Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 56-27

1956-1 C.B. 487

Section 6501 -- Limitations on Assessment

IRS Headnote

The M railway association, an organization controlled and maintained principally by two or more carriers by railroad subject to part I of the Interstate Commerce Act, is engaged in promoting the use of better systems, procedures, and methods within the railroad industry. Held , the association is an employer for purposes of the taxes imposed by the Railroad Retirement Tax Act.

Full Text

Rev. Rul. 56-27

The Internal Revenue Service has been requested to determine the status, under the Railroad Retirement Tax Act (chapter 22, subtitle C, Internal Revenue Code of 1954), of the M railway association, an unincorporated organization sponsored by several carriers by railroad subject to part I of the Interstate Commerce Act and other companies for the purpose of promoting the use of better systems, procedures, and methods within the railroad industry.

The present objective of the M railway association is to standardize paper work procedures with the hope that such standardization may bring substantial benefits to all railroads. The fields in which the association is working, or in which it intends to work, include interline freight settlements, billing for repairs to foreign freight cars, train and car movement information, way billing, passing reports, improved communications, better car distributions, and other matters of general interest to the railroad industry.

The membership of the association is composed principally of employees of interested railroad carriers. However, employees of companies having a direct or indirect relationship to the railroad industry are also included as members. No carrier by railroad or other company may become a member of the association but any carrier or other company may become a sponsor.

More than fifty-one percent of the association's revenues are derived from sponsors' fees paid by railroad carriers. Although membership in the association is limited to individuals, more than ninety percent of its members are officers or employees of carriers by railroad subject to part I of the Interstate Commerce Act and such carriers by railroad have the power to control more than sixty percent of the votes on any question at issue before the association.

Section 3231(a) of the Railroad Retirement Tax Act, in defining an `employer,' provides, in part, as follows:

(a) EMPLOYER.-For purposes of this chapter chapter 22, subtitle C, Internal Revenue Code of 1954 , the term `employer' means any carrier (as defined in subsection (g)) an express company, sleeping-car company, or carrier by railroad, subject to part I of the Interstate Commerce Act  * * *. The term `employer' shall also include * * * organizations controlled and maintained wholly or principally by two or more employers as hereinbefore defined and engaged in the performance of services in connection with or incidental to railroad transportation; * * *.

It is evident that the M railway association is engaged in the performance of services `incidental to railroad transportation.' Furthermore, the facts support a conclusion that the association is `controlled and maintained * * * principally by two or more employers' carriers by railroad subject to part I of the Interstate Commerce Act . Accordingly, the M railway association qualifies as an `employer' within the meaning of that term as defined in the Railroad Retirement Tax Act and, therefore, is subject to the provisions of that Act and is liable for the taxes imposed by it.