William E. Schramm, et al. v. Commissioner, TC Memo 2011-212 , Code Sec(s) 62; 67; 162; 3121.

WILLIAM EDWARD SCHRAMM AND STELLA LOGAN SHERROUSE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent .

Case Information:

Code Sec(s):       62; 67; 162; 3121

Docket:                Docket No. 8938-09.

Date Issued:       08/30/2011

Judge:   Opinion by RUWE

HEADNOTE

XX.

Reference(s): Code Sec. 62 ; Code Sec. 67 ; Code Sec. 162 ; Code Sec. 3121

Syllabus

Official Tax Court Syllabus

Counsel

William Edward Schramm and Stella Logan Sherrouse, pro sese.

Caroline R. Krivacka, for respondent.

Opinion by RUWE

MEMORANDUM FINDINGS OF FACT AND OPINION

Respondent determined a $3,913 deficiency in petitioners' 2006 Federal income tax. 1 After a concession by respondent, the amount of the deficiency in dispute is approximately $700. The issues for decision are: (1) Whether William Edward Schramm (petitioner) was a statutory employee 2 of Nova Southeastern University (NSU) during the taxable year 2006; and (2) whether petitioners are entitled to deduct claimed business expenses of $2,785.63 pertaining to petitioner's employment with NSU on Schedule C as profit or loss from a business, or whether such expenses should be reported on Schedule A as itemized deductions for taxable year 2006.

Unless otherwise indicated, all section references are to the Internal Revenue Code as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference.

At the time the petition was filed, petitioners resided in Tennessee.

Petitioner was an adjunct professor at NSU during 2006 and taught online courses in economics. From 1999 to 2007 petitioner taught 4 to 12 online courses per year for NSU. NSU and petitioner entered into a separate employment contract with regard to each course that petitioner taught. During 2006 the period of each contract was 6 weeks. As a condition of his employment, NSU required petitioner to follow various employment policies, including a sexual harassment policy, a drug policy, and a conflict of interest policy. NSU paid petitioner a fixed amount for each course that he taught. In 2006 petitioner received $20,000 from NSU.

NSU provided petitioner with a syllabus for each course he taught that specified the material that was to be covered. Petitioner prepared another more detailed syllabus to set forth specifics regarding the class, such as the assignments and examinations. Petitioner established his own work hours and was able to perform his work from any location via a computer with an Internet connection. However, NSU set the course dates, which established the period within which petitioner's classes were to begin and conclude. NSU also supplied the Web site interface that was used for each course petitioner taught and the services necessary to register and enroll students in the courses. Following the completion of a course, petitioner was required to submit to NSU a report that included an evaluation of his students' learning.

NSU issued petitioner a Form W-2, Wage and Tax Statement, relating to his employment with the university during 2006. On the Form W-2, NSU did not check box 13 to indicate that petitioner was a statutory employee. NSU withheld Federal income taxes and employment taxes from the wages it paid to petitioner during the 2006 taxable year.

On or about January 3, 2007, petitioner wrote to NSU requesting clarification of his employment status with the university. On January 8, 2007, NSU's payroll manager, Linda Trosper (Ms. Trosper), sent him a letter advising him that NSU classifies all of its adjunct professors, including petitioner, as employees and not as statutory employees or independent contractors. NSU's decision regarding the classification of employees was in conformity with an SS-8 ruling 3 the Internal Revenue Service (IRS) issued on June 10, 2003, regarding another adjunct professor who taught online courses at NSU. In that SS-8 ruling, the IRS determined that the adjunct professor was a common law employee and, therefore, was not a statutory employee. In her letter to petitioner, Ms. Trosper indicated that she agreed with the IRS' decision in the SS-8 ruling to classify adjunct professors as employees.

On their 2006 Federal income tax return, petitioners reported the amounts petitioner received from NSU as business income on Schedule C, Profit or Loss From Business, rather than on line 7 of the return as wages, salaries, tips, etc. In addition, petitioners claimed business expenses on Schedule C totaling $2,785.63, which were related to petitioner's employment with NSU.

OPINION

An individual performing services as an employee may deduct expenses incurred in the performance of services as an employee as miscellaneous itemized deductions on Schedule A, Itemized Deductions, to the extent the expenses exceed 2 percent of the taxpayer's adjusted gross income.   Secs. 62(a)(2),   ,  63(a), (d),   67(a) and (b), 162(a). Itemized deductions may be limited under   section 68 and may have alternative minimum tax implications under   section 56(b)(1)(A)(i).

