Internal Revenue Service
Revenue Ruling
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smRev. Rul. 57-22
1957-1 C.B. 318
IRS Headnote
A State and the Geological Survey, United States Department of the Interior, agreed to investigate the water resources of the State. The agreement provides that the field and office work of the project shall be under the direction of the Geological Survey, that generally its methods of investigation shall be followed, and that, as far as may be mutually agreeable, all expenses shall be paid in the first instance by the Geological Survey. Some of the individuals engaged on the project are carried on a payroll of the State. However, the States does not select such individuals and its control with respect to them is limited to its approval of the payroll claim prepared by the Geological Survey. Held , the individuals who perform services on the project and who are paid by the State are employees of the Geological Survey for purposes of the Federal Insurance Contributions Act. Therefore, the determination whether the services of such individuals constitute `employment' under the Act is to be made by the Secretary of the Interior or his agent.
Inasmuch as the State has control of the wages paid to the individuals, it is required, in view of section 3401(d)(1) of the Internal Revenue Code of 1954, to withhold the Federal income tax from such wages and to make return and payment of the tax so withheld.
Full Text
Rev. Rul. 57-22
Advice has been requested as to the status, for purposes of the Federal Insurance Contributions Act and the Collection of Income Tax at Source on Wages (chapters 21 and 24, respectively, subtitle C, Internal Revenue Code of 1954), of certain individuals engaged on projects conducted under a cooperative agreement between the Geological Survey, United States Department of the Interior, and a State.
The Geological Survey, United States Department of the Interior, and the particular State here involved entered into an agreement to cooperate in making an investigation of the water resources of the State, subject to the availability of funds and in accordance with their respective authorities. Under the terms of the agreement, each party pays a certain amount of the expenses of the project and must furnish to the other party such statements and reports as may be needed to satisfy fiscal requirements. The agreement also provides that the field and office work pertaining to the investigation shall be under the direction of an authorized representative of the Geological Survey. The area to be investigated and the scope of the investigation shall be determined by mutual agreement. The methods of investigation shall be those usually followed by the Geological Survey, subject to modifications by agreement. All operations of either party pertaining to the investigation shall be open to the inspection of the other party and if found not to be mutually satisfactory, either party may terminate the agreement upon 60 days written notice to the other party. The State agreed to carry the individuals on its payroll and make payment to them for their services.
It is stated that the individuals here involved meet Federal standards as to ability, experience, grade, and salary better than they do the State requirements; that they are, in fact, under the control and direction of the Geological Survey, except that the State payroll claim, as made up in the office of Geological Survey, must be approved by an officer of the State; and that the State does not select, or have any voice in the selection of, the individuals performing the services.
It is further stated that, with the exception of the remuneration paid directly by the State to certain employees, the money for a project carried on in cooperation with the State is advanced by the Federal Government and is spent by the Geological Survey. The State is then billed for its portion, cerdit being given for the amounts paid directly by the State to employees and certified to the Geological Survey. The individuals who are paid by the State are said to work for, take orders from, and be controlled by the Geological Survey. In the performance of their services, they are under the supervision of the district engineer and geologist of the Geological Survey.
Under section 3121(d) of the Federal Insurance Contributions Act, the term `employee's means any individual who, under the usual common law rules applicable in determining an employer-employee relationship, has the status of an employee. The guides for determining, under such rules, whether an employer-employee relationship exists are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.
Based on the information presented, it is concluded that the Geological Survey, United States Department of the Interior, has and exercises the right to control and direct the individuals who perform the services on the project conducted under the agreement so as to constitute such individuals employees of the Geological Survey under the applicable common law rules. Accordingly, it is the opinion of the Internal Revenue Service that the individuals are employees of the Geological Survey, United States Department of the Interior, for purposes of the Federal Insurance Contributions Act, and it devolves upon the head of that Department, or his agent, to make the determinations set forth in section 3122 of the Act. See Rev. Rul. 55-96, C.B. 1955-1, 488.
The remuneration of the individuals is subject to the withholding of Federal income tax under section 3402 of the Internal Revenue Code of 1954. Since the State, rather than the Geological Survey, has control over the payment of wages for the services performed and actually pays the wages to the individuals, in view of section 3401(d)(1) of the Code, it is required to withhold the income tax from such wages and to file returns and pay the tax so withheld.