Rev. Rul. 55-559

An inquiry has been received relative to the treatment for purposes of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954) of income received by an individual from the rental of space in an office building.

In the instant case, an individual owns an office building from which he derives income from the rental of space. The building is not held for sale in the course of a trade or business as a real estate dealer, but is held solely for investment purposes. He provides heat, water and electricity to the occupants of the buildings, as well as a trash and garbage collection service, and he employs a full-time janitor.

Section 1402(a)(1) of the Code provides that in computing net earnings from self-employment, rentals from real estate and from personal property leased with the real estate, together with deductions attributable thereto, shall be excluded unless such rentals are received in the course of a trade or business as a real estate dealer.

Since the individual in the instant case is not in a trade or business as a real estate dealer, any income which he receives from the operation of the office building which constitutes `rentals from real estate' is not to be included in computing net earnings from self-employment.

In defining rentals from real estate, section 39.481(c)(1) of Regulations 118, applicable to the provisions of the Internal Revenue Code of 1954 by virtue of T.D. 6091, C.B. 1954-2, 47, provides that payments for the use or occupancy of rooms or other space where services are also rendered to the occupant, such as for the use or occupancy of rooms or other quarters in hotels, boarding houses, etc., do not constitute rentals from real estate and, consequently, such payments are included in determining net earnings from self-employment. Generally, services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only, such as maid service. However, the furnishing of heat and light, the cleaning of public entrances, exits, stairways and lobbies, the collection of trash, and so forth, are not considered as services rendered to the occupant.

In the instant case, the furnishing of such items at heat, water and electricity, as well as a trash and garbage collection service, to the occupants of offices in the building does not constitute services rendered to the occupants as contemplated by the regulations referred to above, notwithstanding the fact that a janitor is employed by the building owner on a full-time basis.

Accordingly, it is held that income received by an individual, who is not a real estate dealer, from the rental of space in an office building constitutes rentals from real estate and is excluded in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954, where no services are rendered to the occupants thereof