Rev. Rul. 74-608

Advice has been requested whether an individual is self-employed and engaged in a trade or business, under the circumstances described below, for purposes of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954). Advice has also been requested whether the individual is self-employed for purposes of the Self-Employed Individuals Tax Retirement Act of 1962, section 2, 1962-3 C.B. 89, 90.

The individual is an elected tax collector in State S. He is elected for a four year term of office and is responsible for collecting the county, township, and school district taxes in his electoral district. He is required by the State's statutes to take an oath of office, to post a surety bond with S for all taxes collected, to keep a correct account of all taxes collected, and to report and pay over to the treasurer of each taxing authority all taxes collected for that authority during the previous monthly period. S's statutes authorize the payment, as remuneration for the collection of these taxes, of a salary, wage, or commission to be fixed by the taxing authority that is not to exceed 5 percent of the total amount collected. His remuneration for his term of office is a fixed percentage of the amounts collected and turned over to each of the taxing authorities; specifically, 3 percent from the county, 4 percent from the township, and 2.8 percent from the school district.

His remuneration from the school district is subject to social security contributions by virtue of S's agreement with the Secretary of Health, Education, and Welfare, entered into pursuant to section 218 of the Social Security Act, as Amended, 42 U.S.C. 418 (1970). The agreement specifically excludes the services performed for the township and county and, as a result, the remuneration he receives from the township and county is not subject to such contributions.

Section 1402(a) of the Self-Employment Contributions Act of 1954 defines the term "net earnings from self-employment," in pertinent part, as the gross income of an individual from any trade or business carried on by him, less the income tax deductions allowed which are attributable to such trade or business.

Section 1402(c)(1) of the Self-Employment Contributions Act of 1954 provides, in part, that the term "trade or business," when used with reference to self-employment income or net earnings from self-employment, shall not include the performance of functions of a public office, other than the functions of a public office of a State or political subdivision thereof with respect to fees received in any period in which the functions are performed in a position compensated solely on a fee basis and in which such functions are not covered under an agreement pursuant to section 218 of the Social Security Act as referenced above.

Section 1.1402(c)-2 of the Income Tax Regulations provides, in part, that the term "public office" includes any elective or appointive office of a State or its political subdivisions or of a wholly owned instrumentality of any one or more of the foregoing.

For purposes of the Self-Employed Individuals Tax Retirement Act of 1962, section 401(c) of the Internal Revenue Code furnishes definitions and rules relating to self-employed individuals. Generally speaking, section 401(c) of the Code provides, in part, that an individual is self-employed within its meaning if he has "net earnings from self-employment" as that term is defined in section 1402(a) (of the Self-Employment Contributions Act of 1954) with certain modifications not here material.

When a public official receives his remuneration in the form of fees directly from the members of the public with whom he does business, such remuneration is "fees" within the meaning of section 1402(c)(1) of the Act. When, however, a public official receives his remuneration or salary from a government fund and no portion of the monies collected by him belongs to or can be retained by him as compensation, the remuneration is not "fees" under section 1402(c)(1).

In this case the individual is a public officer who does not receive his remuneration in the form of fees directly from the members of the public with whom he does business. No portion of the monies collected by him can be retained as compensation. Instead, his renumeration is received from government funds.

Accordingly, the individual is not engaged in a "trade or business" for purposes of section 1402(c) of the Self-Employment Contributions Act of 1954 and he does not have "net earnings from self-employment" for purposes of section 1402(a) of that Act. Further, his income does not meet the definitional requirements of a self-employed person contained in section 401(c) of the Internal Revenue Code for purposes of the Self-Employed Individuals Tax Retirement Act of 1962.