An individual who performs services as an independent contractor is entitled to deduct expenses incurred in the performance of services on Schedule C and is not subject to limitations imposed on miscellaneous itemized deductions. A statutory employee under   section 3121(d)(3)(D) is not an employee for purposes of  section 62 and may deduct business expenses on See Rosemann v. Commissioner,   T.C. Memo. 2009-185 [TC Memo 2009-185]; Schedule C. see also   Rev. Rul. 90-93, 1990-2 C.B. 33.

Petitioners argue that petitioner was an independent contractor or statutory employee in 2006 and is thereby entitled to deduct business expenses on Schedule C. Respondent contends that petitioner was a common law employee in 2006 and that his unreimbursed employee expenses are thus properly reportable on Schedule A, subject to the 2-percent-of-adjusted-gross-income limitation.

An individual qualifies as a statutory employee under   section 3121(d)(3) only if the individual is not a common law employee pursuant to   section 3121(d)(2). See Ewens & Miller, Inc. v. Commissioner,   117 T.C. 263, 269 (2001); Rosemann v. Commissioner, supra.   Section 3121(d)(2) provides that an “employee” is “any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee”. Because an individual qualifies as a statutory employee only if the individual is not a common law employee, we will first decide whether petitioner was a common law employee of NSU. Common Law Employee “Although the income tax treatment of a taxpayer's trade or business expense deductions under   section 62(a) depends on whether the taxpayer is `[performing] *** services *** as an employee', subtitle A of the Internal Revenue Code does not define `employee”. Rosato v. Commissioner,  T.C. Memo. 2010-39 [TC Memo 2010-39]. Under these circumstances, we apply common law rules to determine whether the taxpayer is an employee. Weber v. Commissioner,   103 T.C. 378, 386 (1994), affd.   60 F.3d 1104 [76 AFTR 2d 95-5782] (4th Cir. 1995); Rosato v. Commissioner, supra.

Whether an individual is an employee must be determined on the basis of the specific facts and circumstances involved. Profl. & Exec. Leasing, Inc. v. Commissioner,   89 T.C. 225, 232 (1987), affd.   862 F.2d 751 [63 AFTR 2d 89-427] (9th Cir. 1988); Simpson v. Commissioner,   64 T.C. 974, 984 (1975). Relevant factors include: (1) The degree of control exercised by the principal; (2) which party invests in the work facilities used by the worker; (3) the opportunity of the individual for profit or loss; (4) whether the principal can discharge the individual; (5) whether the work is part of the principal's regular business; (6) the permanency of the relationship; (7) the relationship the parties believed they were creating; and (8) the provision of employee benefits. See Avis Rent A Car Sys., Inc. v. United States,   503 F.2d 423, 429 [34 AFTR 2d 74-5882] (2d Cir. 1974); Ewens & Miller, Inc. v. Commissioner, supra at 270; Weber v. Commissioner, supra at 387. We consider all of the facts and circumstances of each case, and no single factor is determinative. Ewens & Miller, Inc. v. Commissioner, supra at 270; Weber v. Commissioner, supra at 387. Although the determination of employee status is to be made by common law concepts, a realistic interpretation of the term “employee” should be adopted, and doubtful questions should be resolved in favor of employment in order to accomplish the remedial purposes of the legislation involved. Breaux & Daigle, Inc. v. United States,   900 F.2d 49, 52 [65 AFTR 2d 90-1133] (5th Cir. 1990); see Donald G. Cave A Profl. Law Corp. v. Commissioner,  T.C. Memo. 2011-48 [TC Memo 2011-48].

1. Degree of Control

The degree of control that the principal exercises over the worker has been referred to as the crucial test in making the determination. See Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440, 448 (2003); Rosato v. Commissioner, supra . The degree of control necessary to find employment status varies with the nature of the services provided by the worker. Weber v. Commissioner, supra at 388; Potter v. Commissioner,   T.C. Memo. 1994-356 [1994 RIA TC Memo ¶94,356]. To retain the requisite degree of control, the principal need not actually direct or control the manner in which the services are performed; it is sufficient if the principal has the right to do so. Weber v. Commissioner, supra at 388; Potter v. Commissioner, supra; sec. 31.3401(c)-l(b), Employment Tax Regs. Where the inherent nature of the job mandates an independent approach, a lesser degree of control exercised by the principal may result in a finding of an employer-employee status. See Potter v. Commissioner, supra; Bilenas v. Commissioner,   T.C. Memo. 1983-661 [¶83,661 PH Memo TC] (finding that an untenured college professor who taught on a course-by-course basis was a common law employee of the university).

