Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 56-15

1956-1 C.B. 451

Section 6011 -- Return Filing Requirement

IRS Headnote

An individual operates a `cash and carry' laundry and dry cleaning agency under an agreement with a laundry firm which picks up, cleans, and returns the laundered articles to her office. The firm furnishes bins, racks, office forms, and a company sign; carries insurance on the articles; regulates the prices to be charged; and notifies the individual of special sales or campaigns. The individual works on a straight commission basis, pays her own business expenses including office rental, regulates her hours of work, determines her work routine and the amount of time to be devoted to the work, and engages and pays her own help. The agreement may be terminated by either party at any time. Held , the individual is not an employee of the firm for Federal employment tax purposes.

The individual is engaged in a `trade or business,' the income from which must be considered in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954.

Full Text

Rev. Rul. 56-15

Advice has been requested relative to the status, for purposes of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954) and the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954), of an individual operating a `cash and carry' laundry agency under an agreement with a laundry firm.

Under the terms of the agreement, the individual provides her own office and storage space, determines her working hours and the amount of time she shall devote to the work, and is not required to perform the services personally, follow a particular routine, or meet quotas. Her activities consist primarily of collecting or receiving, from customers, the articles to be laundered or dry cleaned by the firm, issuing tickets therefor, storing the cleaned articles until called for by customers, and collecting payment therefor when the articles are claimed. She pays all the expenses incurred in the operation of the agency and hires and pays her assistants if and when needed. She is required to adhere to established prices set by the firm and is remunerated on a straight commission basis, such commission being deducted by her prior to her remittance of collections to the firm. The agency is operated in the name of the firm. The bundles of laundry to be cleaned are picked up by the firm's routeman, cleaned, and returned to the individual's place of business three times a week. The firm communicates with her by telephone and through its routeman when the occasion arises, such as when prices are to be changed, special sales or campaigns held, etc., and through occasional visits by other representatives of the firm. The firm furnishes business forms, bins, racks, shelves for the storeroom, and an outside sign and storage box. The firm does not carry and insurance covering the individual but carries fire and theft insurance on the laundry packages. The agreement may be terminated by either party at any time.

Section 3121(d) of the Federal Insurance Contributions Act provides in part 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. The guides for determining whether, under such rules, an employer-employee relationship exists, are found in section 408.204(c) of Regulations 128, applicable to the Internal Revenue Code of 1954 by virtue of Treasury Decision 6091, C.B. 1954-2, 47.

The determination whether an employer-employee relationship exists depends upon the particular facts in each case. In the instant case, the individual's commissions from the firm depend entirely upon her own efforts in obtaining customers and keeping her office open a reasonable number of hours. While the firm furnishes certain equipment, it does not appear that the value thereof equals or outweighs the value of the premises furnished by the individual, who, in addition, pays all of her own operating expenses. The firm's communications and notices relative to price changes, special sales or campaigns, etc., although essential to the operation of the agency, do not necessarily have a bearing on the right of control or supervision over the individual by the firm. Nor does an occasional visit to the individual's office by the firm's representatives necessarily indicate a right of control or supervision. On the contrary, the firm appears to be interested merely in the results to be accomplished and not in the means and methods for accomplishing those results.

In view of the foregoing, it is concluded that the individual is not subject to such control and direction by the laundry firm as is necessary, under the usual common law rules, to establish an employer-employee relationship for Federal employment tax purposes.

Section 1402 of the Self-Employment Contributions Act of 1954 provides in part:

(a) NET EARNINGS FROM SELF-EMPLOYMENT.-The term `net earnings from self-employment' means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle subtitle A  which are attributable to such trade or business, * * *

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(c) TRADE OR BUSINESS.-The term `trade or business,' when used with reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162 * * *.

As a general rule, when a person is engaged in an occupation or profession for profit which constitutes, in whole or in part, his livelihood, and as to such occupation or profession, is not regarded as an employee for purposes of the taxes imposed by the Federal Insurance Contributions Act or otherwise excluded from the self-employment provisions, he is engaged in a `trade or business' within the meaning of section 1402(c), supra .

In the instant case, it is held that the individual is engaged in a `trade or business' in the operation of a `cash and carry' laundry and dry cleaning agency under the circumstances herein involved. The income derived from such activity should be taken into consideration in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954.