Rev. Rul. 74-220 - 1974-1 C.B. 296
- Sec. 1402 Sec. 6015 Sec. 6017
IRS Headnote:
Telephone directory distributors. An individual engaged for three or four
days in a year to deliver new and pick up old telephone directories, paid on a
piece-work basis, using his own means, manner, and methods, and paying his own
expenses which may include payments to assistants he hires, is not an employee
of the delivery-service corporation but is engaged in a trade or business;
Rev. Rul. 54-459 superseded.
Full Text - Rev. Rul. 74-220
The purpose of this Revenue Ruling is to update and restate, under the
current statute and regulations, the position set forth in Rev. Rul. 54-459,
1954-2 C.B. 337.
The question presented is whether individuals who perform services, under the
circumstances described below, for a delivery-service corporation are employees
of the corporation for purposes of the Federal Insurance Contributions Act, the
Federal Unemployment Tax Act, and the Collection of Income Tax at Source on
Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code
of 1954).
The delivery-service corporation enters into contracts with various telephone
companies for the distribution of new telephone directories to their
subscribers. The names and addresses of the subscribers are furnished by the
telephone companies on individual delivery tickets. A new directory is furnished
for each delivery ticket. The corporation separates the tickets by geographical
areas, and where possible by streets. It also separates the entire group of
tickets into quantities which can be conveniently handled by an individual using
an automobile or small truck. The corporation sends a representative to a given
area to rent space to be used as an operating center, to receive the new
directories from the printers, and to engage individuals, through advertisements
in the local newspapers, to distribute the directories. Generally, the
distributors are utilized only one time during a calendar year for a 3 to 4 day
period.
The distributors agree to deliver the new directories to subscribers at the
locations shown on the delivery record, attempt to pick up an old directory for
each new directory delivered, return all delivery records and undelivered new
directories, notify the corporation at once if delivery of the directories
cannot be completed within the time limit, and tie the old directories in
bundles and return them to the delivery office or operating center. Each
distributor furnishes his own vehicle and pays all expenses in connection
therewith. The distributors determine the means, manner and method of making the
deliveries and may hire, supervise and pay any assistants they engage. The
distributors perform no other services for the corporation.
The corporation furnishes form letters to the distributors suggesting means
for performing the work efficiently. As a rule, the corporation has no contact
with the distributors from the time they leave the operating center to begin
delivery until the job is completed.
When the deliveries are completed, the corporation makes a spot check by
telephone for the purpose of determining whether the deliveries reported have
actually been made. A check or draft in payment of the service is mailed to each
distributor after the spot check has been completed. The remuneration for the
services is on a piece-work basis, that is, a certain amount for each new
directory delivered and each old directory returned.
An individual is an employee for Federal employment tax purposes if he has
the status of an employee under the usual common law rules applicable in
determining the employer-employee relationship. Guides for determining whether
that relationship exists are found in three substantially similar sections of
the Employment Tax Regulations, namely, sections 31.3121(d)-1, 31.3306(i)-1, and
31.3401(c)-1. Generally, the relationship of employer and employee exists when
the person for whom the services are performed has the right to control and
direct the individual who performs the services not only as to the result to be
accomplished by the work but also as to the details and means by which that
result is accomplished. That is, an employee is subject to the will and control
of the employer not only as to what shall be done but as to how it shall be
done. In this connection, it is not necessary that the employer actually direct
or control the manner in which the services are performed; it is sufficient if
he has the right to do so. The right to discharge is also an important factor
indicating that the person possessing that right is the employer. Another factor
characteristic of an employer, but not necessarily present in every case, is the
furnishing of a place to work to the individual who performs the services. In
general, if an individual is subject to the control or direction of another
merely as to the result to be accomplished by the work and not as to the means
and methods for accomplishing the result he is not an employee.
The facts in this case show that the corporation has no right to control and
is interested only in the result to be accomplished by the work of the
distributors and not as to the means by which that result is accomplished. The
distributors have obligated themselves to furnish a service to the corporation.
They have not agreed to perform the services personally and, in fact, retain the
right to employ someone else for this purpose. The fact that the corporation
arranges for an operating center and furnishes a form letter which suggests an
efficient method for performing the delivery is not sufficient to establish the
relationship of employer and employee between the distributors and the
corporation.
Accordingly, the distributors are not employees of the corporation for
purposes of the Federal Insurance Contributions Act, the Federal Unemployment
Tax Act, or the Collection of Income Tax at Source on Wages.
Furthermore, the distributors are engaged in a "trade or business" for
purposes of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A
of the Code), the income from which should be considered in computing net
earnings from self-employment as contemplated by that Act and in determining
whether they are required to file declaration of estimated income tax and
self-employment tax returns under sections 6015 and 6017, respectively, of the
Code.
Rev. Rul. 54-459, is superseded, since the position set forth therein is
restated under current law in this Revenue Ruling.