It is clear that the inherent nature of petitioner's position as an adjunct professor calls for him to follow an independent approach in teaching his classes. However, we believe that NSU either exercised appropriate control over petitioner or had the authority to exercise it in a manner sufficient to render him an employee of the university. For each course petitioner taught, NSU dictated the textbook that he was required to use, the subjects that had to be covered, and the duration of the course. In addition, NSU managed the enrollment of students and supplied the Web site interface used to facilitate instruction in online courses. NSU also required petitioner to follow several of its employment policies, including those dealing with sexual harassment, drug use, and conflicts of interest. It is also of great significance that NSU regarded petitioner as an employee rather than as an independent See Bilenas v. Commissioner, supra. Although NSU contractor. did not supervise the minute details of petitioner's work, we find that it did exercise the requisite degree of control necessary to establish an employer-employee relationship with him. This factor weighs heavily in favor of a finding that petitioner was a common law employee of NSU.

2. Investment in Facilities

The fact that a worker provides his or her own tools, or owns a vehicle that is used for work, is indicative of independent contractor status. Ewens & Miller, Inc. v. Commissioner, 117 T.C. at 271. In addition, maintenance of a home office is consistent with independent contractor status, although alone it does not constitute sufficient basis for a finding of independent contractor status. Colvin v. Commissioner,   T.C. Memo. 2007-157 [TC Memo 2007-157], affd.   285 Fed. Appx. 157 [102 AFTR 2d 2008-5301] (5th Cir. 2008); Lewis v. Commissioner,   T.C. Memo. 1993-635 [1993 RIA TC Memo ¶93,635].

NSU bears the cost of maintaining a staff for recruitment, registration, and recordkeeping related to students, and it provides the servers and support required to maintain the online classroom. Petitioner's investment is not substantial, consisting of a computer and office supplies, maintenance of an Internet connection, and the use of a portion of his home as an office. Petitioner's investment in facilities was insubstantial and, thus, insufficient to render him an independent contractor. As a result, we find that this factor is supportive of petitioner's classification as a common law employee.

3. Opportunity for Profit or Loss The opportunity for profit or loss indicates nonemployee status. Simpson v. Commissioner, supra at 988; Rosato v. Commissioner,  T.C. Memo. 2010-39 [TC Memo 2010-39]. Petitioner lacked significant opportunity for profit or loss because the amount of pay he received depended only upon the number of classes he taught. See Potter v. Commissioner, supra. The amount petitioner received for teaching a course was not subject to fluctuation and was paid to him in exchange for his working within predetermined starting and ending dates, which were not subject to change. The fact that the wages petitioner received were not subject to change and that the duration of the classes was fixed left him with no more than a negligible risk of loss. When a worker's risk of loss is negligible, this factor weighs in favor of a determination of See Colvin v. Commissioner, supra. The greater employee status. risk of profit or loss remained with NSU, whose revenue necessarily fluctuated on the basis of the number of students enrolled relative to the costs involved in running a university.

4. Right To Discharge

The employment relationship between NSU and petitioner is governed by a separate contract established for each class section he taught. Copies of the employment contracts were not made a part of the record before the Court. Therefore, we cannot determine with certainty whether the contracts provided the university with the express right to terminate petitioner's employment at any time. However, employers typically have the right to terminate employees at will. Ellison v. Commissioner,   55 T.C. 142, 155 (1970); Colvin v. Commissioner, supra. Furthermore, because the parties entered into a contract for each specific course, NSU could have ended its long-term relationship with petitioner by electing not to renew the contracts for further courses. In addition, petitioner has failed to provide any evidence to indicate that NSU would be liable for breach of contract if it chose to terminate the relationship before the contract expired. As a result, we find that this factor supports the finding that petitioner was a common law employee.

5. Work Is Part of Principal's Regular Business Where work is part of the principal's regular business, it is indicative of employee status. Simpson v. Commissioner,  64 T.C. at 989; Rosato v. Commissioner, supra. As an educational institution, NSU's regular business involves the education of students and the evaluation of their work. Petitioner was hired to further NSU's regular business, in that he taught specific courses and then evaluated the students' learning in each course. Petitioner's services were clearly an important part of NSU's primary business. Therefore, we find that this factor supports petitioner's classification as a common law employee.

6. Permanency of Relationship

Permanency of a working relationship is indicative of an employer-employee relationship. Rosemann v. Commissioner,   T.C. Memo. 2009-185 [TC Memo 2009-185]. In contrast, a transitory work relationship may weigh in favor of independent contractor status. Ewens & Miller, Inc. v. Commissioner, 117 T.C. at 273.

