Rev. Rul. 55-585

A question has been received by the Internal Revenue Service as to the effect of section 3121(a) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954), relative to wages paid employees by a predecessor employer being considered attributable to a successor employer for purposes of the $4,200 wage limitation, in a situation where the predecessor employer, a corporation, does not dissolve but remains dormant.

In the instant case, the X corporation acquired the merchandise inventory, equipment, and premises' lease of the Y corporation on August 1, 1954, and has, since that date, continued the operation of the latter's manufacturing business. Former employees of the Y corporation have been employed by the X corporation. The Y corporation did not dissolve upon the transfer of its property to its successor but remains dormant, having as its principal asset a 25 percent interest in the capital stock of X corporation, the purchase price of the predecessor corporation's property acquired by the successor corporation.

In defining wages subject to the taxes imposed by the Act, section 3121(a)(1) prescribes a limitation of $4,200 for such wages. It also provides that the wages paid by a predecessor employer to an employee should be treated as having been paid to such employee by a successor employer if (1) the successor during the calendar year acquired substantially all of the property used in a trade or business, or used in a separate unit of a trade or business, of the predecessor; (2) such employee was employed in the trade or business of the predecessor immediately prior to the acquisition and is employed by the successor in his trade or business immediately after the acquisition; and (3) such wages were paid during the calendar year in which the acquisition occurred and prior to such acquisition.

Since these three conditions are met in the instant case, the wages paid by Y , the predecessor employer, to its employees are considered as having been paid to such employees by X , the successor employer, for purposes of the $4,200 wage limitation provided by section 3121(a) of the Act. The fact that the predecessor employer does not dissolve, but remains as a dormant corporation, is immaterial for purposes of the above section of the Act