Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-42

1957-1 C.B. 320

IRS Headnote

Reporters who perform services in connection with the private reporting business of a court reporter, in an office provided by the court reporter, and who receive as remuneration a stated percentage of the receipts derived from their services, are employees of the court reporter for Federal employment tax purposes.

Full Text

Rev. Rul. 57-42

Advice is requested whether reporters who perform services under the circumstances described below are employees for Federal employment tax purposes.

B , an official court reporter, is permitted to engage in private reporting in addition to his official duties. He maintains an office in which to conduct his private reporting business and engages two reporters to perform outside reporting services, consisting of reporting depositions and various hearings and the furnishing of required transcriptions. B pays the rent and expenses of the office and furnishes the reporters with desk space, telephone and some supplies. Calls for reporter's services are received by B who assigns the jobs to the reporters. He handles all the billing for services performed by the reporters.

The reporters furnish their own reporting machines, typewriters and paper. Their arrangement with B contemplates that all the services will be performed by them. The reporters might on occasion request advice of B in matters that arise in connection with the work; however, their skill is such that he does not require them to comply with his suggestions if they follow an alternative course satisfactory to him. The reporters do not hold themselves out to the public for similar work, nor do they perform services for anyone other than B . However, when not working on an assignment, a reporter's time is his own. The taking of depositions, etc., is done at the place designated by the person for whom the service is performed, but dictating and transcribing are done in B's office. The services are performed generally during regular business hours although occasionally a call is received requiring services to be rendered in the evening. If statements for services are not paid, the reporter endeavors to collect them for B .

Payment for services performed by the reporters is remitted to B , who deducts a fixed amount for each page of typing done for the reporter by the typist in his office plus a fixed percentage of the gross billings for work performed by such reporter, and pays the balance to the reporter as his compensation. The reporters are not guaranteed a minimum salary nor are they reimbursed for their expenses.

Section 3121(d) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954) provides, among other things, 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. Whether an individual is an employee depends upon the particular facts in each case. The guides for determining whether an employer-employee relationship exists are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.

Under the above conditions, B has the right to exercise over the reporters in the performance of their services the control and direction requisite to establish the relationship of employer and employee. Their earnings are derived not as independent contractors serving their own clients, but rather from services performed for and on behalf of B . Such latitude and freedom of action as may be permitted the reporters in their work is due to the nature of the services performed by them and the circumstances under which B conducts his office. It is held that the reporters are employees of B for purposes of the taxes imposed under the Federal Insurance Contributions Act. This conclusion is applicable also for purposes of the Federal Unemployment Tax Act and the Collection of Income Tax at Source on Wages (chapters 23 and 24, respectively, subtitle C, Internal Revenue Code of 1954). Compare S.S.T. 260, C.B. 1938-1, 399.