Petitioner was employed by NSU from 1999 to 2007 and taught 4 to 12 online courses per year during that period. Although NSU and petitioner entered into a separate employment contract with regard to each course that petitioner taught, petitioner maintained a consistent employment relationship with NSU over a period of many years. Petitioner and NSU's decision to continually renew petitioner's contract for more courses indicates that a certain level of stability and continuity existed in their employment relationship. Although the contractual arrangement between the parties did not create an explicit permanent employment relationship, the relationship in practice was continuing in nature. Therefore, we find that this factor weighs in favor of petitioner's being classified as an employee. Furthermore, even if we were to determine that this factor supported petitioner's classification as an independent contractor, it alone would not be sufficient to preclude a finding that he was an employee at NSU on the basis of the other See Potter v. Commissioner, T.C. Memo. 1994- factors examined. 356.

7. Relationship the Parties Thought They Created The record indicates that petitioner and NSU considered their relationship to be that of an employer and an employee. NSU withheld Federal income taxes and employment taxes from the wages it paid to petitioner. The withholding of taxes is consistent with a finding that an individual is a common law employee. Rosato v. Commissioner,   T.C. Memo. 2010-39 [TC Memo 2010-39]; Lewis v. Commissioner,   T.C. Memo. 1993-635 [1993 RIA TC Memo ¶93,635]. In addition, NSU issued petitioner a Form W-2 for the tax year in question on which it did not check box 13 to indicate an intention to classify petitioner as a statutory employee. Furthermore, NSU's payroll manager personally informed petitioner that the university classified him as a common law employee, before petitioners filed their Federal income tax return.

Altogether it is clear that the parties believed that they had established an employer-employee relationship. This factor weighs in favor of petitioner's being treated as a common law employee.

8. Provision of Employee Benefits

Benefits such as health insurance, life insurance, and retirement plans are typically provided to employees by an employer. Weber v. Commissioner, 103 T.C. at 393-394. Petitioner contends that NSU offers such benefits to other categories of workers, but it neither offered nor provided them to petitioner. However, aside from his testimony at trial, petitioner offered no evidence to substantiate his contention. As a result, while we find that this factor supports petitioner's status as an independent contractor, we decline to place much weight on it in making our ultimate determination, on account of the lack of evidence in the record. See Potter v. Commissioner, supra.

On the basis of a careful consideration of the foregoing factors, in the light of the facts and circumstances particular to this case, we hold that petitioner was a common law employee of NSU for the taxable year 2006.

Furthermore, because we have found that petitioner was a common law employee of NSU during 2006, we also hold that he was not a statutory employee under  section 3121(d)(3). See Ewens & Miller, Inc. v. Commissioner, 117 T.C. at 269. Petitioners' Deductions An individual may deduct unreimbursed employee business expenses as miscellaneous itemized deductions on Schedule A, but only to the extent that the expenses exceed 2 percent of the individual's adjusted gross income. See   secs. 62(a),   67(a) and (b), 162(a). A statutory employee may deduct business expenses incurred on Schedule C and thereby avoid the Schedule A limitation. Rosemann v. Commissioner, supra. Because we have held that petitioner was a common law employee and not a statutory employee of NSU during the 2006 taxable year, petitioners' claimed business expenses of $2,785.63 must be reported on Schedule A as miscellaneous itemized deductions and, thus, are deductible only to the extent that they exceed 2 percent of petitioners' adjusted gross income.

To reflect the foregoing, Decision will be entered under Rule 155.

1

  The deficiency was determined on the basis of respondent's erroneous calculation of petitioners' gross income.

2

  The term “statutory employee” means an individual described in   sec. 3121(d)(3). A common law employee cannot be a statutory employee.

3

  Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, is used by a firm or worker to request a determination or ruling letter regarding a worker's Federal employment tax status.

§ 3121 Definitions.

 (a) WG&L Treatises Wages.

For purposes of this chapter, the term “wages” means all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include—

(1) WG&L Treatises in the case of the taxes imposed by sections 3101(a) and 3111(a) that part of the remuneration which, after remuneration (other than remuneration referred to in the succeeding paragraphs of this subsection ) equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) with respect to employment has been paid to an individual by an employer during the calendar year with respect to which such contribution and benefit base is effective, is paid to such individual by such employer during such calendar year. If an employer (hereinafter referred to as successor employer) during any calendar year acquires substantially all the property used in a trade or business of another employer (hereinafter referred to as a predecessor), or used in a separate unit of a trade or business of a predecessor, and immediately after the acquisition employs in his trade or business an individual who immediately prior to the acquisition was employed in the trade or business of such predecessor, then, for the purpose of determining whether the successor employer has paid remuneration (other than remuneration referred to in the succeeding paragraphs of this subsection ) with respect to employment equal to the contribution and benefit base (as determined under section 230 of the Social Security Act) to such individual during such calendar year, any remuneration (other than remuneration referred to in the succeeding paragraphs of this subsection ) with respect to employment paid (or considered under this paragraph as having been paid) to such individual by such predecessor during such calendar year and prior to such acquisition shall be considered as having been paid by such successor employer;

