Rev. Rul. 58-176

The Internal Revenue Service has been requested to state its position with respect to the status, for purposes of the Federal employment tax statutes, of an agent who sells insurance for an association under circumstances similar to those under which industrial insurance agents perform services.

The instant association is engaged in writing accident and health insurance throughout the state in which it is organized. It operates on a so-called membership basis. Each agent or solicitor operates within the territory assigned to him and performs his services pursuant to the terms of a written contract. The agent's duties consist of selling insurance (memberships) and collecting premiums on all old and new business in his particular territory. He is given a debit book containing the names and addresses of the association's policyholders for the regular collections of accounts and for servicing their policies. The agent calls at the association's office weekly to report collections and submit new applications for insurance received by him during the week. The agent is paid a commission of 2 x percent on all premiums collected by him on both new and old business. The agent deducts his commission from collections at the end of each week and remits the balance of the collections to the association. The agent performs his services on a full-time basis. He is required to canvass his assigned territory with specified frequency, to call on particular customers or prospects and to attend weekly sales meetings or conferences. The association furnishes the agent with stationery and all forms required in his work. Either party may terminate the contract at any time.

Under section 3121(d) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954), the term `employee' means, among other things, any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. Whether an individual is an employee depends upon the particular facts in each case. The guides for determining whether an employer-employee relationship exists are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.

The agent in the instant case is engaged in the sale of insurance under circumstances analogous to those under which industrial insurance agents perform services. This is evidenced by the facts that he makes weekly collections, operates under the debit system, is required to make weekly reports with respect to his collections for the association, is encouraged by the terms of his contract to prevent lapses in his accounts, and works in a territory assigned to him. It is the position of the Service that agents engaged in the sale of insurance on the industrial plan are generally to be held to be employees with respect to the performance of such services. Accordingly, and on the basis of the facts presented, it is concluded that the association in the instant case exercises or has the right to exercise such control over the agent in the performance of his services as is necessary to establish the relationship of employer and employee. Therefore, it is held that the agent is an employee of the association for purposes of the taxes imposed under the Federal Insurance Contributions Act and for purposes of the Collection of Income Tax at Source on Wages (chapter 24, subtitle C, Internal Revenue Code of 1954).

Inasmuch as the agent in the instant case is remunerated for the services he performs for the association solely by way of commission, his services are excepted from `employment' under the Federal Unemployment Tax Act (chapter 23, subtitle C, Internal Revenue Code of 1954) by reason of the provisions of section 3306(c)(14) of that act.

See Rev. Rul. 58-175, page 28, which determines the status of an industrial insurance debit salesman for purposes of determining adjusted gross income under the provisions of section 62(2)(D) of the Code.