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Rev. Rul. 1970-337 Document Info Printer

Revenue Rulings
Internal Revenue Service
 Revenue Ruling

Rev. Rul. 70-337

1970-1 C.B. 191

IRS Headnote

Bonuses paid by a manufacturing company to salesmen employed by dealers
engaged in selling the company's products are not wages for purposes of
FICA, FUTA, and income tax withholding; S.S.T. 206 superseded. 

Full Text

Rev. Rul. 70-337 /1/ 

The purpose of this Revenue Ruling is to update and restate, under the
current statute and regulations, the position set forth in S.S.T. 206, C.B.
1937-2, 451. 

The question presented is whether amounts paid by a company under the
circumstances described below are "wages" for purposes of the Federal
Insurance Contribution Act, the Federal Unemployment Tax Act, and the
Collection of Income Tax at Source on Wages (chapters 21, 23, and 24,
respectively, subtitle C, International Revenue Code of 1954). 

The company, a manufacturer, agreed with various dealers engaged in selling
its products to pay a "bonus" to each of the dealers' salesmen whose sales
reach a certain volume. No other remuneration is paid by the company to the
salesmen of the dealers nor does it have the right to exercise any control
over them. The salesmen are hired and paid by the dealers, are entirely
under their control, and are, therefore, employees of the dealers under the
usual common law rules applicable in determining the employer-employee
relationship. The company sometimes sends "bonus" checks to the individual
salesmen and at other times it authorizes the dealers to pay the "bonuses"
to the salesmen who qualify and reimburses the dealers for the amounts so
paid. 

With exceptions not material here, sections 3121(a) and 3306(b) of the
above-mentioned Acts, respectively, define the term "wages" as all
remuneration for employment, and sections 3121(b) and 3306(c) of the Acts,
respectively, define "employment" as any service, of whatever nature,
performed by an employee for the person employing him. 

With exceptions not material here, section 3401(a) of the Code defines
"wages" as all remuneration for services performed by an employee for his
employer. 

Section 31.3121(a)-1(c) of the Employment Tax Regulations relating to the
Federal Insurance Contributions Act provides, in part, as follows: 

The name by which the remuneration for employment is designated is
immaterial. Thus, salaries, fees, bonuses, and commissions on sales or on
insurance premiums, are wages if paid as compensation for employment. 

Similar provisions are found in the regulations relating to the Federal
Unemployment Tax Act and the Collection of Income Tax at Source on Wages. 

In order for remuneration to be "wages" for purposes of the Federal
Insurance Contribution Act and the Federal Unemployment Tax Act, it must be
remuneration for services in employment, performed by an employee for the
person employing him. In order for remuneration to be "wages" for income
tax withholding purposes it must be for services performed by an employee
for his employer (other than an employer as defined in section 3401(d)(1)
of the Code). 

Section 3401(d)(1) of the Code provides in part, that if the person for
whom the individual performs or performed the services does not have
control of the payment of the wages for such services, the term "employer"
(except for the purpose of the definition of "wages") means the person
having control of the payment of such wages. 

Under the facts presented, the company is not the employer of the salesmen
within the meaning of section 3401(d)(1) of the Code. 

The "bonuses" paid to the salesmen by the company, whether directly or
through an agent (the dealer), are not remuneration for services performed
for the dealer who employs the salesmen, but are remuneration for services
rendered to the company. Under the facts presented, the salesmen are not
employees of the company under the usual common law rule and, therefore,
the "bonuses" paid by it to the salesmen employed by the dealers are not
wages for purposes of the Federal Insurance Contributions Act, the Federal
Unemployment Tax Act, and the Collection of Income Tax at Source on Wages. 

S.S.T. 206 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.

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