 (2) the amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) made to, or on behalf of, an employee or any of his dependents under a plan or system established by an employer which makes provision for his employees generally (or for his employees generally and their dependents) or for a class or classes of his employees (or for a class or classes of his employees and their dependents), on account of—

(A) sickness or accident disability (but, in the case of payments made to an employee or any of his dependents, this subparagraph shall exclude from the term “wages” only payments which are received under a workmen's compensation law), or

 (B) medical or hospitalization expenses in connection with sickness or accident disability, or

 (C) death, except that this paragraph does not apply to a payment for group-term life insurance to the extent that such payment is includible in the gross income of the employee;

 (3) Repealed.

 (4) any payment on account of sickness or accident disability, or medical or hospitalization expenses in connection with sickness or accident disability, made by an employer to, or on behalf of, an employee after the expiration of 6 calendar months following the last calendar month in which the employee worked for such employer;

 (5) any payment made to, or on behalf of, an employee or his beneficiary—

(A) from or to a trust described in section 401(a) which is exempt from tax under section 501(a) at the time of such payment unless such payment is made to an employee of the trust as remuneration for services rendered as such employee and not as a beneficiary of the trust,

 (B) under or to an annuity plan which, at the time of such payment, is a plan described in section 403(a) ,

 (C) under a simplified employee pension (as defined in section 408(k)(1) ), other than any contributions described in section 408(k)(6) ,

 (D) under or to an annuity contract described in section 403(b) , other than a payment for the purchase of such contract which is made by reason of a salary reduction agreement (whether evidenced by a written instrument or otherwise),

 (E) under or to an exempt governmental deferred compensation plan (as defined in subsection (v)(3) ),

 (F) to supplement pension benefits under a plan or trust described in any of the foregoing provisions of this paragraph to take into account some portion or all of the increase in the cost of living (as determined by the Secretary of Labor) since retirement but only if such supplemental payments are under a plan which is treated as a welfare plan under section 3(2)(B)(ii) of the Employee Retirement Income Security Act of 1974 ,

 (G) WG&L Treatises under a cafeteria plan (within the meaning of section 125 ) if such payment would not be treated as wages without regard to such plan and it is reasonable to believe that (if section 125 applied for purposes of this section ) section 125 would not treat any wages as constructively received,

 (H) New Law Analysis under an arrangement to which section 408(p) applies, other than any elective contributions under paragraph (2)(A)(i) thereof, or

 (I) New Law Analysis under a plan described in section 457(e)(11)(A)(ii) and maintained by an eligible employer (as defined in section 457(e)(1) );

 (6) the payment by an employer (without deduction from the remuneration of the employee)—

(A) of the tax imposed upon an employee under section 3101 , or

 (B) of any payment required from an employee under a State unemployment compensation law,

with respect to remuneration paid to an employee for domestic service in a private home of the employer or for agricultural labor;

 (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;

 (B) cash remuneration paid by an employer in any calendar year to an employee for domestic service in a private home of the employer (including domestic service on a farm operated for profit), if the cash remuneration paid in such year by the employer to the employee for such service is less than the applicable dollar threshold (as defined in subsection (x) ) for such year;

 (C) cash remuneration paid by an employer in any calendar year to an employee for service not in the course of the employer's trade or business, if the cash remuneration paid in such year by the employer to the employee for such service is less than $100. As used in this subparagraph, the term “service not in the course of the employer's trade or business” does not include domestic service in a private home of the employer and does not include service described in subsection (g)(5) ;

 (8)

(A) remuneration paid in any medium other than cash for agricultural labor;

 (B) WG&L Treatises cash remuneration paid by an employer in any calendar year to an employee for agricultural labor unless—

(i) the cash remuneration paid in such year by the employer to the employee for such labor is $150 or more, or

 (ii) the employer's expenditures for agricultural labor in such year equal or exceed $2,500,

except that clause (ii) shall not apply in determining whether remuneration paid to an employee constitutes “wages” under this section if such employee (I) is employed as a hand harvest laborer and is paid on a piece rate basis in an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the region of employment, (II) commutes daily from his permanent residence to the farm on which he is so employed, and (III) has been employed in agriculture less than 13 weeks during the preceding calendar year;

 (9) Repealed.

