Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-97

1969-1 C.B. 264

IRS Headnote

Services performed by employees of a company in cleaning, packing, and storing seed peas and beans are not "agricultural labor" for employment tax purposes; Em. T. 426 superseded.

Full Text

Rev. Rul. 69-97 /1/

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in Em. T. 426, C.B. 1942-1, 234.

The question presented is whether services performed by employees of a company in cleaning, packing, and storing seed peas and beans are "agricultural labor" within the meaning of section 3121(g) of the Federal Insurance Contributions Act and section 3306(k) of the Federal Unemployment Tax Act (chapters 21 and 23, respectively, subtitle C, Internal Revenue Code of 1954).

The company is engaged in the processing of peas and beans for the purpose of their sale as seeds and in connection therewith maintain a warehouse and mill. It does not own any of the farms upon which the peas and beans are grown but it has under contract approximately 10x acres cultivated by the farm owners. The company's entire investment is in equipment used for cleaning, packing, and shipping purposes.

The company enters into written contracts with farmers for the planting, cultivating, and harvesting of the peas and beans that the company handles, processes, and sells as seed to commercial markets. The contracts provide that the owner of the farm, who is termed a grower," agrees to plant, cultivate, harvest, and deliver the crop produced from seeds furnished by the company, and the company agrees to pay the grower a certain price for each pound of the seed produced from the harvested crop. The cost of the seed furnished to the grower is deducted from the amount paid to him by the company. The seed peas and beans are shipped and sold by the company in their raw state, having been processed to the extent of being cleaned and sorted in the company's mill. The services of the employees under consideration include dumping beans into the mill, helping load cars, and other similar work.

As defined in section 3121(g) of the Federal Insurance Contributions Act, the term "agricultural labor" includes all service performed-- * * * * *

"(4)(A) in the employ of the operator of a farm in handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market, in its unmanufactured state, any agricultural or horticultural commodity; but only if such operator produced more than one-half of the commodity with respect to which such service is performed; * * *" Section 31.3121(g)-1(e)(2) of the Employment Tax Regulations relating to the Federal Insurance Contributions Act provides that the term "operator of a farm" as used in section 3121(g)(4)(A) of the Act means an owner, tenant, or other person, in possession of a farm and engaged in the operation of such farm.

Under the circumstances the company does not qualify as the "operator of a farm" within the meaning of the law and regulations stated above. Accordingly, services performed by the company's employees in the processing of the peas and beans are not "agricultural labor" within the meaning of section 3121(g) of the Federal Insurance Contributions Act. This conclusion is also applicable for purposes of the Collection of Income Tax at Source on Wages (chapter 24, subtitle C of the Code).

As defined in section 3306(k) of the Federal Unemployment Tax Act, the term "agricultural labor" includes all services performed-- * * * * *

"(4) in handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to a carrier for transportation to market, any agricultural or horticultural commodity; but only if such service is performed as an incident to ordinary farming operations or, in the case of fruits and vegetables, as an incident to the preparation of such fruits or vegetables for market. * * *"

It is held that seed peas and beans are not "fruits and vegetables" for purposes of section 3306(k)(4) of the Federal Unemployment Tax Act. Therefore, services performed in the handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering of seed peas and beans to market or to a carrier for transportation to market are "agricultural labor" only if they are performed as an incident to ordinary farming operations.

Section 31.3306(k)-1(e)(1)(ii) of the regulations provides, in part, that generally services are performed "as an incident to ordinary farming operations" within the meaning of section 3306(k)(4) of the Federal Unemployment Tax Act if they are services of the character ordinarily performed by the employees of a farmer or of a farmers' cooperative organization or group as a prerequisite to the marketing, in its unmanufactured state, of any agricultural or horticultural commodity produced by such farmer or by the members of such farmers' organization or group.

In the instant case the services performed in the cleaning, packaging, and storing of seed peas and beans are not performed in the employ of either the producer of the commodity or a cooperative organization or group of such producers. Accordingly, the services are not performed as an incident to ordinary farming operations and are not "agricultural labor" for the purposes of the Federal Unemployment Tax Act. Em. T. 426 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576