Rev. Rul. 85-85

1985-1 C.B. 332, 1985-25 I.R.B. 9.

SHARE FARMING; MIGRANT WORKERS

Published: June 24, 1985

Section 3121.-Definitions, 26 CFR 31.312(b)(16)-1. Services performed under share-farming arrangements.

  Share farming; migrant workers. The services of migrant workers who only cultivate and pick an agricultural crop are not excepted from 'employment' as share farmers under section 3121(b)(16) of the Code.

ISSUE

  Are the services of migrant farm workers excepted from 'employment' under section 3121(b)(16) of the Internal Revenue Code, under the circumstances described below?

FACTS

  A farmer engages migrant farm workers for assistance in the cultivation and harvesting of a cucumber crop. Each worker is assigned a portion of the cucumber fields to cultivate and harvest. All planting is done by the farmer, and all fertilizer, insecticides, and tools, aside from hoes, are provided by the farmer. The farmer has the right to direct the daily activity of the workers in the fields. Each worker receives as compensation a share, in cash, of the gross receipts from the sale of the cucumbers harvested from that worker's assigned portion of the fields.

LAW AND ANALYSIS

  Section 3121(b) of the Code defines the term 'employment,' for purposes of the Federal Insurance Contributions Act (FICA), as any service performed by an employee for the person employing the employee, with certain exceptions.

  Section 3121(b)(16) of the Code excepts from employment service performed by an individual under an arrangement with the owner or tenant of land pursuant to which (1) the individual undertakes to produce agricultural or horticultural commodities on that land, (2) the commodities produced by the individual, or the proceeds therefrom, are to be divided between the individual and the owner or tenant of the land, and (3) the amount of the individual's share depends on the amount of the commodities produced.

  Section 3121(b)(16) of the Code is based on the rules set forth in Rev. Rul 55-538, 1955-2 C.B. 313. In that revenue ruling, the workers were engaged for a crop year, paid a portion of the costs of the fertilizer and insecticides used, and performed, or otherwise provided, the labor necessary for cultivating, harvesting, and raising the crops. The owner and the workers agreed as to the type of crops to be grown, the areas to be planted, and the responsibilities of each party, as well as the amounts to be advanced to the workers during the season and the interest to be paid thereon.

  In enacting section 3121(b)(16) of the Code, Congress intended to follow existing practice, and codified the rules set forth in Rev. Rul. 55-538, S. Rep. No. 2133, 84 Cong., 2d Sess. (1956), 1956-2 C.B. 1255, 1256-1257, contains the following explanatory statement (emphasis added):

  Both the House and the Committee-approved bills clarify the status under old- age and survivors insurance of INDIVIDUALS WHO OPERATE FARMS under share- farming arrangements made with the owners or tenants of these farms. (Such farmers may be known locally by a variety of names such as 'sharecroppers,' 'renters,' 'croppers,' 'tenants,' and 'lessees,' or by other designations.) In specifying that these individuals are self-employed and not employees for purposes of old-age and survivors insurance coverage, the bill gives statutory recognition to the interpretation being followed in administering the present law.

  The reference to individuals who operate farms demonstrates that in order to be considered self-employed an individual must be the operator of a farm. This is further evidenced by the statutory language of section 3121(b)(16) of the Code that provides the exception from employment applies to one who 'undertakes to produce' a crop. The typical share farmer has responsibility for a wide range of farming activities, including participation in the initial planning for the operation, and incurs out-of-pocket business- related expenses, as shown by the facts of Rev. Rul. 55-538. On the other hand, the migrant workers in the instant case are hired to perform only specific tasks. They do not undertake to produce the crop and they incur no business expenses. They are not the operators of the farm merely because they perform certain tasks relating to the cultivation and harvest of the cucumber crop.

  In Sachs v. United States, 422 F. Supp. 1092 (N.D. Ohio 1976), it was held, on facts similar to those under consideration herein, that migrant agricultural workers engaged to cultivate and pick cucumbers were not subject to FICA by reason of section 3121(b)(16) of the Code. The court was of the opinion that Congress intended the emphasis in determining whether a share-farming arrangement exists to be placed in the risk-sharing element. 422 F. Supp. at 1096.

  The Internal Revenue Service disagrees with the holding of Sachs relating to section 3121(b)(16) of the Code because the court focused on the risk-sharing element, which in that case was merely a risk to the extent of the worker's labor, and ignored the requirement of section 3121(b)(16)(A) that the individual 'undertake to produce.' The court failed to recognize that factors relevant to such requirement include whether the worker has responsibility for a wide range of farming activities and whether the worker incurred out-of- pocket business-related expenses such as are typical in a true share-farming arrangement. For this purpose, a worker has responsibility for an activity only if the worker participates in the decision-making process, such as with regard to the type of crops to be grown and the location of areas to be planted. Accordingly, the Service will not follow Sachs insofar as it relates to section 3121(b)(16).

HOLDING

  The services of the migrant agricultural workers performed under the circumstances described above are not excepted from the definition of employment by section 3121(b)(16) of the Code.

Rev. Rul. 85-85, 1985-1 C.B. 332, 1985-25 I.R.B. 9.