Rev. Rul. 79-318

ISSUE

Are services performed within the United States by Canadian citizen employees for a Canadian employer "employment" for purposes of section 3121 of the Internal Revenue Code, relating to the Federal Insurance Contributions Act?

FACTS

A Canadian company employs Canadian citizens as truck drivers for the delivery and pick up of shipments in the United States. In every pay period each employee performs services for less than one-half of the pay period within the United States.

LAW AND ANALYSIS

Section 3121(b) of the Code provides generally, that the term "employment" includes (A) any service performed by an employee for an employer, irrespective of the citizenship or residence of either, within the United States or (B) outside the United States by a citizen of the United States as an employee for an American employer. Section 3121(b) then lists 20 specific exceptions to the definition of employment, none of which are applicable to the above facts.

Immediately following the list of exceptions in section 3121(b) of the Code, section 3121(c) provides for the treatment of "included and excluded" service performed for an employer within a single pay period. Under section 3121(c), if the services performed during one-half or more of any pay period by an employee constitute employment, all of the services performed during such period shall be deemed to be employment; but if the services performed during more than one-half of a pay period by an employee do not constitute employment, then none of the services shall be deemed to be employment.

The included/excluded rule in section 3121(c) of the Code applies only to services that are performed either within the United States or outside the United States by a United States citizen for an American employer and are included or excluded depending on the various specific exceptions provided in section 3121(b). See Inter-City Truck Lines, Ltd. v. U.S., 408 F.2d 686 (Ct. Cl. 1969). Since services performed outside the United States by a foreign citizen for a foreign employer do not fall within the scope of this included/excluded rule, section 3121(c) does not apply in this case.

This matter is not affected by the Tax Convention between the United States and Canada. T.D. 5206, 1943 C.B. 526. See Rev. Rul. 56-609, 1956-2 C.B. 1066, which holds that the provisions of the Tax Convention do not affect taxes imposed by the Federal Insurance Contributions Act.

HOLDING

The services performed within the United States by the Canadian citizens for the Canadian company are "employment" for purposes of section 3121(b) of the Code.