Rev. Rul. 70-483

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in S.S.T. 246, C.B. 1938-1, 438.

The question presented is whether services performed by employees of the M fire association, organized to protect the forest land of its members in the State of Oregon, are excepted from "employment" under the provisions of section 3121(b)(7) of the Federal Insurance Contributions Act and section 3306(c)(7) of the Federal Unemployment Tax Act (chapters 21 and 23, respectively, subtitle C, Internal Revenue Code of 1954).

The M fire association was organized as a result of the Oregon law that requires all forest land in the State to be adequately protected from the dangers of fire.

Section 477.001 et seq. of the Oregon Revised Statutes provides, in part, that all forest land inadequately protected from fire, which by reason of its situation or condition or lack of protection endangers life or property, is declared to be a public nuisance. Whenever the State Forester or his authorized representative learns thereof he shall direct the owner or operator of such forest land to take proper steps for its protection and advise him of means to that end. In the case of refusal or neglect by either to take precautions against fire required by law or directed by the forester within 10 days after written notice has been given, the forester or any warden, acting with consent of the forester, may have such work done as he considers necessary for the protection of life or property, summarily, without the necessity of court action.

The cost of work and the expense of any patrol rendered necessary by the lack of adequate protection of such forest land shall be recoverable from the offender by an action prosecuted in the name of the State.

An owner or operator of forest land will be considered to have complied with the adequate protection provisions of the Statute if he (1) files with the forester a bona fide forest protection plan which meets the approval of the State Board of Forestry or (2) is a member in good standing in a forest protection association maintaining a standard of protection approved by the State Board of Forestry.

The M fire association was organized under the laws of Oregon as a non-profit corporation with the object of providing fire protection for the forest land of its members and for the advancement of the timber industry in the State. The by-laws of the association provide that any person, firm, or corporation owning or having an interest either as principal or agent in the ownership or management of timberlands within the limits of the territory of the association shall be eligible for membership in the association, and that the funds to defray the expenses of the association shall be raised by assessment on its members.

After the association was organized it entered into contracts with both the State and Federal Government which contained among other things, the following terms:

1. The M association will give the same consideration in protection of all the lands within its boundaries whether those lands belong to the members of the association or to the State of Oregon.

2. The M association through its organization must not only protect its own members' lands but also lands belonging to the Federal Government against fire and trespass.

3. Each employee except temporary fire fighters will be appointed as a State fire warden and charged with the enforcement of State forest laws.

4. The association will receive only actual cost on the basis of work performed.

Section 3121(b)(7) of the Federal Insurance Contributions Act excepts from "employment" service performed in the employ of a State, or any political subdivision thereof, or any instrumentality of any one or more of the foregoing which is wholly owned thereby, with exceptions not here material. Section 3306(c)(7) of the Federal Unemployment Tax Act contains a similar provision.

While M fire association was organized as a result of Oregon law, it was organized and operated for the mutual benefit of its members. Except for the work it performs on a cost basis for the State and Federal Government, the association derives most of its support from assessments made on its members. These facts do not support a finding that the association is an instrumentality of the State, or a political subdivision thereof.

Accordingly, it is held that the services performed by the employees of the M fire association are not excepted from "employment" under sections 3121(b)(7) and 3306(c)(7) of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, respectively.

S.S.T. 246 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.