Rev. Rul. 55-630

The question has been presented whether a nonprofit charitable organization that is exempt from Federal income tax under section 101(6) of the Internal Revenue Code of 1939, but which has waived its exemption from the taxes imposed under the Federal Insurance Contributions Act (subchapter A, chapter 9, Internal Revenue Code of 1939), pursuant to the provisions of section 1426(1) of the Act, should include the fair value of living quarters and meals furnished to its employees in computing their wages subject to the taxes imposed under the Act.

A nonprofit charitable organization, exempt from Federal income tax under section 101(6) of the Code, filed a waiver of exemption certificate, pursuant to section 1426(1) of the Federal Insurance Contributions Act, certifying that it desired to have the insurance system established by Title II of the Social Security Act extended to services performed by its employees. The organization maintains a home for aged blind persons who cannot continue to live in their own homes because of financial or other reasons and it furnishes living quarters and meals to certain of its employees, including employees performing services of a domestic nature in or about the home. The question has arisen whether, under the provisions of section 1426(a)(7)(A) of the Act, the value of the living quarters and meals so furnished should be excluded in computing the wages of the organization's employees for Federal Insurance Contributions Act purposes.

Section 1426(a) of the Act provides that the term `wages' means all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash; except that such term shall not include-

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(7)(A) Remuneration paid in any medium other than cash to an employee for service not in the course of the employer's trade or business or for domestic service in a private home of the employer * * *.

The organization has expressed the opinion that section 1426(a)(7)(A) of the Act is applicable to service performed in the employ of any organization exempt from Federal income tax under section 101(6) of the Code, on the theory that a nonprofit charitable organization is not engaged in a `trade or business.' It contends, therefore, that the services performed by its employees are `not in the course of the employer's trade or business.' It also contends that the value of living quarters and meals furnished the individuals performing services of a domestic nature in the home maintained by the organization is not subject to the taxes imposed under the Act because such value represents remuneration paid in a medium other than cash `for domestic service in a private home of the employer' within the meaning of section 1426(a)(7)(A), supra .

Section 1426(b) of the Act provides that the term `employment' means * * * any service, of whatever nature, performed after 1950 * * * except that * * * such term shall not include-

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(9)(B) Service performed in the employ of a religious, charitable, educational, or other organization exempt from income tax under section 101(6), but this subparagraph shall not apply to service performed during the period for which a certificate, filed pursuant to subsection (1), is in effect if such service is performed by an employee (i) whose signature appears on the list filed by such organization under subsection (1), or (ii) who became an employee of such organization after the calendar quarter in which the certificate was filed;

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(11)(A) Service performed in any calendar quarter in the employ of any organization exempt from income tax under section 101, if the remuneration for such service is less than $50;

The exceptions set forth in section 1426(a)(7)(A) of the Act are not applicable to the factual situation here under consideration for the reasons that:

(1) The employees of the organization who perform services in connection with the maintenance of a home for, and care of, persons admitted to the organization's home for aged blind persons are promoting or advancing the purposes for which the organization was established, i.g. , they are performing services in the course of the organization's `trade or business' within the meaning of that term as used in the Federal employment tax statutes. Although an organization exempt from Federal income tax under section 101(6) of the Code must be organized and operated exclusively for one or more of the purposes specified, and an organization organized or operated for the primary purpose of carrying on a trade or business for profit is not exempt thereunder, it does not follow that the usual and regular activities of a nonprofit charitable organization in carrying out the purpose for which it was organized do not constitute a `trade or business' within the meaning of that term as used in section 1426(a)(7)(A) of the Act. `Business' is defined in Black's Law Dictionary as embracing everything about which a person can be employed. Thus, in the instant case, the maintenance of a residence for aged blind persons who cannot continue to live in their own homes is, for Federal employment tax purposes, the `trade or business' of the organization. Since this `trade or business' is not carried on for profit and as the organization otherwise meets the tests required by section 39.101(6)-1 of Regulations 118, it qualifies for exemption from Federal income Tax. Such exemption, therefore, is not based upon the fact that the organization is not engaged in a trade or business, but in part upon the fact that it is not engaged in a trade or business for profit .

(2) Section 1426(b)(9)(B) of the Act is applicable to service performed in the employ of an organization exempt from income tax under section 101(6) of the Code, if the organization has not filed a certificate, pursuant to section 1426(1) of the Act, waiving its exemption from the taxes imposed under the Act. Conversely, section 1426(b)(11)(A) of the Act is applicable in the case of employees of a section 101(6) organization which has filed such a certificate waiving its exemption from the taxes imposed under the Act. Furthermore, section 1426(b)(11)(A) excepts from employment service performed in any calendar quarter in the employ of any section 101 organization if the remuneration (including the cash value of all remuneration paid in any medium other than cash) for such service is less than $50. However, section 1426(a)(7)(A) provides a different test by excluding from wages remuneration paid in any medium other than cash to an employee for service not in the course of the employer's trade or business (see also section 1426(b)(3)), or for domestic service in a private home of the employer (see also section 1426(a)(7)(B)). This distinction within the framework of the statute is believed to be a clear indication of the intent of Congress that service performed in the employ of any organization exempt from income tax under section 101 of the Code should not be considered as `service not in the course of the employer's trade or business or for domestic service in a private home of the employer.'

(3) Section 408.227(h), Regulations 128, provides that a private home is a `fixed place of abode of an individual or family.' Individuals employed to perform services of a domestic nature in or about eleemosynary institutions are not performing services in the `private home of the employer' as contemplated by the Federal employment tax statutes. The organization, and not the beneficiaries of the charitable purposes of the organization, is the employer of the employees concerned.

Accordingly, it is concluded that a nonprofit charitable organization, exempt from Federal income tax under section 101(6) of the Internal Revenue Code of 1939, which has waived its exemption from the taxes imposed under the Federal Insurance Contributions Act pursuant to the provisions of section 1426(1) of such Act, should include the fair value of living quarters and meals furnished to its employees in computing their wages subject to the taxes imposed under the Act.

Procedures for the social security coverage of individuals employed by certain exempt organizations. See Rev. Rul. 55-473, page 425