Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 55-18

1955-1 C.B. 475

IRS Headnote

An individual entered into a contract with the owner of a mobile diner to operate the diner for 50 percent of the net profits. Under the terms of the contract, the operator selects the site for operation of the diner; determines the hours it will be open to the public; and purchases all food, supplies and beverages to be sold as well as the gasoline and oil necessary for moving the diner. Held , the operator is not an employee of the owner of the mobile diner for Federal employment tax purposes.

Full Text

Rev. Rul. 55-18

An opinion has been requested whether an individual who operates a mobile diner for the owner thereof is an employee of the owner for purposes of the Federal Insurance Contributions Act (subchapter A, chapter 9, Internal Revenue Code of 1939).

The owner of a mobile diner entered into a contract with an individual to operate the diner for fifty percent of the net profits. Under the terms of the contract the owner agrees to equip the diner; keep it in proper operating condition; assume all expenses for such items as mechanical repair or replacement, tires, tubes, painting, insurance and State license; keep complete records of all business transacted between the parties; and make such records open to inspection by the operator. The operator agrees to purchase all food supplies and beverages to be sold in the diner; sustain the loss for all food spoilage; pay for the gasoline and oil necessary for operation of the diner; take the diner from the owner's place of business; and, mainly for the purpose of preventing vandalism, return it when he has terminated operations for the day. The operator is free to locate the diner at any location which he deems preferable and he determines the hours he will keep it open to serve the public.

Section 1426(d) of the Federal Insurance Contributions Act, as amended, provides that the term `employee' means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status  of an employee. Section 408.204(c) of Regulations 128 relating to the definition of the term `employee,' for Federal employer tax purposes, provides that generally the relationship of employer and employee exists when the person for whom 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 how it shall be done. 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 an independent contractor. An individual performing servides as an independent contractor is not, as to such services, an employee under the usual common law rules.

Whether an individual is an independent contractor or an employee is largely a question of fact to be determined upon consideration of the particular facts in each case. In the instant case the owner of the diner is interest only in the results obtained by the operator and does not in any manner direct or control him as to the details and means by which that result is accomplished. The fifity percent net profits retained by the owner are considered in the nature of a rental fee for the use of the diner. Accordingly, it is held that the operator is not an employee of the owner of the diner for Federal employment tax purposes