Rev. Rul. 65-139

Advice has been requested regarding the Federal income tax status of payments to enrollees in work-training programs established under Title I-B of the Economic Opportunity Act of 1964, Public Law 88-452, 42 U.S.C. 2701.

The purpose of these work-training programs is to provide useful work experience opportunities for unemployed men and women between the ages of 16 and 22 through participation in State and community work-training programs, so that their employability may be increased or their education resumed or continued. As a result of these programs, it is expected that public agencies and private nonprofit organizations will be enabled to carry out programs which will permit or contribute to an undertaking or service in the public interest that would not otherwise be provided, or will contribute to the conservation and development of natural resources and recreational areas.

Enrollees in the programs are employed either on publicly owned and operated facilities or projects, or on local projects sponsored by private nonprofit organizations. A work-training project must not result in the displacement of employed workers or impair existing contracts for services. Wage rates and other conditions of employment must be appropriate and reasonable in light of such factors as the type of work performed, geographical region, and proficiency of the employee. Enrollees are paid wages by the sponsor for work performed and the sponsor receives reimbursement for such wages within the limits set forth in section 115 of the act.

Section 61(a) of the Internal Revenue Code of 1954 provides in part that gross income means all income from whatever source derived, including compensation for services.

It is apparent that an employer-employee relationship exists between the sponsors of the work-training programs and the participants in such programs. Enrollees receive wages for services performed, even though such services may embody some degree of training.

Accordingly, it is concluded that payments made to enrollees in work-training programs under Title I-B of the Economic Opportunity Act of 1964 are compensation for services which are includible in the gross income of the enrollees under section 61(a) of the Code and are subject to the withholding of income tax at source on wages.