Rev. Rul. 58-505

Advice has been requested as to the status, for Federal employment tax purposes, of officers of an insurance company with respect to services performed by them in selling insurance for the company.

The M company is engaged in the sale of insurance policies. The president and the secretary of the company receive salaries for certain administrative services they perform as officers of the company. Separate and apart from such duties, the two officers also sell insurance policies under the company's standard agents' contracts. They are paid for such sales in exactly the same manner as the company pays its regular agents, that is, by a certain commission on each policy sold. The officers are not required, as a part of their official duties, to write insurance for the company. The salary paid to such officers is not related in any way to their services in writing applications for insurance policies. The company does not have the right to discharge them as employees insofar as their selling activities are concerned, but their services in this respect may be terminated by themselves or the company upon giving 30 days' notice by either party. The company has no right to control or direct them in their selling activities either as to the result to be accomplished or as to the details and means by which that result is accomplished.

Under the regulations applicable to the Federal employment taxes, an officer of a corporation is, in that capacity, an employee thereof unless he performs no services or performs minor services and he does not receive or is not entitled to receive remuneration, directly or indirectly. Therefore, the officers, as such, here involved are employees of the company for the purposes of the Federal employment taxes under the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, Subtitle C, Internal Revenue Code of 1954).

As to their sales services, such services, standing alone, are not performed under a degree of direction and control sufficient to constitute the individuals as employees for such activities under the usual common law rules for Federal employment tax purposes.

The question to be resolved is whether their services in the two capacities (as officers and as sales agents) are interrelated. If their services are found to be interrelated, then it could not be said that they were acting in two separate and distinct activities. Interrelated services which, as a whole, contain the elements establishing the existence of a common law relationship of employer and employee would result in a conclusion that, with respect to all services performed by the individuals, they are employees for Federal employment tax purposes. If, however, the services in the two capacities are separate and distinct, that is, if there is no interrelation either as to duties or remuneration in the two capacities, then the status of each type of service must be considered separately.

In the instant case, based on the facts presented, it is concluded that the services performed by the president and the secretary of the company as officers and as salesmen are not interrelated and that they are, therefore, performing services in two separate and unrelated capacities. Accordingly, they are not employees of the company with respect to the services which they perform for it in selling insurance and the remuneration they receive for such services is not wages for purposes of the Federal employment taxes. Compare Rev. Rul. 58-360, page 423.

The Federal Insurance Contributions Act (but not the Federal Unemployment Tax Act and the Collection of Income Tax at Source on Wages) contains a special statutory provision (section 3121(d)(3) (B)) which includes in the definition of `employee' a full-time life insurance agent who is not an employee under the usual common law rules applicable in determining the employer-employee relationship.

Under the sales agent contracts between the company and the two officers, it was not the intention of the company that they should be `full-time life insurance agents.' Furthermore, as a matter of fact they do not perform services as such. Therefore, as to the sales activities of the officers, they are not statutory employees under section 3121(d)(3)(B) of the Federal Insurance Contributions Act. Income received from such activities constitutes income from a trade or business. Such income, therefore, is subject to the tax imposed on self-employment income by section 1401 of the Code. See Rev. Rul. 54-309, C.B. 1954-2, 261.