Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 56-66

1956-1 C.B. 432

Sec. 1402

IRS Headnote

An individual rents and operates a shoe shine stand as a separate trade or business in a barber shop where he also performs services as a porter. Held , the income derived from the operation of the shoe shine stand is includible in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act.

Full Text

Rev. Rul. 56-66

In S.S.T. 147, C.B. 1937-1, 379, it is held that an individual who serves as a porter in a barber shop for the privilege of operating a shoe shine stand therein is an employee of the barber shop with respect to the services which he performs as such porter that the fair rental value of the shoe shine stand constitutes the amount of his remuneration or `wages' for purposes of the Federal Insurance Contributions Act (chapter 21, subtitle, C, Internal Revenue Code of 1954).

A question has now been presented to the Internal Revenue Service relative to the treatment, for purposes of the tax imposed under the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954), of the income derived by the individual from the shoe shine stand rented by him and operated as a separate trade or business.

Section 1402(a) of the Self-Employment Contributions Act of 1954 defines the term `net earnings from self-employment' as `gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business * * *.'

Accordingly, it is held that income derived from the operation of a shoe shine stand by an individual who rents and operates such stand as a separate trade or business in a barber shop, where he also performs services as a porter, is includible in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954. In computing the amount of self-employment income subject to tax, the fair rental value of the shoe shine stand should be treated as `wages paid' to the operator of the stand in applying section 1402(b) of the last-mentioned Act since fair rental value constitutes `wages' for purposes of the Federal Insurance Contributions Act. See Rev. Rul. 54-223, C.B. 1954-1, 174. Thus, the amount of the fair rental value of the shoe shine stand would constitute (1) wages paid to the individual involved to be reported both for Federal employment and income tax purposes and (2) a deduction attributable to the operation of the shoe shine stand as a trade or business.

The conclusions stated herein may be illustrated as follows:

The fair rental value of a stand is $20 per month, or $240 for the year; shine fees and tips received during the year total $1800; and the cost of materials (rags, oils, polish, etc.) used during the year is $100. Applying the principle of S.S.T. 147 supra , to this example, $240 is the amount to be included in wages under the Federal Insurance Contributions Act; the amount of $240 also represents rental expenses and is a deductible expense to the operator of the stand; adding the $240 to the $100, the cost of materials, results in a total deduction of $340; and, deducting the $340 from the $1800 of income leaves a remainder of $1460, representing the amount of self-employment earnings from the stand to be reported by the operator.