Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 70-29

1970-1 C.B. 86

IRS Headnote

An attorney doing legal work for a corporation that pays him an annual fee but does not direct and control his legal activities is not an employee of the corporation within the purview of section 401(a) of the Code; PS No. 15 superseded.

Full Text

Rev. Rul. 70-29 /1/

The purpose of this Revenue Ruling is to update and restate, under current statute and regulations, the position set forth in PS No. 15, dated August 24, 1944, relating to whether an attorney is an employee of a corporation, for purposes of section 401(a) of the Internal Revenue Code of 1954, under the circumstances described below.

The attorney does legal work for the corporation. He has a separate office on the corporation's premises and his name appears over the door and on the building directory. However, he also engages in other practice. The attorney receives an annual fee from the corporation in addition to his earnings from his other practice. The attorney is not subject to the direction and control of the corporation in carrying out any of his legal activities.

A trust will be qualified under section 401(a) of the Code only if, in addition to meeting certain other requirements, it forms part of a pension, profit-sharing, or stock bonus plan established by an employer for the exclusive benefit of his employees or their beneficiaries. Hence, a plan will not qualify if it includes participants who are not the employees of the employer. See Rev. Rul. 69-493, C.B. 1969-2, 88. However, section 1.401-10(b)(3)(ii) of the Income Tax Regulations recognizes that an attorney who is self-employed may also be a bona fide common-law employee of an employer.

A company may establish and maintain its own legal department and employ attorneys to handle its legal matters. The time that is required to be devoted thereto depends on the nature and volume of work involved, but the attorneys engaged therein are normally employed on a full-time basis. This does not mean that the employee must devote every minute of every working day to the business of the employer in order to be an employee within the purview of section 401(a) of the Code. An arrangement may be entered into under which the attorney is permitted to devote some time to other matters. See Revenue Ruling 69-569, C.B. 1969-2, 91, for an example of such an arrangement. However, an attorney is not an employee of a client who pays him a fee, regardless of the amount of the fee, where that client does not direct and control his activities.

Accordingly, it is held that the attorney in this case is not an employee within the purview of section 401(a) of the Code.

PS No. 15 is hereby superseded since the position stated therein is restated under current law in this Revenue Ruling.

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