Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 60-90

1960-1 C.B. 387

Sec. 1402

Caution: Distinguished by Rev. Rul. 68-461

IRS Headnote

An individual was awarded a one-year contract to serve as custodian of an armory for the Federal Government. He furnishes all equipment, supplies, and labor necessary to perform the tasks and is required to maintain Army standards of cleanliness and sanitation as specified in the contract. He assumes responsibility for any suit brought for injury or property damage in connection with the services covered by the contract and for loss or damage to Government property caused by negligence or misconduct of his employees. His work is inspected by the commanding officer of the armory and his contract may be terminated in the event of continued unsatisfactory service. Held , the custodian is not an employee of the Federal Government, but is engaged in a `trade or business,' the income from which is includible in computing net earnings from self-employment under the Self-Employment Contributions Act.

Full Text

Rev. Rul. 60-90

Advice has been requested relative to the status, under the Federal Insurance Contributions Act and the Self-Employment Contributions Act, of an individual performing  services as a custodian of an armory pursuant to a Federal Government contract.

The individual was awarded a one-year contract on the basis of a bid submitted to the contracting officer for the United States Military District of a certain state. Under the terms of the contract, the custodian is required to furnish all labor, materials, and equipment necessary for the performance of the custodial services, which include periodic dusting, sweeping, waxing, cleaning, trash removal, grass cutting, and snow removal in or about the armory premises. The items furnished by the custodian include a power mower, drinking cups, towels, soap, cleaning compounds, brooms, mops, wax, and gasoline. He must perform, or engage employees to perform, all work required to maintain Army standards of cleanliness and sanitation as specified in the contract.

The custodian agrees to indemnify and save harmless the Government, its officers, agents, and employees against all costs in connection with any suit brought for any actual or alleged injury to any person, or damage to property resulting from the performance of the services covered by the contract. The contract stipulates further that he will indemnify and save harmless the Government from any loss or damage of Government property caused by the negligence, theft, or willful misconduct of his employees.

The custodian is not required to report for duty at a stated hour each day or to work for a specified number of hours. His work is inspected by the commanding officer of the armory and his services may be terminated under the default provisions of the contract in the event of continued unsatisfactory performance. The custodian receives monthly partial payments of an agreed lump-sum contract price. Employees engaged by him to assist with the work are paid from the custodian's own funds.

Under section 3121(d)(2) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954), 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 common law rules, an employer-employee relationship exists are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.

Whether an individual is an independent contractor or an employee is largely a question to be determined upon the consideration of the particular facts in each case. The facts in the instant case indicate that the individual has been awarded a Government contract which was made the subject of competitive bidding; that he has assumed responsibility for results desired by the Government as stated in the contract; and that he is subject to no direction and control as to the means and methods for accomplishing those results. Accordingly, it is held that the custodian is not an employee of the Federal Government within the meaning of the Federal Insurance Contributions Act but is an independent contractor and the employer, for purposes of the taxes imposed by the Act, of any individuals he engages to assist him.

Section 1402 of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954) provides in part as follows:

(a) NET EARNINGS FROM SELF-EMPLOYMENT.-The term `net earnings from self-employment' means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle subtitle A  which are attributable to such trade or business * * *.

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(c) TRADE OR BUSINESS.-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 * * *.

As a general rule, a person who is engaged in an occupation or profession for profit and who is not an employee for purposes of the Federal Insurance Contributions Act taxes is engaged in a `trade or business.'

The performance of services as a custodian of a Federal Government armory under the circumstances outlined constitutes a `trade or business,' the income from which is includible in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954.