Rev. Rul. 68-123

Advice has been requested whether, under the circumstances set forth below, amounts received from a hospital for services performed by a registered nurse who is a member of a religious organization exempt from Federal income tax are excludable from her gross income under section 61(a) of the Internal Revenue Code of 1954.

Taxpayer, a registered nurse, is a member of a religious organization (`Society') exempt from Federal income tax under section 501(c)(3) of the Code. The Society's members include persons, such as taxpayer, who intend to make membership in the Society their life's work. A purpose of the Society is to provide personnel to missions, hospitals, schools, and social work agencies. Its by-laws, which control the activities of the taxpayer, provide, in relevant part, that all salaries earned by members are to be placed in the Society's treasury to be used in its work and for its benefit. The taxpayer has no right to direct the disposition of any of the funds of the Society.

Taxpayer was assigned by the Society's director to serve as a registered nurse in a hospital which was in need of doctors and nurses. The details of her daily activities while working there were under the supervision of the hospital. The Society, however, made all arrangements for taxpayer's assignment to the hospital and at all times she remained under the Society's general direction and control. She was subject to dismissal as a member of the Society if she refused to perform her assignments. Although the Society requested that the hospital pay taxpayer's payroll check to it, the hospital issued the checks directly to taxpayer. Upon receipt of each check taxpayer immediately endorsed them over to the Society.

Section 61(a) of the Code provides, in pertinent part, that gross income means all income from whatever source derived, including compensation for services.

Revenue Ruling 57-135, C.B. 1957-1, 307, holds that amounts remitted to a religious organization by a hospital for services performed for the hospital by volunteer unpaid workers, who are assigned by the religious organization to render such services, are not `wages' for Federal Insurance Contributions Act and income tax withholding purposes and are not includible in the gross income of the volunteer workers.

Revenue Ruling 71, C.B. 1953-1, 18, discusses a situation where an individual is under an obligation entered into in good faith for purposes other than avoidance of the percentage limitation on charitable contributions deductions, and as an incident of his normal duties and obligations his superior makes his services available to a third party, payment being made to the superior. The Revenue Ruling holds that if the individual does not participate directly or indirectly in the contract pursuant to which his services are made available to the third party and if he has no right to receive or direct the use or disposition of the amounts so paid, such amounts are not includible in his gross income.

The facts in the instant case are substantially similar to those in Revenue Ruling 57-135 and Revenue Ruling 71. It is apparent that taxpayer was performing services for the hospital as agent of the Society since at all times she remained under its general direction and control. Because of this relationship she had no right to receive or direct the use or disposition of the checks issued to her by the hospital for her own benefit.

Accordingly, under the circumstances described above, amounts received from the hospital by the registered nurse are excludable from her gross income under section 61(a) of the Code and not wages subject to withholding of income tax under section 3402(a) of the Code.