Rev. Rul. 55-642

Advice has been requested with respect to the treatment for Federal income tax purposes of an award won in a contest which was established for the purpose of selling a company's product. Specifically, the taxpayer inquires whether, under section 1301 or section 1302 of the Internal Revenue Code of 1954, he may compute the tax attributable to the award as if it had been received ratably over a period of several years.

The contest in question, which involved some original and creative work based on research, mathematical ability, art, and skill in obtaining material and creating and constructing original answer word solutions, began in November 1951 and ended in September 1954. The award was made in 1955.

Section 1301(a)(1) of the 1954 Code provides that section 1301 applies to an individual or partnership that `engages in an employment as defined in subsection (b).'

Section 1301(b) provides:

DEFINITION OF AN EMPLOYMENT.-For purposes of this section, the term `an employment' means an arrangement or series of arrangements for the performance of personal services by an individual or partnership to effect a particular result, regardless of the number of sources from which compensation therefor is obtained.

Section 1301(a)(2) father restricts the applicability of section 1301 to such employment as covers a period of 36 months or more from the beginning to the completion thereof.

Section 1302(b)(2) provides that for the purposes of the benefits allowed under section 1302 the term `artistic work' means a literary, musical, or artistic composition or a copyright covering a composition of such type.

In the instant case, the efforts of the taxpayer that resulted in his winning the award were not `an employment' as defined in section 1301(b), as they neither were pursuant to an arrangement or series of arrangements to effect a particular result nor constituted personal services. See E. Phillips Oppenheim v. Commissioner , 31 B.T.A. 563. In addition, the work did not cover a period of 36 months or more. Therefore, the award may not be treated for Federal income taxes in the manner provided by section 1301 of the 1954 Code.

The taxpayer also is not entitled to the benefits of section 1302 of the 1954 Code since his efforts have not resulted in an invention or a literary, musical or artistic composition within the usually accepted meaning of those terms.

Accordingly, it is held that the taxpayer is not entitled to the benefits of either section 1301 or section 1302 in respect to the award