Internal Revenue Service
Revenue Ruling
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smRev. Rul. 75-15
1975-1 C.B. 317
Sec. 1402
IRS Headnote
Contractors completing wells for well boring company. Individuals who orally contract with a water well boring company operator to pack, grout, and seal operator-bored wells, providing all materials, tools, and equipment, establishing their own work schedules and routines, and reporting only the job completion to the operator are not the operator's employees for the purposes of the FICA, FUTA, and income tax withholding but are engaged in a trade or business; Rev. Rul. 70-662 distinguished.
Full Text
Rev. Rul. 75-15
Advice has been requested regarding the status of individuals performing services for a well boring company, under the circumstances described below, 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, and 24, respectively, subtitle C, Internal Revenue Code of 1954).
The operator of a water well boring company, in the furtherance of his business, engages certain individuals, pursuant to oral contracts, to perform the packing of gravel around the well casings and the grouting and sealing of the well. The operator first enters into a contract with the person who desires a well. The operator's company performs the actual drilling operations, and when the drilling is completed the operator removes his equipment from the well and engages the individuals to do the packing, grouting and sealing of the well.
The contract between the operator and each individual specifies the job site, the particular operation and remuneration, and assures that the applicable State and local safety and health requirements will be complied with. The operator issues no further directions. Each contract contemplates that substantially all the services will be performed by the individuals personally. The operator expects that the services will be performed within a reasonable time, although he does not have preferred call on the individual's time and efforts. The operator pays the individuals the agreed-upon amount in a lump sum at the completion of the particular job.
The individuals perform their services according to their own abilities, guaranteeing only that the work performed is up to the standards dictated by their trade. They are free to accept or decline a particular job offer, and provide all the necessary materials, tools, trucks, or other equipment. They are not required to perform their services during regular working hours, to follow a specific routine, or to submit periodic reports. Their only report to the operator is made at the completion of a job. They perform their services for several similar companies in their geographical area, and may, in fact, perform services for more than one company during any one day. They do not engage helpers and are not required to be licensed. They operate in their own names and maintain an office in their respective homes.
An individual is an employee for Federal employment tax purposes if he has the status of an employee under the usual common law rules applicable in determining the employer-employee relationship. Guides for determining the existence of that status are found in three substantially similar sections of the Employment Tax Regulations, namely, sections 31.3121(d)-1, 31.3306(i)-1, and 31.3401(c)-1. Generally, the relationship of employer and employee exists when the person for whom the services are performed has the right to control and direct the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but as to how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is the employer. In general, if an individual is subject to the control or direction of another 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 not an employee.
In part, Rev. Rul. 70-662, 1970-2 C.B. 231, describes a situation wherein a drilling contractor engages a casing crew under his general direction to operate together for the purpose of running or pulling casings from oil wells. The contractor furnishes the machinery and power required, and the work comes under the control of the drilling contractor through the medium of having the driller, who is also furnished by the contractor, supervise and direct the entire operation. It is concluded that, under the circumstances described, the workers are employees of the drilling contractor.
This case is clearly distinguishable from the one described in Rev. Rul. 70-662. In this case the operator of the water well boring company is concerned only with the result to be accomplished. He issues no detailed work instructions, performs no supervisory activities, and has no preferred call on the individuals' time and efforts. The individuals furnish their own tools, materials, and equipment, are free to accept or decline a job, are not required to adhere to a set work schedule, and are not required to perform their services during specific hours.
In the instant case, the operator neither exercises nor has the right to exercise the degree of direction and control over the individuals necessary to establish the employer-employee relationship.
Accordingly, the individuals are not employees of the operator for purposes of the taxes imposed by the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, or the Collection of Income Tax at Source on Wages.
Furthermore, the individuals are engaged in a "trade or business" for purposes of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A of the Code), the income from which should be considered in computing net earnings from self-employment as contemplated by that Act and in determining whether they are required to file declaration of income tax and self-employment tax returns under sections 6015 and 6017, respectively, of the Code.
Rev. Rul. 70-662 is distinguished.