Internal Revenue Service
Revenue Ruling
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smRev. Rul. 59-51
1959-1 C.B. 257
IRS Headnote
A dairy herd improvement association engages an individual called a supervisor, or tester, to perform certain services for its dairy farm members in connection with the operation of their dairy herd improvement programs. The activities of the association, including the work of the supervisor or tester, is under the auspices and general direction of the state extension service dairyman of the state agricultural college. The association requires the supervisor to produce a minimum quota of work in testing milk and keeping feed and production records; to perform the services personally; to cover a specified territory within a given time; and to follow a regular routine. The association usually furnishes all necessary equipment and has preferred call on the supervisor's time. The supervisor retains all fees collected from farmers for his services. His services may be terminated by either party upon proper notice. Held , the individual is an employee of the association for purposes of the Federal Insurance Contributions Act.
Full Text
Rev. Rul. 59-51
The Internal Revenue Service has been requested to determine whether an individual, called a supervisor or tester, engaged by a dairy herd improvement association to perform certain services for its diary farm members in connection with the operation of their dairy herd improvement programs is an employee of the association for purposes of the taxes imposed by the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954).
The association was organized for the purpose of furnishing its dairy farm members with information necessary to cull, feed and breed their dairy herds intelligently and economically. The association engages the individual under a verbal agreement to make milk tests and to maintain a feed consumption and milk production record for each cow in a member's herd. He visits each herd in the association once a month, usually arriving at the farm in the late afternoon. During the evening and morning milkings he samples and weighs each cow's milk, determines the butterfat content, and ascertains the amount and cost of the feed consumed. He enters these records in a herd-record book which the herd owner keeps and uses as a guide in his management operations. From the data thus obtained, the individual calculates each cow's milk and butterfat production for the month and, at the end of the year, compiles the annual records for each cow and for each herd. The individual also assists the owner in keeping a complete record of the progeny of each cow, and he eartags those animals in the herd that are not otherwise identified. He aids the dairyman in every possible way to improve his herd; and, he frequently is able to suggest suitable changes in feeding or the management of the herd or individual cows when the records indicate the need for a change. This work is carried on under the auspices and general direction of the state extension service dairyman of the state agricultural college.
The supervisor is required to perform his services personally; to cover a specified territory within a stated time; to follow a regular routine; and to produce a designated minimum quota of work. In addition to the services performed on the members' farms, the supervisor does some of the testing and record keeping in a laboratory and office maintained in his own home. He submits written reports to the state extension service dairyman who summarizes them and forwards the analyses to the association's members. The association does not issue instructions to the supervisor, but he reports to its representative as the need arises relative to schedules or other problems encountered in his day-to-day activities. The association furnishes most of the equipment used by the supervisor in performing his services. It charges each member a monthly testing fee, depending on the size of his herd. The supervisor collects the fee from each member at the time he performs the services and retains it as his remuneration. In addition, each member pays him a bonus of x dollars upon the satisfactory completion of a year's work. He is not guaranteed a minimum amount of compensation per month, or year, nor is he allowed advances or a drawing account. He is paid a nominal amount for lodging and meals if these are not furnished by the dairy farm member. Otherwise, the supervisor pays all of his own expenses. The association has preferred call on his services and carries workmen's compensation and liability insurance covering him. The supervisor spends approximately 95 percent of his total working time in performing services under the general supervision of the association. He or the association may terminate the relationship at any time upon the giving of proper notice to the other party.
Section 3121(d) of the Federal Insurance Contributions Act 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. The guides for determining whether, under such rules, an employer-employee relationship exists are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.
On the basis of those guides, in the circumstances stated above, it is concluded that the supervisor in question performs personal services for the association on a continuing basis and that the association exercises or has the right to exercise over such individual in the performance of his services the direction and control necessary to establish the relationship of employer and employee. This is so even though the supervisor is permitted to collect the fees from the dairy farmers and retain them as compensation for his services, for the reason that such remuneration may be properly ascribed to the association. Accordingly, it is held that the individual is an employee of the association for purposes of the taxes imposed by the Federal Insurance Contributions Act.
Services performed on a farm by the supervisor in connection with weighing the feed and milk, testing the milk, keeping the dairy farm records, etc., as described above, constitute agricultural labor within the meaning of section 3121(g) of the Act. However, nonfarm services and those relating to the business affairs of the association, such as time spent at the association's office, or in the supervisor's home or office in doing laboratory work, keeping the association's records, making reports and collecting fees, do not constitute agricultural labor. `Agricultural labor' as defined in section 3121(g), supra , is no longer excepted from `employment' as that term is defined in section 3121(b) of the Act. Accordingly, cash remuneration paid for such labor is subject to the taxes imposed by the Federal Insurance Contributions Act if the tests provided in section 3121(a)(8)(B) thereof are met.
The employer-employee determination made above for purposes of the taxes imposed by the Federal Insurance Contributions Act also is applicable for purposes of the Collection of Income Tax at Source on Wages (chapter 24, subtitle C, Internal Revenue Code of 1954). For purposes of withholding under section 3402(a) of the Code, remuneration for `agricultural labor,' as defined in section 3121(g), is excepted from `wages' under section 3401(a). Accordingly, it will be necessary to apply the `Included and Excluded Wages' rule as provided in section 3402(e) of the Code to determine whether the association is liable for the withholding of income tax from the supervisor's remuneration for services performed for it. See section 31.3402(e)-1 of the Employment Tax Regulations for information with respect to the application of such rule.
Under the ruling in this case, the association is responsible for collecting, reporting and paying any taxes due with respect to `wages' paid its supervisor, and for maintaining proper records. It should, therefore, make appropriate arrangements with its member herd owners and its supervisor to enable it to comply with the requirements of the applicable laws.