Rev. Rul. 57-108

Advice has been requested by an individual whether payments received by him from tourists for the occupancy of beach dwellings, under the conditions and circumstances set forth below, are to be included in determining net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954).

In the instant case, the individual owns several beach dwellings which he rents during the summer months to tourists and other persons on vacation. These dwellings are large enough to accommodate from six to thirteen people and are completely furnished, including linens, silverware, cooking utensils, etc. They are rented for periods of one day, one week or two weeks. The usual necessary services are performed with respect to the dwellings after each occupancy in getting them ready for new guests. Maid service is supplied to guests, but some of the guests prefer to do their own cleaning. Many other services are rendered for the guests for their convenience and comfort, especially in connection with their recreational activities. Such services include instruction in swimming, boating and fishing, conducting fishing parties, delivering messages and mail, furnishing bus schedules and church information and any other services deemed necessary for the convenience and comfort of the guests. No separate charges are made or tips accepted for such services.

Section 1402(a) of the Act defines the term `net earnings from self-employment' as gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by subtitle A of the Code which are attributable to such trade or business plus his distributive share of certain income or loss from any trade or business carried on by a partnership of which he is a member, with certain exclusions.

Paragraph (1) of section 1402(a), supra , excludes from net earnings from self-employment rentals from real estate and from personal property leased with the real estate, together with deductions attributable thereto, unless such rentals are received in the course of a trade or business as a real estate dealer.

Section 1.1402(a)-1(c)1(iii) of the Income Tax Regulations relating to rentals from real estate provides, in part, that payments for the use or occupancy of rooms or other space where services are also rendered to the occupant, such as for the use or occupancy of rooms or other quarters in hotels, boarding houses, or apartment houses furnishing hotel services, or in tourist camps or tourist homes, or for the use or occupancy of space in parking lots, warehouses, or storage garages, do not constitute rentals from real estate; consequently, such payments are included in determining net earnings from self-employment. See Rev. Rul. 55-559, C.B. 1955-2, 315. Generally, services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only. The supplying of maid service, for example, constitutes such service, whereas, the furnishing of heat and light, the cleaning of public entrances, exits, stairways and lobbies, the collection of trash, etc., are not considered as services rendered to the occupant.

It is concluded that the various services rendered to the guests in the instant case, when considered in the aggregate, constitute services which are primarily for the convenience of the guests and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only within the meaning of the regulations. Accordingly, it is held that the rental income received by the individual under the circumstances does not constitute excluded rentals from real estate and such rental income should be included in computing net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954.