 (10) remuneration paid by an employer in any calendar year to an employee for service described in subsection (d)(3)(C) (relating to home workers), if the cash remuneration paid in such year by the employer to the employee for such service is less than $100;

 (11) remuneration paid to or on behalf of an employee if (and to the extent that) at the time of the payment of such remuneration it is reasonable to believe that a corresponding deduction is allowable under section 217 (determined without regard to section 274(n) );

 (12)

(A) tips paid in any medium other than cash;

 (B) cash tips received by an employee in any calendar month in the course of his employment by an employer unless the amount of such cash tips is $20 or more;

 (13) any payment or series of payments by an employer to an employee or any of his dependents which is paid—

(A) upon or after the termination of an employee's employment relationship because of (i) death, or (ii) retirement for disability, and

 (B) under a plan established by the employer which makes provision for his employees generally or a class or classes of his employees (or for such employees or class or classes of employees and their dependents),

other than any such payment or series of payments which would have been paid if the employee's employment relationship had not been so terminated;

 (14) any payment made by an employer to a survivor or the estate of a former employee after the calendar year in which such employee died;

 (15) any payment made by an employer to an employee, if at the time such payment is made such employee is entitled to disability insurance benefits under section 223(a) of the Social Security Act and such entitlement commenced prior to the calendar year in which such payment is made, and if such employee did not perform any services for such employer during the period for which such payment is made;

 (16) remuneration paid by an organization exempt from income tax under section 501(a) (other than an organization described in section 401(a) ) or under section 521 in any calendar year to an employee for service rendered in the employ of such organization, if the remuneration paid in such year by the organization to the employee for such service is less than $100;

 (17) any contribution, payment, or service provided by an employer which may be excluded from the gross income of an employee, his spouse, or his dependents, under the provisions of section 120 (relating to amounts received under qualified group legal services plans);

 (18) New Law Analysis any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127 , 129 , 134(b)(4) , or 134(b)(5) ;

 (19) the value of any meals or lodging furnished by or on behalf of the employer if at the time of such furnishing it is reasonable to believe that the employee will be able to exclude such items from income under section 119 ;

 (20) New Law AnalysisWG&L Treatises any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from income under section 74(c) , 108(f)(4) , 117 , or 132 ;

 (21) in the case of a member of an Indian tribe, any remuneration on which no tax is imposed by this chapter by reason of section 7873 (relating to income derived by Indians from exercise of fishing rights);

 (22) New Law AnalysisWG&L Treatises remuneration on account of—

(A) New Law Analysis a transfer of a share of stock to any individual pursuant to an exercise of an incentive stock option (as defined in section 422(b) ) or under an employee stock purchase plan (as defined in section 423(b) ), or

 (B) New Law Analysis any disposition by the individual of such stock; or

 (23) New Law Analysis any benefit or payment which is excludable from the gross income of the employee under section 139B(b).

Nothing in the regulations prescribed for purposes of chapter 24 (relating to income tax withholding) which provides an exclusion from “wages” as used in such chapter shall be construed to require a similar exclusion from “wages” in the regulations prescribed for purposes of this chapter.

Except as otherwise provided in regulations prescribed by the Secretary, any third party which makes a payment included in wages solely by reason of the parenthetical matter contained in subparagraph (A) of paragraph (2) shall be treated for purposes of this chapter and chapter 22 as the employer with respect to such wages.

 (b) New Law AnalysisWG&L Treatises Employment.

For purposes of this chapter, the term “employment” means any service, of whatever nature, performed (A) by an employee for the person employing him, irrespective of the citizenship or residence of either, (i) within the United States, or (ii) on or in connection with an American vessel or American aircraft under a contract of service which is entered into within the United States or during the performance of which and while the employee is employed on the vessel or aircraft it touches at a port in the United States, if the employee is employed on and in connection with such vessel or aircraft when outside the United States, or (B) outside the United States by a citizen or resident of the United States as an employee for an American employer (as defined in subsection (h) ), or (C) if it is service, regardless of where or by whom performed, which is designated as employment or recognized as equivalent to employment under an agreement entered into under section 233 of the Social Security Act; except that such term shall not include—

(1) service performed by foreign agricultural workers lawfully admitted to the United States from the Bahamas, Jamaica, and the other British West Indies, or from any other foreign country or possession thereof, on a temporary basis to perform agricultural labor;

 (2) WG&L Treatises domestic service performed in a local college club, or local chapter of a college fraternity or sorority, by a student who is enrolled and is regularly attending classes at a school, college, or university;

 (3)

(A) service performed by a child under the age of 18 in the employ of his father or mother;

