Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 66-76

1966-1 C.B. 238

Sec. 1441

IRS Headnote

A and B , citizens of India, are in the United States receiving training under a program conducted by a United States corporation. The training covers most phases of the company's work at its plant in India at which both A and B expect to be employed after their training. It includes performing services of the same type and under the same conditions as regular employees in the company's United States plant. A's training program will last more than 2 years and B's will last about 8 months. Held, A and B are employees of the company under the Federal Insurance Contributions Act and Federal Unemployment Tax Act with respect to these services. A's wages are subject to withholding under section 3402 of the Internal Revenue Code of 1954 whereas B's wages are subject to withholding under section 1441 of the Code.

Full Text

Rev. Rul. 66-76

Advice has been requested whether the individuals described below are employees for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, 24, respectively, subtitle C, Internal Revenue Code of 1954).

A and B are citizens of India who are in the United States for the purpose of receiving training under a program conducted by a United States corporation. In connection with their training, both A and B perform services at the company's plant in the United States. They are both apprentice engineers and perform the same type of services as any of the other apprentice engineers in the company's plant. They work regular hours and follow the same routine as the other engineers. The company exercises the same control and guidance over them as it does over regular employees doing the same type of work.

A is paid a monthly salary for his services. His training in the United States is expected to last at least 2 years. B is paid at an hourly rate for his services. His training program in the United States is expected to be of approximately 8 months duration. Before coming to the United States, B was employed at the company's plant in India.

Although A and B are not obligated to work at the company's plant in India following completion of their training, the fact that their training programs are directed to that end and cover most phases of the company's work at that plant indicates that they expect to do so. Neither A nor B is in the United States under an `F' or `J' visa within the meaning of section 101(a)(15) of the Immigration and Nationality Act,  as amended.

Whether or not the individuals described above are employees for Federal employment tax purposes depends upon whether they have the status of employees under the usual common law rules. Guides for determining that status are found in three substantially similar sections of the Employment Tax Regulations, sections 31.3121(d)-1(c), 31.3306(i)-1, and 31.3401(c)-1.

The facts presented in this case establish that the company exercises, or has the right to exercise, such direction and control over both A and B in the performance of their services as is necessary to establish the relationship of employer and employee under the usual common law rules. Accordingly, A and B are employees of the company for purposes of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act.

Considering the length and nature of A's stay in the United States, in the light of the applicable regulations and the principle set forth in Revenue Ruling 54-87, C.B. 1954-1, 155, A is treated as a resident alien whose wages are subject to withholding under section 3402 of the Code.

On the other hand, in view of the fact that B intends to remain in the United States for only about 8 months, B's status will be that of a nonresident alien engaged in trade or business within the United States through the performance of personal services in this country. His compensation for services performed will be fixed or determinable annual or periodical income from sources within the United States and, therefore, will be subject to withholding under section 1441 of the Code at the rate of 30 percent on the gross amount thereof. However, in computing the amount of tax to be withheld at the source, the benefit of the personal exemption of $600 may be allowed, prorated upon the basis of $1.70 per day for the period of employment during any portion of which labor or personal services are performed within the United States by such alien. See section 1.1441-3(e)(2) of the Income Tax Regulations.