In this tax refund case the question of law for decision is whether an officer of a corporation must necessarily (per se) be treated as an employee or only may be so treated according to the circumstances of the case, within the meaning of the Social Security Act, 42 U.S.C.A. § 1101, 49 Stat. 639, which imposes a tax on “Employers of Eight or More”. During the tax years here involved the corporate taxpayer had three officers and seven employees. The question was presented to the United States District Court for the Eastern District of Virginia and is here on appeal in the particular situation now to be stated.
The Gresham Court Apartment House Corporation was formed under the laws of Virginia. In 1933 its capital stock was closely held by a few persons, and its activities consisted only of the ownership and operation of a building containing fifty-five apartments in Richmond, Virginia.
When the stock of the corporation was sold in 1945 the purchaser, on learning that the corporation had not paid the taxes here in question, insisted that the stockholders provide the money to pay the amount ($2153.52) claimed by the Collector of Internal Revenue to be due for taxes, penalty and interest under the Social Security Act and the Federal Unemployment Tax Act for the years 1937 to 1944.
After the tax had been paid to the Collector the corporation was dissolved and its further affairs placed in the hands of three trustees for liquidation, who are the appellees in this case. They promptly filed a petition for the refund of the taxes and this being denied, suit was brought by them in the court below to recover the amount that had been paid. After hearing evidence from a number of witnesses without any opposing evidence offered on behalf of the United States, the District Judge found as a fact that the only services performed by any of the officers within the tax period were purely nominal and without any actual compensation or right to compensation from the corporation. He concluded as a matter of law that an officer of a corporation is not per se an employee of the corporation within the meaning of the Act; and that on the facts found they did not have the employer-employee relationship to the corporation. He therefore ordered judgment in favor of the plaintiffs for $2153.52, being the total amount which had been paid. Thereupon the United States has entered its appeal to this court.
The taxing act with which we are here concerned was originally imposed as an excise tax by Title IX of the Social Security Act of 1935. 49 Stat. 620, 639 ; 42 U.S.C.A. § 1101 et seq. In 1939 it was incorporated in the Internal Revenue Code, §§ 1600-1611, 26 U.S.C.A. §§ 1600-1611, where it is named the “Federal Unemployment Tax Act”. In imposing the tax section 901 of the Act of 1935 read: “On and after January 1, 1936, every employer (as defined in section 907) shall pay for each calendar year an excise tax, with respect to having individuals in his employ, equal to the following percentages of the total wages (as defined in section 907) payable by him (regardless of the time of payment) with respect to employment (as defined in section 907) during such calendar year.”
Section 907 defined certain words as follows :
“(a) The term ‘employer’ does not include any person unless on each of some twenty days during the taxable year, each day being in a different calendar week, the total number of individuals who were in his employ for some portion of the day (whether or not at the same moment of time) was eight or more.
“(b) The term ‘wages’ means all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash.
“(c) The term ‘employment’ means any service, of whatever nature, performedwithin the United States by an employee for his employer” (with certain exceptions not here involved);
It is to be noted that the statute in expressing the incidence of the tax does not impose it upon an employer of eight or more “employees” but of eight or more individuals. And the word “employee” is not itself defined in the list of definitions contained in Title IX, 42 U.S.C.A. § 1101 et seq; However, in Title XI of the Social Security Act under the heading of “General Provisions” section 1101(a) (6) defined the term “employee” as follows: “The term ‘employee’ includes an officer of a corporation”. 42 U.S.C.A. § 1301(a) (6). As the incidence of the tax is not expressed to be on a person employing eight or more employees, it has 'been doubted that the definition of “employee” in section 1101(a) (6) is itself really applicable to the case. 1 But as it seems to have ‘been very generally assumed in the adjudicated cases that in substantial effect the intention was to impose the tax on employers of eight or more employees, and as the main contention of the appellant in this case is based on that assumption, we will also assume its correctness for the purposes of this casе.
