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 Rev. Rul. 57-56

1957-1 C.B. 308

IRS Headnote

Services performed by individuals under the jurisdiction of the N association, which is engaged in conducting an agricultural fair for M county, a political subdivision of the State of California, subject to a contract with the county, are excepted from `employment' by sections 3121(b)(7) and 3306(c)(7) of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, respectively.

Full Text

Rev. Rul. 57-56

Advice has been requested as to the status, for purposes of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954), of individuals who perform services under the jurisdiction of the N association where the association is conducting an agricultural fair for M county under the circumstances set forth below.

Sections 25905 and 25906 of the Government Code of the State of California authorize any county of such State to enter into a contract with a nonprofit association for such association to hold and operate a county agricultural fair as the agent of the county. Pursuant to such statutory provisions, the M county, a political subdivision of the State of California, entered into a contract with the N association, a nonprofit organization, whereby the latter asked to hold and conduct an annual county agricultural fair on the county's fair grounds. Such contract covers a period of five consecutive years. Under the contract, the county constitutes and appoints the association as its agent to manage the fair and to use and possess the fair grounds during the contractual period.

The contract recites that the agency therein created is for the public benefit and that the association shall assume executive management and control of the fair, subject, however, to the direction, supervision, and ultimate control of the county. The association agrees to assume all obligations and to pay all expenses incurred by it in the operation of the fair and fair grounds except those expenses for which funds are allocated or appropriated by the county and state for certain specific purposes. In return, the county authorizes the association to retain and use all monies received by the association from the operation of the fair and the fair grounds to meet such obligations and to pay such expenses. The association agrees to deposit within 60 days after the conclusion of each fair all net proceeds received by it, from whatever source, with the county treasurer. The association is also required to submit its annual budget for the approval of the county board of supervisors, showing the estimated revenues and proposed expenditures from all sources during the ensuing calendar year. The contract further provides that the association shall file with the county a complete itemized statement of all receipts and disbursements for each fair held and to maintain any record retained by it as public records. The operations in the instant case were carried out in accordance with the terms of the contract.

Sections 25905 and 25906, supra , provide that upon the dissolution of any such corporation or association all property and assets thereof within the county with which it contracts shall be paid to such county.

Section 3121(b)(7) of the Federal Insurance Contributions Act excepts from `employment' service performed in the employ of a state, or any political subdivision thereof, or any instrumentality of any one or more of the foregoing, which is wholly owned by one or more states or political subdivisions.

Section 3306(c)(7) of the Federal Unemployment Tax Act contains a similar provision.

It is held that the N association is acting as agent of M county and that the individuals who perform services under the jurisdiction of the association in connection with the fair are employees of the county.

It is also held that such services are excepted from `employment' by sections 3121(b)(7) and 3306(c)(7) of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, respectively, and the taxes imposed by the Acts are not applicable to the remuneration for such services.

See Revenue Ruling 55-319, C.B. 1955-1, 119, relative to coverage of state employees under the Social Security Act.