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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 Rul. 54-459 superseded.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.

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