Rev. Rul. 54-369

Advice is requested whether an organization exempt from Federal income taxes under section 101(6) of the Internal Revenue Code of 1939 is by reason thereof also exempt from the payment of taxes imposed under the Federal Insurance Contributions Act (subchapter A, chapter 9, Internal Revenue Code of 1939) and the Federal Unemployment Tax Act (subchapter C, chapter 9, Internal Revenue Code of 1939), with respect to the wages it pays for services performed for a nonexempt partnership of which it is a member.

In the instant case, an office building jointly owned by an organization exempt from Federal income taxes under section 101(6) of the Code and an organization not so exempt is managed for the owners by a real estate agent under an oral agreement. Receipts and disbursements with respect to the building are credited and charged to a bank account carried in the agent's name as `Renting Agent.' The agent hires, supervises, and discharges the individuals performing services in connection with the building; pays workmen's compensation insurance for such individuals from the income from the building; and executes Federal income tax returns as rental agent on behalf of the building.

It is concluded from the facts presented that the real estate agent, acting as agent for the owners of the building, operates such building from the joint profit of the owners and that the employees are therefore performing services for such owners. See S.S.T. 92, C.B. 1937-1, 388.

Section 3797(a)(2) of the 1939 Code provides that the term `partnership' includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of the Code, a trust or estate or a corporation.

Where, as in the instant case, co-owners of income-producing real estate operate that real estate (either through an agent or one of their own number) for their joints profit, such operation results in the creation of a partnership, within the meaning of section 3797(a)(2) of the Code, with the co-owners as members thereof. See Rev. Rul. 54-170, C.B. 1954-1, 213. Manifestly then, the exempt organization and the nonexempt organization are co-employers of the partnership's employees. It does not follow, however, that because a partner is a co-owner of the firm's property and the co-employer of its employees, a portion of the services performed by such employees is allocable to him individually. On the contrary, such a conclusion is in conflict with the design of the Federal employment tax statutes which recognize the partnership, i.e., the aggregate of all the members thereof, and not each partner individually, as the employer of those hired to perform services for the firm. See sections 1426(f) of the Federal Insurance Contributions Act and 1607(k) of the Federal Unemployment Tax Act. Accordingly, the instant partnership, rather than each of its member organizations, is regarded as the employer of those individuals employed to perform services for the firm.

Inasmuch as the partnership is not an organization exempt from Federal income taxes under section 101(6) of the Code, services performed by its employees are not within the exception provided by sections 1426(b)(9) of the Federal Insurance Contributions Act and 1607(c)(8) of the Federal Unemployment Tax Act and payments made for such services are not exempt from the taxes imposed under such Acts.