Rev. Rul. 54-447

Advice is requested relative to the requirements for establishing a `qualifying quarter' for purposes of section 1426(b)(1)(A) of the Federal Insurance Contributions Act (subchapter A, chapter 9. Internal Revenue Code of 1939) and the conditions under which an employee's remuneration for `agricultural labor' constitutes `wages' subject to the taxes imposed under the act.

In the latter part of 1950 A, the owner of a farm, engaged B, a farm worker, to operate his farm beginning January 1, 1951. B actually began working in February 1951. Although under the original agreement B's compensation was to consist of one-third of the crops and livestock raised on the farm, cash advances against the shares were given to B and in July 1951 the agreement was modified to provide that B would be paid regular cash wages instead of a share of the farm products. By reason of the aforesaid cash advances, B's remuneration for services rendered during the year 1951 amounted to $50 or more during each of the calendar quarters of the year. He actually performed services on 60 or more days during only the second calendar quarter of the year. A exercised direction and control over B in the performance of his services to a degree sufficient to establish an employer-employee relationship under the usual common law rules, and such services constituted `agricultural labor' within the meaning of section 1426(h) of the act.

Under section 1426(b)(1)(A) of the act the term `employment' does not include `agricultural labor' performed in any calendar quarter after 1950 by an employee for his employer unless the cash remuneration for such labor (with certain specified exceptions not here material) is $50 or more and such labor is performed for an employer by an individual who is regularly employed by such employer to perform such agricultural labor. An individual is deemed to be regularly employed during a calendar quarter only if (i) he performs agricultural labor for his employer on a full time basis on 60 days during such quarter and (ii) the quarter was immediately preceded by a qualifying quarter.

`Qualifying quarter,' as used in section 1426(b)(1)(A)(ii) of the act, as amended, means a calendar quarter during all of which an individual is `continuously employed' by the same employer. The individual is considered `continuously employed' if there is an employer-employee relationship between him and his employer from the first to the last day of the calendar quarter. For the purpose of establishing a qualifying quarter it is immaterial whether the individual actually performs any services during the quarter or whether any services performed constitute agricultural labor. It is necessary only that during the entire calendar quarter there is a continuous relationship of employer and employee. Whether a `continuous relationship of employer and employee' exists between a farm operator and a farm worker during all of a calendar quarter is a question of fact determinable only on the basis of the provisions of the agreement between the parties and the relationship contemplated by them as established by such agreement.

Once a qualifying quarter has been established with respect to an employee, that employee will be regarded as `regularly employed' in each succeeding quarter in which he works 60 or more days, whether consecutive or not, on a full-time basis in agricultural labor for the same employer. Furthermore, he will be deemed to be regularly employed in the quarter following one in which he performs agricultural labor for the same employer on a full-time basis on 60 or more days even though in such following quarter he does not meet the 60-day test. When such test is not met, ordinarily it might be presumed that the chain of employment has been broken, in which event it would be necessary that a new qualifying quarter be established. However, a quarter in which the 60-day test is not met nevertheless may constitute a `qualifying quarter,' for purposes of the following quarter, if during such quarter a `continuous relationship of employer and employee' actually existed between the parties by reason of the provisions of the employment agreement.

Under section 1426(a)(8) of the act remuneration paid for agricultural labor in any medium other than cash (such as a share of the farm produce, furnishing of living quarters, meals, etc.) does not constitute taxable wages. However, where cash advances are made to an employee engaged under a crop-sharing agreement with the specific understanding that such advances are chargeable against the employee's share of the produce and will be taken into account at the time of final settlement, the amounts so advanced are to be treated as payments of cash wages. Furthermore, where an individual is engaged under a crop-sharing agreement, remuneration is considered to be payable to him for each workday of the period during which the agreement is in effect and each workday of each calendar quarter in that period is to be counted as 1 day to determine whether the individual has met the 60-day test.

It is held in the instant case that B was continuously employed by A from January 1, 1951, the date when the employment agreement became effective, until the date of termination and that the first quarter of 1951 constituted the initial `qualifying quarter.' It is also held that B is to be regarded as having performed `agricultural labor' for A on each workday of the period during which the crop-sharing agreement was in effect, and that the cash paid to him as advances against his share of the produce should be treated as payments of cash wages earned during the calendar year of 1951. With the exception of the amount determined to have been earned in the first, or qualifying quarter, such wages were taxable in the quarter when the earned wages actually were paid in cash in the amount of $50 or more.