 (B) service not in the course of the employer's trade or business, or domestic service in a private home of the employer, performed by an individual under the age of 21 in the employ of his father or mother, or performed by an individual in the employ of his spouse or son or daughter; except that the provisions of this subparagraph shall not be applicable to such domestic service performed by an individual in the employ of his son or daughter if—

(i) the employer is a surviving spouse or a divorced individual and has not remarried, or has a spouse living in the home who has a mental or physical condition which results in such spouse's being incapable of caring for a son, daughter, stepson, or stepdaughter (referred to in clause (ii) ) for at least 4 continuous weeks in the calendar quarter in which the service is rendered, and

 (ii) a son, daughter, stepson, or stepdaughter of such employer is living in the home, and

 (iii) the son, daughter, stepson, or stepdaughter (referred to in clause (ii) ) has not attained age 18 or has a mental or physical condition which requires the personal care and supervision of an adult for at least 4 continuous weeks in the calendar quarter in which the service is rendered;

 (4) service performed by an individual on or in connection with a vessel not an American vessel, or on or in connection with an aircraft not an American aircraft, if (A) the individual is employed on and in connection with such vessel or aircraft, when outside the United States and (B)(i) such individual is not a citizen of the United States or (ii) the employer is not an American employer;

 (5) service performed in the employ of the United States or any instrumentality of the United States, if such service—

(A) would be excluded from the term “employment” for purposes of this title if the provisions of paragraphs (5) and (6) of this subsection as in effect in January 1983 had remained in effect, and

 (B) is performed by an individual who—

(i) has been continuously performing service described in subparagraph (A) since December 31, 1983, and for purposes of this clause—

(I) if an individual performing service described in subparagraph (A) returns to the performance of such service after being separated therefrom for a period of less than 366 consecutive days, regardless of whether the period began before, on, or after December 31, 1983, then such service shall be considered continuous,

 (II) if an individual performing service described in subparagraph (A) returns to the performance of such service after being detailed or transferred to an international organization as described under section 3343 of subchapter III of chapter 33 of title 5, United States Code , or under section 3581 of chapter 35 of such title, then the service performed for that organization shall be considered service described in subparagraph (A) ,

 (III) if an individual performing service described in subparagraph (A) is reemployed or reinstated after being separated from such service for the purpose of accepting employment with the American Institute in Taiwan as provided under section 3310 of chapter 48 of title 22, United States Code , then the service performed for that Institute shall be considered service described in subparagraph (A) ,

 (IV) if an individual performing service described in subparagraph (A) returns to the performance of such service after performing service as a member of a uniformed service (including, for purposes of this clause , service in the National Guard and temporary service in the Coast Guard Reserve) and after exercising restoration or reemployment rights as provided under chapter 43 of title 38, United States Code, then the service so performed as a member of a uniformed service shall be considered service described in subparagraph (A) , and

 (V) if an individual performing service described in subparagraph (A) returns to the performance of such service after employment (by a tribal organization) to which section 105(e)(2) of the Indian Self-Determination Act applies, then the service performed for that tribal organization shall be considered service described in subparagraph (A) ; or

 (ii) is receiving an annuity from the Civil Service Retirement and Disability Fund, or benefits (for service as an employee) under another retirement system established by a law of the United States for employees of the Federal Government (other than for members of the uniformed service);

except that this paragraph shall not apply with respect to any such service performed on or after any date on which such individual performs—

(C) service performed as the President or Vice President of the United States,

 (D) service performed—

(i) in a position placed in the Executive Schedule under sections 5312 through 5317 of title 5, United States Code ,

 (ii) as a noncareer appointee in the Senior Executive Service or a noncareer member of the Senior Foreign Service, or

 (iii) in a position to which the individual is appointed by the President (or his designee) or the Vice President under section 105(a)(1) , 106(a)(1) , or 107(a)(1) or (b)(1) of title 3, United States Code , if the maximum rate of basic pay for such position is at or above the rate for level V of the Executive Schedule,

 (E) service performed as the Chief Justice of the United States, an Associate Justice of the Supreme Court, a judge of a United States court of appeals, a judge of a United States district court (including the district court of a territory), a judge of the United States Claims Court [United States Court of Federal Claims, see §902(b), P.L. 102-572 ], a judge of the United States Court of International Trade, a judge of the United States Tax Court, a United States magistrate, or a referee in bankruptcy or United States bankruptcy judge,

 (F) service performed as a Member, Delegate, or Resident Commissioner of or to the Congress,

 (G) any other service in the legislative branch of the Federal Government if such service—

(i) is performed by an individual who was not subject to subchapter III of chapter 83 of title 5, United States Code, or to another retirement system established by a law of the United States for employees of the Federal Government (other than for members of the uniformed services), on December 31, 1983, or

