Internal Revenue Service
Revenue Ruling
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smRev. Rul. 56-71
1956-1 C.B. 461
IRS Headnote
A company constructing custom-built houses engages agents under written contracts to solicit, negotiate and draw up contracts for the construction of houses. The company furnishes them with leads which they must contact. The agents are required to adhere to company rules and regulations in these contacts and to make daily reports of their activities. They are paid on a commission basis, guaranteed minimum weekly remuneration, and allowed weekly drawing accounts against their commissions. They are permitted to determine their own hours of work, but are required to spend some time as `floor time' on company premises. No license is required of them in this work. Held , the agents are employees of the company for Federal employment tax purposes.
Full Text
Rev. Rul. 56-71
Advice has been requested as to the status, under the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954), of individuals engaged by a company to negotiate contracts for the construction of dwelling houses for owners.
The company is engaged in the business of soliciting contracts from the general public for the construction of custom built dwellings in accordance with plans suggested by it or by the person for whom the dwelling is to be constructed. The company engages individuals under a standard form of written agreement to contact interested persons, to negotiate-contracts for the construction of dwellings, and to draw up contracts in accordance with procedures stated in the agreement for the construction of the dwellings. The agreement provides, among other things, that the company will furnish the sales agent with the names and addresses of interested owners; that the sales agent will immediately contact all leads furnished to him by the company and in so doing will adhere to all rules and regulations promulgated by the company; that the company will instruct the sales agent in all its specialized methods of operation; and that the company will pay the sales agent as compensation for his services, a certain percentage of the gross contract price on all contracts closed by him.
The services are performed in the company's offices and in the homes of prospective customers. The sales agents are permitted to determine their working hours, except that they are required to spend a prescribed number of hours of `floor time' in one of the company's sales offices. The sales agents are furnished with leads to prospective customers and are required to follow-up and report on such leads. They also are required to adhere to prices, terms and conditions of sale established by the company, and to report in person or by telephone to the main office in addition to turning in daily resumes of their activities. The sales agents are given instructions as to the general technical aspects of home building, calculating costs, and mortgage placement requirements. They are furnished, without charge, the necessary forms to be filled out when calls are made, photographs of homes, floor plans, brochures, and other sales aids of like nature. They operate under the company's name and perform the services on a full-time basis. They are not licensed, are not available to the public to do work of a similar nature, and do not advertise or maintain offices or shops. They are guaranteed a minimum amount of remuneration each week and, in addition, are allowed weekly drawing accounts against anticipated earnings. Each sales agent furnishes and maintains an automobile for use in his work and bears all expenses incurred in his activities on behalf of the company without reimbursement by the company.
Under section 3121(d)(2) of the Internal Revenue Code of 1954, 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.
Upon application of the usual common law rules to the factual situation in the instant case, it is concluded that the company has the right to exercise such control over the sales agents in the performance of their services as is necessary to establish the relationship of employer and employee for Federal employment tax purposes. Accordingly, they are employees of the company for such purposes.