply at all if we're contracting directly with the client, and if there's a broker, §1706 would apply to the broker, not to us. Yet, because of the unique and innovative way we're set up, our members are truly self-employed independent contractors with all of the appropriate tax deductions available, including some tax benefits you cannot get as a sole proprietor or a typical umbrella firm employee!