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Revenue Ruling 71-273 1, 1971-1 CB 286

REV-RUL, Who are employees., Revenue Ruling 71-274 ¹, 1971-1 CB 287, (Jan. 01, 1971)

Revenue Ruling 71-274 1, 1971-1 CB 287

Section 3121.--Definitions

26 CFR 31.3121(d)-1: Who are employees.
(Also Sections 3306, 3401; 31.3306(i)-1, 31.3401(c)-1.)
An individual who contracts to furnish men and equipment to cut, skid, and haul timber for a company that exercises no control or supervision over the individual's operation methods is not an employee of the company; S.S.T. 399 superseded.

[Text]

The purpose of this ruling is to update and restate, under the current statute and regulations, the position set forth in S.S.T. 399, C.B. 1940-2, 248.

The question presented is whether A, an individual who is engaged under contract to cut, skid, and haul timber for a company, is an employee of the company for purposes of 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, respectively, subtitle C, Internal Revenue Code of 1954).

The company, the owner of a large tract of timber land, entered into a contract with A for removal of the timber and delivery of the logs to the company's sawmill. The contract provided that A would have the exclusive right to cut, skid, and haul all of the merchantable timber growing on the tract. A, in turn, agreed that he would cut and deliver the logs to the company sawmill within a specified time. A was to be paid an agreed amount for each thousand board feet of timber cut and delivered.

For purposes of carrying out the terms of the contract, A erected camp buildings at his own expense where he housed and fed the logging crew, which was composed of about 30 men who were hired, paid, and controlled by him. A furnished all the necessary tools and equipment for the logging operation, including axes, saws, tractors, and trucks. A had entered into a number of similar contracts with other persons in the past, and was known as a "logging contractor."

An individual is an employee for Federal employment tax purposes if he has the status of employee under the usual common law rules applicable in determining the employer-employee relationship. Guides for determining that status are found in three substantially similar sections of the Employment Tax Regulations: namely, sections 31.3121(d)-1, 31.3306(i)-1, and 31.3401(c)-1. As stated in the regulations, generally the relationship of employer and employee exists when the person for whom the services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. In general, if an individual is subject to the control or direction of another merely as to the results to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee under the usual common law rules.

Under the terms of the contract, A is given the right and is legally obligated to remove all of the merchantable timber from the tract of land owned by the company. The company neither exercise nor has the right to exercise control over the means and methods by which A is to accomplish that result. All of the equipment necessary for the operation is furnished by A and all of the operating expenses are borne by him. A hires, pays, and controls the members of the logging crew with respect to all the details of their work. Moreover, A offers his services to others and is known as a "logging contractor" to the general public.

Accordingly, it is held that A is not an employee of the company for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax Act Source on Wages. However, A is, for employment tax purposes, the employer of the individuals comprising the logging crew. See Rev. Rul. 71-273, page 286, this Bulletin.

S.S.T. 399 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

1 Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.