Rev. Rul. 54-615

Advice has been requested whether the actual construction of houses should be considered a normal extension of an individual's professional engineering practice and thus excluded from the term `trade or business' by the provisions of section 481(c)(5) of the Self-Employment Contributions Act (subchapter E, chapter 1, Internal Revenue Code of 1939).

In the instant case the individual, a duly qualified and practicing professional engineer, is also engaged in the general contracting business. As a general contractor, the individual builds houses and other structures and contracts to install machinery and equipment. His general contracting business is obtained because he is the lowest bidder and is in no way dependent upon his engineering qualifications.

Section 481(c)(5) of the Self-Employment Contributions Act excludes from the term `trade or business,' when used with reference to self-employment income or net earnings from self-employment, the performance of service by an individual or partnership in the exercise of certain professions, among which is that of professional engineer.

It is not uncommon to find persons practicing one of the excluded professions engaged, in addition, in sideline activities not in themselves so excluded. There is no precise line of demarcation between activities which are a normal extension of the excluded profession and activities which actually constitute a separate trade or business. The answer in each case must be ascertained from an analysis of all the surrounding facts and circumstances, including a review of the customs and practices of the particular profession under consideration. See Rev. Rul. 276, C.B. 1953-2, 88.

In the instant case, the individual conducts a contracting business separate and apart from the exercise of his professional engineering services. That an individual be a professional engineer is not generally a prerequisite to one engaging in business as a construction or general contract. Such business may be, and frequently is, carried on by one-professional persons.

In view of the foregoing, it is concluded that the individual's general contracting business is not a normal extension of the exercise of his profession as a professional engineer. It necessarily follows that the individual's activities as a general contractor constitute a `trade or business' within the meaning of section 481(c) of the Self-Employment Contributions Act. Accordingly, that portion of his total income, to the extent provided by section 481(b) of the Act, which is attributable to his general contracting business constitutes net earnings from self-employment subject to the tax imposed by the Self-Employment Contributions Act.