By sec. 908 of Title IX the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, was authorized to make and publish rules and regulations for the enforcement of the title. Pursuant thereto, Treasury Regulation 90, Art. 205 entitled “Employed Individuals” provided among other things “an officer of a corporation is an employee of the corporation”, and Treasury Regulation 107 promulgated under the Federal Unemployment Act, section 403.204 entitled “Who are employees” is to the same effect. 2
The evidence in the case consisted of a stipulation of facts and some uncontradicted oral testimony. The District Judge made special findings of fact which, with respect to the compensation and services of the officers, may be briefly summarized. During the years in question, 1937 to 1944 both inclusive, each and all of the three officers of the corporation rendered only nominal services without compensation. Their principal activities consisted in their attendance at some of the annual meetings of the stockholders and directors, signing ten stock certificates during the eight years, and signing checks. The business of the corporation, the operation of the apartment house, was competеntly managed by a full-time manager and the officers, were required to give little, if any, attention to its affairs in the years in question; and all of them were fully and actively occupied in other gainful occupations. What little services they performed were of a minor or nominal nature having no material bearing or effect upon the functioning of the corporation in the conduct of its business. Unless these findings of fact by the District Judge are determined to be clearly erroneous they must be accepted here for the purpose of the decision. 3 Examination of the record shows that they are amply supрorted by the evidence.
On these facts it is clear enough that no one of the officers was an employee of the corporation in the ordinary understanding of that word or when tested by the common-law incidents of the relationship of employer and employee. While this point is not conceded by appellant’s counsel, its correctness was not seriously challenged in the oral argument. It is amply legally supported. Such minor services as the officers performed were only those performed by virtue of their offices pursuant to the maintenance of the corporate organization as distinct from conduct of business by the corporation. In Shriver v. Carlin & Fulton Co.,
The appellant’s principal contention is that by force of the statutory definition and the regulation all the officers of a corporation are always and per se employees of the corporation. This was the position originally taken by the Commissioner of Internal Revenue and maintained by him until 1946 when he published Mimeograph
The problem is one of statutory interpretation, the ultimate objective of which is to ascertain the intention of Congress. A very important consideration is the nature of the legislation and the main object sought to be accomplished. In Title IX оf the Social Security Act Congress was levying a tax on wages for the principal purpose of providing either directly, or indirectly through State legislation, a fund to relieve unemployment distress. The tax is measured by a percentage of the wages. If no wages are paid by the employer, no tax is due. As was said by Judge Dobie for this court in Magruder v. Yellow Cab Co., 4 Cir.,
In the instant case the officers of the corporation received no salaries or other compensation for their very nominal services. In National Wooden Box Ass’n v. United States,
The principal argument based on the statutory definition is that it is really meaningless and pure surplusage unless we give it the meaning that an officer must always be an employee; because, apart from the definition, an officer of a corporation may or may not be an employee dependent on the circumstances of the рarticular case. This, we have seen, is true; but it was by reason of and not despite the uncertainty of connotation of the word that the definition was put into" the statute.
6
Without the definition the argument would have been open to taxpayers that an officer of a corporation was never to be classed as an employee. Title IX of the Social Security Act was, as we have pointed out, enacted in contemplation of State statutes, present or prospective. Congress must have been aware of numerous decisions to. the effect that under particular statutes the term “еmployee” was held to exclude corporate officers.
7
The meaning and purpose of the definition is well expressed by Judge Sibley in Independent Petroleum Corp. v. Fly,
In National Wooden Box Ass’n v. United States,
We think it also very significant that the 'Commissioner himself, in view of the trend of judicial decisions, apparently abandoned his original per se doctrine of corporate officers as employees, by publishing on January 4, 1946, A and C Mimeograph Coll. No. 5967, 1946-1, Cum. Bull 255, in which, for the guidance of Collectors of Internal Revenue, it was stated that officers of a corporation who perform no services or only services of a minor or nominal nature without .receiving or being entitled to receive remuneration in any form, “will not be considered as employees of the corporation either because of such services or because of having the status of officers.” 9
The appellant’s final contention is that, even if, in accordance with the majority of judicial decisions heretofore rendered, officers of the corporation are not per se employees, they were made so by a Joint Resolution of 'Congress, June 14, 1948,
10
amending the statutory definition of “employee” as contained in section 1607 (i) of 26 U.S.C.A., so that it now reads: “The term ‘employee’ includes an officer of a corporation, but such term does not include (1) any individual who, under the usual common-law rules applicable in de
That the purpose of the resolution was not to expand the coverage of the Taxing Act is clear enough from the title of the resolution which was expressed to be “To maintain the status quo”. In subsection (a) of the resolution Congress was evidently concerned with the status of an independent contractor as an employee. A number of federal judicial decisions, including one in this court, had held that an independent contractor was not an employee within the meaning of the Social Security Act. Magruder v. Yellow Cab Co.,
It seems probable that Congress passed subsection (a) of the Jоint Resolution for the purpose of making it entirely clear that an individual, who by common-law rules had the status of an independent contractor, was not to be considered as an employee under the Act.
