Rev. Rul. 58-270

Advice has been requested whether an individual, who is an employee of an organization exempt from income tax under sections 501(a) of the Internal Revenue Code of 1954 as an organization described in section 501(c)(3) thereof and which filed a valid certificate under section 3121(k) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954) prior to August 1, 1956 (the date of enactment of the Social Security Amendments of 1956), is precluded as a result of such filing from obtaining retroactive social security coverage under section 403(a) of the Social Security Amendments of 1954, as amended by the Social Security Amendments of 1956, if the individual and the employer-organization otherwise meet the tests prescribed under that section.

The instant organization is exempt from Federal income tax under section 501(a) of the Internal Revenue Code of 1954, and the corresponding provisions of prior revenue acts, as a religious organization as described in section 501(c)(3) of the Code. On September 12, 1954, the organization filed Form SS-15, Certificate Waiving Exemption from Taxes under the Federal Insurance Contributions Act (subchapter A, chapter 9, Internal Revenue Code of 1939), pursuant to the provisions of section 1426(1) (now section 3121(k)) of such Act. Thereafter, the organization filed returns and paid the taxes under the Federal Insurance Contributions Act in the mistaken belief that the waiver certificate which it had previously filed was valid. However, it was later determined by the District Director of Internal Revenue that such certificate was invalid for the reason that it had been concurred in by less than two-thirds of the individuals in the organization's employ at the time the waiver certificate was filed. A valid waiver certificate was thereafter filed on June 20, 1956, under section 3121(k) of the Act.

Under section 3121(k) of the Federal Insurance Contributions Act, any organization exempt from income tax under section 501(a) of the 1954 Code as an organization described in section 501(c)(3) may file a certificate certifying that it desires to have the insurance system established by title II of the Social Security Act extended to services performed by its employees, provided at least two-thirds of the employees, as computed at the time of filing the certificate, concur in such action. Such certificate is effective with respect to `wages' for services in `employment' performed by an employee whose signature appeared on the list filed by the organization or who became an employee of the organization after the calendar quarter in which the certificate was filed. Similar provisions are contained in section 1426(1) of the Federal Insurance Contributions Act, effective under the 1939 Code, with respect to organizations exempt from income tax under section 101(6) of the 1939 Code.

Section 403(a) of the Social Security Amendments of 1954, C.B. 1954-2, 603, at page 611, as amended by the Social Security Amendments of 1956, C.B. 1956-2, 1188, at page 1195, provides, in part, as follows:

IN ANY CASE IN WHICH-(1) an individual has been employed at any time subsequent to 1950 and prior to the enactment of the Social Security Amendments of 1956, by an organization which is described in section 501(c)(3) of the Internal Revenue Code of 1954 and which is exempt from income tax under section 501(a) of such Code but which has failed to file prior to the enactment of the Social Security Amendments of 1956 a valid waiver certificate under section 1426(l)(1) of the Internal Revenue Code of 1939 or section 3121(k)(1) of the Internal Revenue Code of 1954;

* the amount of such remuneration with respect to which such taxes have been paid shall, upon the request of such individual * * *, be deemed to constitute remuneration for employment * * *.

The purpose of section 403(a), supra , is to provide a means whereby an employee of an organization of the prescribed character may obtain retroactive social security coverage for certain periods after 1950 in situations where the organization had paid the taxes under the Federal Insurance Contributions Act in good faith but in the erroneous belief that it had waived its exemption from such taxes pursuant to the regular waiver procedure provided by section 1426(l) of the 1939 Code or section 3121(k) of the 1954 Code. Section 403(a) affords the only procedure whereby an employee may obtain retroactive coverage in such a situation inasmuch as the regular waiver procedure does not apply to past periods. Thus, an organization which believed it had filed a valid waiver certificate, but which had not actually done so, cannot correct its mistake for past periods by subsequently filing a valid waiver certificate. Relief in such a situation may be obtained by the employee only if he meets the tests prescribed by section 403(a) of the Social Security Amendments of 1954, as amended, and complies with the regulations prescribed thereunder.

The specific question presented is whether the language of section 403(a) contained in the clause, `but which has failed to file prior to the enactment of the Social Security Amendments of 1956 a valid waiver certificate' precludes coverage of the employees of the instant organization for any period prior to the effective date of the waiver (July 1, 1956) which it filed on June 20, 1956. In the opinion of the Internal Revenue Service, the above quoted clause merely describes the situation which brought about a need for the relief provided for in section 403(a) and indicates the period within which that situation must be found to exist if the relief is to be available. It does not require as a condition to the relief that the mistake which gave rise to the situation in the first place remain uncorrected to the date of the enactment of section 403(a), supra . Thus, the fact that the organization filed a waiver certificate before the date of the enactment of the 1956 Amendments which is valid as to a subsequent period is wholly without significance in determining whether the relief provided for in section 403(a) is available in the case of such an organization.

In view of the foregoing, it is held that the valid waiver certificate filed by the instant organization on June 20, 1956, does not preclude the application of section 403(a) of the Social Security Amendments of 1954, as amended by the Social Security Amendments of 1956, to the employees of such organization.