Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 58-80

1958-1 C.B. 345

IRS Headnote

Where two separate corporations, which qualify as successor-employers under sections 3121(a)(1) of the Federal Insurance Contributions Act and section 3306(b)(1) of the Federal Unemployment Tax Act, take over separate units of a business owned and operated by a sole proprietor under the management of a key employee and the employee continued his same supervisory services as an officer-employee thereof , each corporation may treat, for purposes of the wage limitation provisions of the Acts, the entire amount of wages paid by the proprietor to his key employee during the calendar year, prior to the disposal of the business, as wages paid by it.

Full Text

Rev. Rul. 58-80

Advice has been requested whether the entire amount of wages paid to an employee during the calendar year by a predecessor employer may be treated, for purposes of the wage limitations provided in section 3121(a)(1) of the Federal Insurance Contributions Act and section 3306(b)(1) of the Federal Unemployment Tax Act, (chapters 21 and 23, respectively, subtitle C, Internal Revenue Code of 1954), as having been paid by successor-employers where each successor-employer takes over a separate unit of the business owned and operated by the predecessor-employer.

A sole proprietor owned two places of business which were operated as separate units of a business. A key employee of the sole proprietor was employed as supervisor of both places of business. The sole proprietor qualified as an employer under section 3306(a) of the Federal Unemployment Tax Act and reported and paid the taxes under the Federal Insurance Contributions Act and the Federal Unemployment Tax Act with regard to the wages paid his key employee.

During the calendar year, each of the two places of business was taken over by a separate corporate entity and each entity qualified as a successor-employer within the meaning of sections 3121(a)(1) and 3306(b)(1), supra . The sole proprietor's key employee elected a corporate officer of each corporation and continued his same supervisory services as before but as an officer-employee of each corporation.

Section 3121(a)(1) of the Federal Insurance Contributions Act and section 3306(b)(1) of the Federal Unemployment Tax Act provides, in part, that if a successor employer acquires substantially all the property used in a business of a predecessor employer, or used in a separate unit of a business of a predecessor, and immediately after the acquisition employs in his business an individual who immediately prior to the acquisition was employed in the business of such predecessor, then, for the purpose of determining whether the successor employer has paid renumeration with respect to employment equal to $4,200 ($3,000 under the Federal Unemployment Tax Act) to such individual during such calendar year, any remuneration with respect to employment paid to such individual by such predecessor during such calendar year and prior to such acquisition shall be considered as having been paid by such successor employer.

Accordingly, it is held that inasmuch as the instant corporations are considered as successor-employers within the meaning of sections 3121(a)(1) and 3306(b)(1), supra , each corporation may treat the entire amount of wages paid to the key employee by the sole proprietor as having been paid by it for wage limitation purposes under the foregoing acts.

The special refund provisions of section 6413(c)(1) of the Code are applicable to employee tax deducted under the Federal Insurance Contributions Act with respect to wages in excess of $4,200 paid to the sole proprietor's key employee by his employers during the calendar year. See Rev. Rul. 57-32, C.B. 1957-1, 301.