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smRev. Rul. 62-85
1962-1 C.B. 13
Section 62 -- Adjusted Gross Income
IRS Headnote
A salesman who is required by his employer as a regular part of his employment to engage in selling activities at his employer's place of business does not qualify as an outside salesman for the purpose of section 62(2)(D) of the Internal Revenue Code of 1954.
Full Text
Rev. Rul. 62-85
Advice has been requested whether a full-time salesman, who is required by his employer as a regular part of his employment to engage in any selling activities at his employer's place of business, can qualify as an `outside salesman' with the meaning of section 62(2)(D) of the Internal Revenue Code of 1954.
Section 62 of the Code defines the term `adjusted gross income' in the case of an individual as gross income minus certain deductions. Among the allowable deductions are (1) trade and business deductions allowed by chapter 1 which are attributable to a trade or business carried on by a taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee and (2) certain trade and business deductions of an employee.
With respect to allowable deductions of an employee, section 62(2) of the Code provides, in part, as follows:
(D) OUTSIDE SALESMEN.-The deductions allowed * * * which are attributable to a trade or business carried on by the taxpayer, if such trade or business consists of the performance of services by the taxpayer as an employee and if such trade or business is to solicit, away from the employer's place of business, business for the employer.
Senate Report No. 1622, 83rd Congress, Second Session, at pages 10 and 169, explains the meaning of the term `outside salesman' as follows:
* * * An `outside salesman' is defined as an employee engaged principally in the solicitation of business for his employer at places other than the employer's place of business.
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Outside salesmen's expenses are provided for in subparagraph (D). Under this subparagraph expenses which are ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business as an `outside salesman' will be deductible in arriving at adjusted gross income. An `outside salesman' is an individual who is a full-time salesman who solicits business away from his employer's place of business. It does not include a salesman, a principal part of whose activities consist of service and delivery. Thus, a bread driver-salesman or a milk driver-salesman would not be included within the definition. Also not within the definition are salesmen whose principal activities consist of selling at the employer's place of business but who incidentally make outside calls and sales. * * * Outside salesmen who have incidental activities at the employer's place of business, such as writing up and transmitting orders, spending short periods at the employer's place of business to make or receive telephone calls, will still be eligible for the deduction allowed to `outside salesmen.' A full-time `outside salesman' may deduct such expenses as those for telephone and telegraph, secretarial help, and entertainment. * * *
In the development of section 62(2)(D) of the Code, the intent of Congress was to place a traveling salesman who was technically an employee on the same footing, for income tax deduction purposes, as a traveling salesman who was technically an independent contractor.
At hearings before the Ways and Means Committee of the House of Representatives, it was pointed out that the term `traveling salesman' might be too restrictive inasmuch as it might be interpreted so as to discriminate against a salesman whose territory comprised the metropolitan area in which he resided and who would not normally be engaged in `travel away from home.' To avoid this discrimination the term `traveling salesman' was broadened to read `outside salesman.' See Hearings before the Committee on Ways and Means, House of Representatives, 83d Congress, 1st Session, Part 1, pages 210-220, and Senate Hearings, H.R. 8300, 83d Congress, 2d Session, Parts 3 and 4, page 2394.
Section 1.62-1(h) of the Income Tax Regulations provides, in part, as follows:
* * * An outside salesman is an individual who solicits business as a full-time salesman for his employer away from his employer's place of business. * * * However, an outside salesman may perform incidental inside activities at his employer's place of business, such as writing up and transmitting orders and spending short periods at the employer's place of business to make and receive telephone calls, without losing his classification as an outside salesman.
The salesman who is in charge of a metropolitan area and who uses his employer's home office or branch office as a base of operations will normally qualify as an `outside salesman' despite the fact that he might perform incidental inside activities at his employer's place of business. Such a salesman would not normally be required to `man the show floor' of his employer because his duties are the solicitation of business outside the business premises. Such a salesman could make sporadic or occasional sales at his employer's place of business without losing his `outside salesman' status.
However, where an employee is required as a regular part of his employment to engage in selling activities at his employer's place of business for a specified period of time each week, such inside selling activities are not merely incidental to his overall employment but represent, instead, an integral part of his employment so as to disqualify him as an `outside salesman.' `Incidental' implies an element of chance which is not present when an employee is required as a condition of employment to spend a certain period of time selling in the home office.
Accordingly, it is held that a salesman who is required by his employer as a regular part of his employment to engage in selling activities at his employer's place of business does not qualify as an outside salesman for the purpose of section 62(2)(D) of the Code.