Internal Revenue Service
Revenue Ruling
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smRev. Rul. 69-98
1969-1 C.B. 268
Sec. 1402
IRS Headnote
An attorney serving as counsel for a railway company that pays him a retainer fee and exercises control only as to what shall be done is not an employee of the company for railroad retirement tax purposes; C.T. 15 superseded.
Full Text
Rev. Rul. 69-98 /1/
The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in C.T. 15, C.B. 1939-1 (Part 1), 318.
The question presented is whether an attorney who performs services for a railway company is an employee of the company for purposes of the Railroad Retirement Tax Act (chapter 22, subtitle C, Internal Revenue Code of 1954).
The attorney is engaged in the practice of law in a particular state, maintaining his own office and supplying it with all necessary equipment at his own expense. Under a written contract with the railway company, he agrees to serve as counsel for the company in all its matters in the state, as and when required by any executive officer of the company and subject to the general direction of its general counsel. He receives a stated amount each month to cover retainer, assistance in making settlements, and drawing contracts and other documents, and for other services except those in connection with the prosecution or defense of litigation. For such services he is paid reasonable fees to be approved by the company's general counsel, consideration being given to the fact that he receives a retainer fee.
The attorney informs the general counsel of the company as to matters handled by him, keeping a list of all litigation entered into, and he must, as and when requested, furnish the general counsel information showing the status of the same. He is not required to give preference to the work of the company over the work handled by him for others, and is not required to devote any particular amount of time to the service of the company, nor is he required to conform to fixed hours of employment. The contract is subject to termination at any time by either of the parties giving the other 10 days' written notice.
Section 3231 of the Railroad Retirement Tax Act provides, in part, as follows:
"(b) * * * the term "employee" means any individual in the service of one or more employers for compensation; * * *."
Section 31.3231(b)-1 of the Employment Tax Regulations provides, in part, that an individual is in the service of an employer, with respect to services rendered for compensation, if he is subject to the continuing authority of the employer to supervise and direct the manner in which he renders such services. It is not necessary that the employer actually direct or control the manner in which the services are rendered; it is sufficient if the employer has the right to do so. The right of an employer to discharge an individual is also an important factor indicating that the individual is subject to the continuing authority of the employer to supervise and direct the manner of rendition of the services. Other factors indicating that an individual is subject to the continuing authority of the employer to supervise and direct the manner of rendition of the services are the furnishing of tools and the furnishing of a place to work by the employer to the individual who renders the services. In general, if an individual is subject to the control or direction of an employer merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not, as to such services, in the service of an employer within the meaning of the condition stated in the first sentence of this paragraph.
Whether or not an individual is an employee will be determined upon an examination of the particular facts of the case.
In the present case the attorney in question maintains his own office and pays all expenses incident thereto. The company has no authority to regulate his hours of work or to require that he devote a certain amount of time to the company's business. He carries on his own private practice in addition to services rendered by him for the company, and the company has no authority to require him to give preference to the work done for it. It is stated that the stipulation in the contract that he is to work subject to the direction of the general counsel merely means that the general counsel will direct him as to what cases he will handle and advise him when the company is willing to compromise in order to avoid a suit and as to other general questions of policy. The retention of this measure of control does not substantially diminish his authority to work according to his own methods, using his discretion and exercising his professional judgment. The company has not retained control over the manner and method to be employed by him in doing his work but the control retained relates only to what shall be done.
Under the facts presented, the company neither exercises, nor has the right to exercise, the degree of control over the activities of the attorney that would make him an employee under the provisions of the law and regulations stated above. Accordingly, the attorney is not an employee of the company for purposes of the Railroad Retirement Tax Act. Compare Revenue Ruling 68-323 and Revenue Ruling 68-324, C.B. 1968-1, 432 and 433, respectively, relating to the employment tax consequences in other factual situations where attorneys are engaged or retained to perform their professional services.
In the instant case the attorney is carrying on a "trade or business" within the meaning of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A of the Code) and the income he derives therefrom should be considered in computing net earnings from self-employment for purposes of that Act.
C.T. 15 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.