Rev. Rul. 58-495

Advice has been requested whether earnings for services donated by employees under an industry-wide fund-raising plan are includible in gross income as defined in section 61 of the Internal Revenue Code of 1954 and subject to the withholding of income tax for purposes of the Collection of Income Tax at Source on Wages (chapter 24, subtitle C, of the Code).

The labor-management committee of a particular industry, with the approval of the employees concerned, has developed a plan for raising funds for community welfare activities. The plan provides that each participating employee will donate one hour's pay per day for a period of five days, as a contribution to such activities. Each employee subscribing to the plan will receive no compensation for these five hours of work. Instead, the employer will make payment for such work to a designated charitable organization which is exempt from Federal income tax as an organization described in section 501(c)(3) of the Code. In addition, the employer will contribute for such purposes an amount equal to one-half of the value of the contributions made by his employees.

Under section 61 of the Code, gross income includes, among other items, all compensation for personal services unless specifically excluded by other provisions of the Code. Section 1.61-2(c) of the Income Tax Regulations provides:

`The value of services is not includible in gross income when such services are rendered directly and gratuitously to an organization described in section 170(c). Where, however, pursuant to an agreement or understanding, services are rendered to a person for the benefit of an organization described in section 170(c) and an amount for such services is paid to such organization by the person to whom the services are rendered, the amount so paid constitutes income to the person performing the services.'

Accordingly, it is held that amounts earned by employees with respect to services donated for charitable purposes under the fund-raising plan of the instant case are includible in gross income for Federal income tax purposes and subject to the withholding of income tax under section 3402 of the Code even though such earnings are paid directly to a tax-exempt charitable organization by the employer. Compare Rev. Rul. 71, C.B. 1953-1, 18, and Rev. Rul. 57-135, C.B. 1957-1,307.