Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-91

1957-1 C.B. 326

Sec. 1402

IRS Headnote

Members of the supervisory committee of a credit union elected by the membership of the credit union pursuant to a state law, which requires such a committee and which specifies the powers and duties thereof, are not, in their capacity as such members, employees of the credit union for Federal employment tax purposes. The fees or honorariums received by them as compensation for their services as such members are includible in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954.

Full Text

Rev. Rul. 57-91

Advice has been requested relative to the status, for purposes of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954), of the members of the supervisory committee of a credit union.

The credit union was organized and is operated pursuant to provisions of state statutes relating to credit unions which provide that there shall be prescribed in the bylaws of a credit union the number of members of its supervisory committee and the powers and duties of such committee. It is provided that at the annual meeting the members of the credit union shall elect, among others, a supervisory committee of not less than three members who shall hold their offices until such time as may be determined by the bylaws. The members of the supervisory committee may receive such compensation as the members of the credit union may authorize subject to the final approval of the state bank commissioner. Specific powers and duties of the supervisory committee are set forth in the law. The supervisory committee is empowered, among other things, to order a special meeting of the credit union, and is required to inspect the securities, cash, and accounts of the corporation. The supervisory committee shall fill vacancies occurring in its membership until the next regular meeting of the members of the credit union. At any time, by unanimous vote, the supervisory committee may recommend to the board of directors the suspension from office of any member of the credit committee, any member of the board of directors, or any officer elected by the board. It is the duty of the supervisory committee to forward to the bank commissioner of the state a copy of all recommendations, charges, and findings presented to the board of directors.

The supervisory committee of the instant credit union consists of six active members and two ex officio members whose duties are specified in the bylaws of the credit union. The committee meets approximately once a week at a time and during hours of their own choosing. Each member receives an honorarium based on the number of meetings he attends. The members of the supervisory committee examine all applications for loans made during the period under examination and satisfy themselves that for each loan made an application is on file and that each application states the purpose for which the loan is made, a description of the security offered, and that it bears the unamimous approval of the members of the credit committee present at its passing. At least one member of the committee attest to the correctness of the balance sheet which the treasurer is required by the bylaws to prepare each month.

Section 3121(d)(2) of the Act provides 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. The rules for determining whether, under the usual common law rules, an employer-employee relationship exists are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.

In the instant case, it is concluded that the credit union neither exercises nor has the right to exercise the control over the members of its supervisory committee in the performance of their services that is necessary, under the common law rule, to establish the relationship of employer and employee for Federal employment tax purposes, and that the committee members, in their capacity as such, are not employees of the credit union for Federal employment tax purposes.

Section 1402(c) of the Self-Employment Contributions Act of 1954 provides that the term `trade or business,' when used with reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162 of the Code (relating to trade or business expenses), with certain exceptions not here material.

Generally, a person who is not an employee for Federal employment tax purposes, who is regularly engaged in an occupation or profession for profit which constitutes all or part of his livelihood, is engaged in a `trade or business.'

It is held that in performing their duties as members of the supervisory committee such members are engaged in a `trade or business' with respect to such services and the income derived there from is includible in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954.