Rev. Rul. 58-360

Advice has been requested as to the status, for purposes of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954), of fees collected by Federal court reporters from the sale of official transcripts of court proceedings.

Court reporters in Federal district courts are appointed by the judges of the courts which they respectively serve pursuant to section 753 of Title 28 of the United States Code. They are required by law to perform certain basic duties for which they are remunerated on a salary basis from funds appropriated by the Congress. Such duties are (1) to be present in court at all times when it is sitting to record the proceedings therein; (2) to orally or in writing transcribe, without charge, such proceedings, in whole or in part, at the request of the judge; (3) to transcribe, without charge, pleas and sentencing proceedings in criminal cases; (4) to file with the clerk of the court a free copy of any transcription made; (5) to file the original shorthand notes of any proceeding with the clerk of the court; and (6) to file with the Administrative Office of the United States Courts a statement concerning their income and expenses.

In addition to the statutory wage received for the performance of the above described duties, the reporter receives income from fees charged for furnishing official transcript of recorded proceedings to those persons ordering them, including those ordered by the court in certain cases. The maximum page fees charged for such transcripts are prescribed by the Judicial Conference. However, in certain instances such as in cases of an unduly long trial, or those requiring daily copy or voluminous transcription, the reporter retains bargaining power in that fees charged are the result of an agreement, albeit subject to the court's approval, between the reporter and the person ordering the transcript. Transcripts ordered by any person, other than the judge, are generally billed to that person. The reporter may request payment in advance from such person and may refuse to furnish the transcript if the prescribed or agreed upon fee is not then paid.

The taxes imposed by the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954) attach to `wages' paid for `employment,' as those terms are defined in section 3121 of that Act. Section 3121(b)(6)(A) of the Act excepts from `employment' services performed in the employ of the United States or any instrumentality thereof, if such services are covered by a retirement system established by a law of the United States. Section 3122 of the Act provides, with respect to services performed in the employ of the United States or a wholly-owned instrumentality thereof, that the determination or a wholly-owned instrumentality services which constitute `employment,' as defined in section 3121(b), and the determination of the amount of remuneration for such services which constitute `wages,' as defined in section 3121(a), shall be made by the head of the Federal agency or instrumentality having control of such services or by such agents as he may designate. See Revenue Ruling 56-615, C.B. 1956-2, 565. However, determinations made by Federal agencies under section 3122 are not controlling for the purposes of the Self-Employment Contributions Act of 1954.

On the basis of the facts presented herein, it is the position of the Internal Revenue Service that Federal court reporters operate in a dual capacity. They are employees with respect to the performance of their basic statutory duties as described in (1) through (6) above and independent contractors with respect to the other preparation and sale of official transcripts. To a large extent, the over-all income of the reporter is dependent upon his own initiative and ingenuity and neither the courts nor the Judicial Conference prescribe or supervise the manner and means of accomplishment. Whether the reporter produces typewritten or mimeographed transcripts, or whether, in some instances, the transcription is done by an outside reporting firm on the basis of a contract with the official reporter are maters within the discretion of the official reporter. It is solely within the reporter's discretion to require payment in advance for transcripts ordered and, in the absence of such advance payment where requested, there is no duty to prepare and furnish such transcripts.

The tax imposed by the Self-Employment Contributions Act is applicable to the `net earnings from self-employment' derived by an individual (other than a non-resident alien) from a trade or business carried on by him as sole proprietor or by a partnership of which he is a member, subject to certain exclusions, exceptions and limitations.

It is held that fees received by Federal court reporters from the preparation and sale of official transcripts represent income from a trade or business, such activity being aside from their basic duties for which they receive a statutory wage, and that such income is includible in computing net earnings from self-employment for purposes of the tax on self-employment income. This ruling is equally applicable in determining the status of official state court reporters for self-employment tax purposes where the facts are not substantially different from the facts of the instant case.