We, therefore, conclude that the 1948 Amendment did not in any respect change the status of an officer of the corporation
For these reasons the judgment appealed from must be
Affirmed.
Notes
. Independent Petroleum Corp. v. Fly, 5 Cir.,
. The full text of the regulation is:
“Sec. 403.20'4. Who are employees.— Every individual is an employee if the realtionship between him and the person for whom he performs services is the legal relationship of employer and employee. * * *
“Generally such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that re-suit is accomplished. That is, an employеe is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general, if an individual is subject to. the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee. * * *
“No distinction is made between classes or grades of employees. Thus superintendents, managers, and other superior employees are employees. An officer of a corporation is an employee of the corporation but a director as such is not. A director may bе an employee of the corporation,' however, if he performs services for the corporation other than those required by attendance at and participation in meetings of the board of directors.”
. Federal Rules of Civil Procedure, Rule 52(a), 28 U.S.C.A.
. District Court cases supporting the per se doctrine are Adorable Beauty School v. United States, D.C.S.D.Tex.1942,
. In that case the district court had held that drivers of a particular taxicab company who were not paid wages by the cab-owner but paid to the cab owner a certain sum for the use of the cab, were independent contractors and not employees and therefore as they received no wages their earnings were not subject to the tax.
. The word “includes” in the definition is itself ambiguous in the context of the whole statute. It is not synonymous with the word “means”. Harris v. State,
. See 71 C.J. 508, and
. It appears that Congress in passing the Social Security Act had the same understanding of the reason for including the definition of employee. Thus it appears in the appendix to the House Committee’s Report on the 1948 Amendment (later to be noted), as follows: “In the Bill as reported out by the Committee and enacted as the Social Security Act * * * the present provision (section 1101(a) (6) ) was adopted that—‘The term “employee” includes an officer of a corporation’. Again referring to Webster’s Dictionary, it is apparent why the phrase ‘includes an officer of a corporation’ was used. For the definition is: ‘One who works for wages or salary in the service of an employer—distinguished from official or officer’. It is significant in this respect that the dictionary, following the common-law concept of master and servant, would exclude an officer of a corporation from the definition of ‘employee’ unless the term were defined to include such officers.” H.Rep.No.1318, 80th Cong. 2d.Sess. p. 7.
. The full text of the mimeograph reads' аs follows: “Considering the trend of judicial opinion it has been decided that the Bureau’s position, stated in Paragraph 1 of this mimeograph, should no longer be adhered to and, effective immediately, that position is hereby abandoned. A&O-Mimeograph Coll. No. 5723, dated June 27, 1944, hereby is revoked. Officers of a corporation who, as such, perform no services and receive no remuneration in any form, are not to be considered, in their capacity as officers, as employees of the corporation for employment tax purposes. Similarly, officers of a corporation who, as such, perform some services of a minor or nominal nature but without consideration or remuneration in any form and who are not entitled to remuneration, will not be considered as employees of the corporation either because of such services or because of having the status of officers.”
. Public Law 642, 80th Cong. ch. 468, 2d Sess., 62 Stat. 438, the title of which was “To maintain the status quo in respect of certain employment taxes and social-security benefits pending action by Congress on extended social-security coverage.” Sec. 2(b) of the Joint Resolution, 42 U.S.C.A. § 1301 note, reads as follows: “The amendment made by subsеction (a) shall have the same effect as if included in the Social Security Act on August 14, 1935, the date of its enactment.”
. Without the parenthetical phrase the definition of employee would have been as follows: “The term ‘employee’.includes an officer of a corporation but such term does not include * * * any individual who is not an employee under such common-law rules.” But as has been noted, at least under some judicial decisions an officer of a corporation was not an employee by the test of common-law rules. Thus without the parenthetical exception the definition would be self-contradictory in first stating in effect that the officer may and later that he may not be considered an employee.
. See also Anglim v. Empire Star Mines Co., 9 Cir.,
. United States v. Silk,