Rev. Rul. 74-390

Advice has been requested regarding the employment status of three individuals who are officers of a management corporation and of five related brother-sister operating corporations 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).

Each operating corporation owns and operates, with its own employees, a radio station in a different city in the United States. Pursuant to a contract between the management corporation and each operating corporation, the management corporation determines the overall policies of the related corporations as well as making general programming decisions, arranging for national advertising contracts, solving major engineering problems, and handling all bookkeeping and disbursements. For these services, the management corporation receives a reasonable fee from each operating corporation to reimburse the management corporation for all expenses involved and to give it a small profit.

The three individuals are officers of both the management corporation and each of the related operating corporations and, in their latter capacities they perform only ministerial duties such as signing the contracts negotiated by the management corporation and routine reports for appropriate government agencies prepared by the management corporation. The time consumed in these duties in the course of a year is only a few hours. The officers are paid solely by the management corporation. A substantial portion of the services rendered by the management corporation to the operating corporations is performed by employees of the management corporation who are not officers of the related operating corporations. In addition, each operating corporation has a vice president selected by its board of directors who supervises its employees in operating the radio station.

Section 3121(d)(1) of the Federal Insurance Contributions Act and section 3401(c) of the Code, relating to income tax withholding, include in the definition of "employee" any officer of a corporation. Section 3306(i) of the Federal Unemployment Tax Act provides, with certain exceptions not here material, that the term "employee" has the same meaning assigned to such term by section 3121(d) of the Federal Insurance Contributions Act.

Sections 31.3121(d)-1(b), 31.3306(i)-1(e), and 31.3401(c)-1(f) of the Employment Tax Regulations provide that generally, an officer of a corporation is an employee of the corporation. However, an officer of a corporation who as such does not perform any services or performs only minor services and who neither receives nor is entitled to receive, directly or indirectly, any remuneration is considered not to be an employee of the corporation.

Rev. Rul. 69-316, 1969-1 C.B. 263, holds, in part, in Group (3), that executives who are officers of both a parent and a subsidiary corporation, perform substantial services for both, and receive remuneration from the parent, are employees of both the parent and the subsidiary corporations for purposes of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act. Rev. Rul. 73-162, 1973-1 C.B. 417, states that the holdings in Rev. Rul. 69-316 are applicable to brother-sister corporations in the same manner as they are to parent-subsidiary corporations.

In determining whether services actually performed by a corporate officer in that capacity may be considered to be of a minor or nominal nature the character of the services, the frequency and duration of their performance, and the actual or potential importance or necessity of the services in relation to the conduct of the corporation's business, are the primary elements to be considered. Thus, occasional, routine signing of documents, presiding over or attendance at infrequent meetings, and similar isolated or noncontinuous acts having no significant bearing or effect on the day-to-day functioning of the corporation in the conduct of its business, will be considered, as a general rule, to be services of a minor or nominal nature.

Under the facts in this case the services performed by the three officers under the management contracts with the operating corporations are services performed for the management corporation and cannot be attributed to the operating corporations. The only services performed by the individuals as officers of the operating corporations that are properly attributable to such corporations are the minor ministerial functions described above entailing a few hours work during the course of a year. These services are minor within the meaning of the regulations and Rev. Rul. 69-316 cited above. In addition, the officers are paid only by the management corporation and only for the services they perform for the management corporation. Accordingly, the three individuals in the instant case are employees of the management corporation but not of the operating corporations for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.