Rev. Rul. 55-623

The Service has been asked to determine whether certain services on non-American vessels and aircraft owned by an American company are excepted from employment under the Federal Insurance Contributions Act and the Federal Unemployment Tax Act (subchapters A and C, respectively, chapter 9, Internal Revenue Code of 1939, and chapters 21 and 23, respectively, subtitle C, Internal Revenue Code of 1954).

An American company owns and operates vessels registered under the flags of several foreign countries and aircraft of foreign registry. Citizens of the United States, resident aliens, and nonresident aliens are employed as officers and crew members. In certain cases when a vessel is placed in `idle status' in an American port, the shipping articles under which the seamen are hired are temporarily suspended, and most members of the crew are released subject to recall when the vessel is returned to service. However, officers of the deck and engine departments, the chief steward, and, at times, the chief cook continue to perform services on or in connection with the vessel while it is in `idle status.' Occasionally, while a vessel is in `idle status,' in officer, not originally connected with the vessel, is hired to replace a regular officer and to proceed with the vessel when it is returned to service. Similar replacements of personnel are also made on the company's aircraft when the need arises.

Section 1426(b) of the Federal Insurance Contributions Act, applicable to services performed prior to 1955, contains the following exception from `employment,' as defined in such Act:

(5) Service performed by an individual on or in connection with a vessel not an American vessel, or on or in connection with an aircraft not an American aircraft, if the individual is employed on and in connection with such vessel or aircraft when outside the United States;

Effective January 1, 1955, section 3121(b) of the Federal Insurance Contributions Act extends coverage to United States citizens employed by American employers aboard vessels and aircraft of foreign registry by limiting the exception from `employment' as follows:

(4) service performed by an individual on or in connection with a vessel not an American vessel, or on or in connection with an aircraft not an American aircraft, if (A) the individual is employed on and in connection with such vessel or aircraft, when outside the United States and (B)(i) such individual is not a citizen of the United States or (ii) the employer is not an American employer;

Section 1607(c) of the Federal Unemployment Tax Act, applicable to services performed prior to 1955, contains the following exception from `employment,' as defined in such Act:

(4) Service performed on or in connection with a vessel not an American vessel by an employee, if the employee is employed on and in connection with such vessel when outside the United States;

Effective January 1, 1955, section 3306(c)(4) of the Federal Unemployment Tax Act contains identical provisions.

Services on or in connection with a foreign vessel or aircraft performed prior to 1955 by officers or members of the crew who are employed on and in connection with the vessel or aircraft when outside the United States are excepted from `employment,' for purposes of the taxes imposed by the Federal Insurance Contributions Act, by reason of the provisions of section 1426(b)(5) of such Act. This is true (1) whether the services are performed by an officer or crew member signed on at the beginning of a voyage or by another hired thereafter as a replacement, (2) whether the officer or crew member is or is not a citizen or resident of the United States, (3) whether the vessel is or is not in `idle status' in an American port when the particular services are performed, and (4) whether the employer is or is not an American employer.

Services on or in connection with a foreign vessel or aircraft performed in 1955 or subsequent years by officers or members of the crew who are employed on and in connection with the vessel or aircraft when outside the United States are excepted from `employment,' for purposes of the taxes imposed by the Federal Insurance Contributions Act, by reason of the provisions of section 3121(b)(4) of such Act, only if the employer is not an American employer or the employee is not a citizen of the United States. Where the employer is an American employer and the employee is a citizen of the United States, the services are not excepted under section 3121(b)(4). However, in determining whether the exception applies, it is immaterial (1) whether the officer or crew member was signed on at the beginning of the voyage or thereafter as a replacement, (2) whether the employee is or is not a resident of the United States, and (3) whether the vessel or aircraft is or is not in `idle status' when particular services are performed.

Services on or in connection with a foreign vessel performed before 1955 or after 1954 by officers or members of the crew who are employed on and in connection with the vessel when outside the United States are excepted from `employment,' for purposes of the tax imposed by the Federal Unemployment Tax Act, by reason of the provisions of section 1607(c)(4) of the Act as in effect before 1955, or section 3306(c)(4) of the Act as in effect after 1954. This is true (1) whether the services are performed by an officer or crew member signed on at the beginning of a voyage or by another hired thereafter as a replacement, (2) whether the employee or the employer is or is not a citizen or resident of the United States, and (3) whether the vessel is or is not in `idle status' when particular services are performed.

Services performed either before 1955 or after 1954 on or in connection with a foreign aircraft are not within the exception from `employment' provided in section 1607(c)(4) of the Federal Unemployment Tax Act as in effect before 1955, or section 3306(c)(4) of the Act as in effect after 1954. However, the term `employment,' as used in that Act as in effect before 1955 and after 1954, does not include any services performed outside the United States, except certain services performed on or in connection with an American vessel