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 Rev. Rul. 55-7

1955-1 C.B. 499

Section 6311 -- Tax Payment by Check

Full Text

Rev. Rul. 55-7

A partnership composed of A, B, and C, an employer of eight or more individuals, was in business during the first 2 months of a calendar year. C died on the first of March and D became a member of the partnership on the second of March. A, B, and D acquired all the assets previously belonging to A, B, and C, and immediately after the acquisition employed all the individuals who were previously employed by A, B and C, and continued the business in its entirety until the first of July. Since the acquisition was made under circumstances which come within the ambit of Revenue Ruling 54-31, C.B. 1954-1, 212, 11, there was one employing entity during the first 6 months of the calendar year which qualified as an `employer' within the meaning of section 1607(a) of the Federal Unemployment Tax Act (subchapter C, chapter 9, Internal Revenue Code of 1939). Corporation N succeeded Partnership ABD on July 1, acquiring all the assets of the partnership and employing all of its employees for the balance of the year. Section 403.228(a)(2) of Regulations 107, as amended, provides in part that wages paid by a predecessor shall not be considered as having been paid by a successor unless both the predecessor and the successor are employers as defined in section 1607(a) of the Act for the calendar year in which the acquisition occurs. Generally, an employer is one who has eight or more employees on at least 1 day of each of 20 calendar weeks during the calendar year. See T.D. 5905, C.B. 1952-1, 173, 185. Held , for purposes of the application of the $3,000 limitation on wages provided by section 1607(b)(1) of the Act, as amended, remuneration paid by A, B, and C and A, B, and D may be considered as having been paid by Corporation N.

The employing entity, which was originally composed of A, B and C and later of A, B and D is required to file one return, Form 940, Annual Federal Tax Return of Employers, reporting therein the remuneration and taxable wages paid by both groups during the calendar year. Corporation N is an `employer' and should include in line 2 of Schedule B of its return, Form 940, the remuneration which it paid during the calendar year to the former employees of A, B, C, and D after applying the $3,000 limitation on wages provided by section 1607(b)(1) of the Federal Unemployment Tax Act. For example, assume that there were 10 employees of A, B, C, and D, all of whom were also employed by Corporation N as the successor employer. The 10 employees each received remuneration of $2,500 from A, B, C and D, and $2,500 from Corporation N, or a total of $5,000 during the year. Assuming there were no other employees of Corporation N during the year, the amount of $25,000 (10 x $2,500) would be entered on line 1, Schedule B, of the Form 940 filed by the corporation. The number 10 would be entered in the first column on line 2 and the amount of $20,000 ($2,000 the amount in excess of $3,000 paid to each of the 10 employees by the predecessor and successor employers) in the second column thereon.

In Revenue Ruling 54-313, C.B. 1954-2, 371, it is held that the M Corporation may not take into consideration the remuneration paid by its predecessor for purposes of the $3,000 limitation on wages provided by section 1607(b)(1) of the Federal Unemployment Tax Act. In that case the predecessor was not an employer within the meaning of section 1607(a) of the Act. In the instant case the predecessor is considered to be one entity which qualifies an an `employer,' as contemplated by  Revenue Ruling 54-31, supra