Rev. Rul. 58-177

Advice has been requested as to the status, for Federal employment tax purposes, of an individual who serves as a salesman of general insurance on the industrial or debit plan for two insurance companies under the circumstances stated below.

The M life insurance company and the N fire insurance company (two related companies) engaged A as an insurance salesman to solicit and sell their respective types of insurance and to make regular collections of premiums from the policyholders assigned to him. A performs his services for the M company pursuant to the terms of a written agreement designated `Agent's Contract.' The contract provides, among other things, that the company authorizes A to solicit applications for insurance in the company and to collect the initial payments due on the applications; that the company may from time to time prescribe rules respecting the eligibility of applicants for insurance and it is understood by the agent that applications not in accordance therewith shall be rejected; and that the agent shall be free at all times to exercise his own judgment as to the persons solicited and as to the method of solicitation. As compensation for services performed, the contract provides that A shall receive certain commissions based on collections of premiums and the sale of insurance policies. The contract provides that the agency may be terminated at any time by either party giving notice.

The contract entered into between A and the N fire insurance company (designated as a contract of employment) indicates that the company agrees to remunerate A on the same commission basis as the M life insurance company. This contract contains a statement to the effect that an agent, in accepting a position with the company, agrees and understands that he will faithfully follow all instructions of the company and that the agency may be terminated at any time by either party giving notice.

The information submitted discloses that A's services for both companies are performed basically under identical circumstances. He may perform his services for both companies anywhere within a specified county and is not required to conform to any particular schedule of work hours. He is required to visit the office to remit his collections on Tuesdays of each week, submit his reports of collections, lapse schedules, etc., on Thursdays, and receive his earnings every Friday. The companies employ salaried individuals to demonstrate, from time to time, approved selling methods for the benefit of their agents. A is provided desk space and the necessary forms and collection books to be used in his work, but otherwise he pays all expenses incurred in such work. The collection book forms provide spaces for recording the amounts collected each week from each policyholder and payments in arrears as well as those made in advance. It is contemplated by the agreement that substantially all of the services will be performed by A personally. A does not perform services for any other firm or individual, but divides his entire working time in the sale of life and fire insurance between the two companies.

Section 3121(d) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954) provides, among other things, that the term `employee' means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. The guides for determining, under such rules, whether an employer-employee relationship exist are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.

While A , under his agreement with the companies, enjoys a certain degree of freedom as to the individuals to be contacted in the sale of policies and in establishing his routine of work, it is the opinion of the Internal Revenue Service, in view of the training A receives from company personnel, the records he is required to keep, the reports he is required to submit, the office space and forms provided for his use by the companies, and the fact that his relationship with the companies may be terminated by them at any time, that he is not operating as an independent contractor but is subject to the supervision and control of the two companies in question to the extent necessary to establish the relationship of employer and employee under the common law rules referred to above. See Rev. Rul. 58-176, page 349. Accordingly, it is held that A is an employee of the M life insurance company and the N fire insurance company for purposes of the Federal Insurance Contributions Act, supra . This conclusion is also applicable for purposes of the Collection of Income Tax at Source on Wages (chapter 24, subtitle C, Internal Revenue Code of 1954). See Revenue Ruling 54-312, C.B. 1954-2, 327, where under different facts the relationship between a full-time life insurance salesman and the company he represented was such that he was held to be an independent contractor.

Section 3306(c)(14) of the Federal Unemployment Tax Act (chapter 23, subtitle C, Internal Revenue Code of 1954) excepts from the term `employment,' as defined in such Act, services performed by an individual for a person as an insurance agent or as an insurance solicitor, if all such services are performed for remuneration solely by way of commission. The services performed by A for the companies referred to herein come within this exception in any year during which remuneration for his services is solely by way of commission.