 (ii) is performed by an individual who has, at any time after December 31, 1983, received a lump-sum payment under section 8342(a) of title 5, United States Code , or under the corresponding provision of the law establishing the other retirement system described in clause (i) , or

 (iii) is performed by an individual after such individual has otherwise ceased to be subject to subchapter III of chapter 83 of title 5, United States Code (without having an application pending for coverage under such subchapter), while performing service in the legislative branch (determined without regard to the provisions of subparagraph (B) relating to continuity of employment), for any period of time after December 31, 1983,

and for purposes of this subparagraph (G) an individual is subject to such subchapter III or to any such other retirement system at any time only if (a) such individual's pay is subject to deductions, contributions, or similar payments (concurrent with the service being performed at that time) under section 8334(a) of such title 5 or the corresponding provision of the law establishing such other system, or (in a case to which section 8332(k)(1) of such title applies) such individual is making payments of amounts equivalent to such deductions, contributions, or similar payments while on leave without pay, or (b) such individual is receiving an annuity from the Civil Service Retirement and Disability Fund, or is receiving benefits (for service as an employee) under another retirement system established by a law of the United States for employees of the Federal Government (other than for members of the uniformed services), or

 (H) service performed by an individual—

(i) on or after the effective date of an election by such individual, under section 301 of the Federal Employees' Retirement System Act of 1986, section 307 of the Central Intelligence Agency Retirement Act ( 50 U.S.C. 2157 ), or the Federal Employees' Retirement System Open Enrollment Act of 1997 to become subject to the Federal Employees' Retirement System provided in chapter 84 of title 5, United States Code, or

 (ii) on or after the effective date of an election by such individual, under regulations issued under section 860 of the Foreign Service Act of 1980, to become subject to the Foreign Service Pension System provided in subchapter II of chapter 8 of title I of such Act;

 (6) service performed in the employ of the United States or any instrumentality of the United States if such service is performed—

(A) in a penal institution of the United States by an inmate thereof;

 (B) by any individual as an employee included under section 5351(2) of title 5, United States Code (relating to certain interns, student nurses, and other student employees of hospitals of the Federal Government), other than as a medical or dental intern or a medical or dental resident in training; or

 (C) by any individual as an employee serving on a temporary basis in case of fire, storm, earthquake, flood, or other similar emergency;

 (7) service performed in the employ of a State, or any political subdivision thereof, or any instrumentality of any one or more of the foregoing which is wholly owned thereby, except that this paragraph shall not apply in the case of—

(A) service which, under subsection (j) , constitutes covered transportation service,

 (B) service in the employ of the Government of Guam or the Government of American Samoa or any political subdivision thereof, or of any instrumentality of any one or more of the foregoing which is wholly owned thereby, performed by an officer or employee thereof (including a member of the legislature of any such Government or political subdivision), and, for purposes of this title with respect to the taxes imposed by this chapter—

(i) any person whose service as such an officer or employee is not covered by a retirement system established by a law of the United States shall not, with respect to such service, be regarded as an employee of the United States or any agency or instrumentality thereof, and

 (ii) the remuneration for service described in clause (i) (including fees paid to a public official) shall be deemed to have been paid by the Government of Guam or the Government of American Samoa or by a political subdivision thereof or an instrumentality of any one or more of the foregoing which is wholly owned thereby, whichever is appropriate,

 (C) service performed in the employ of the District of Columbia or any instrumentality which is wholly owned thereby, if such service is not covered by a retirement system established by a law of the United States (other than the Federal Employees Retirement System provided in chapter 84 of title 5, United States Code); except that the provisions of this subparagraph shall not be applicable to service performed—

(i) in a hospital or penal institution by a patient or inmate thereof;

 (ii) by any individual as an employee included under section 5351(2) of title 5, United States Code (relating to certain interns, student nurses, and other student employees of hospitals of the District of Columbia Government), other than as a medical or dental intern or as a medical or dental resident in training;

 (iii) by any individual as an employee serving on a temporary basis in case of fire, storm, snow, earthquake, flood or other similar emergency; or

 (iv) by a member of a board, committee, or council of the District of Columbia, paid on a per diem, meeting, or other fee basis,

 (D) service performed in the employ of the Government of Guam (or any instrumentality which is wholly owned by such Government) by an employee properly classified as a temporary or intermittent employee, if such service is not covered by a retirement system established by a law of Guam; except that (i) the provisions of this subparagraph shall not be applicable to services performed by an elected official or a member of the legislature or in a hospital or penal institution by a patient or inmate thereof, and (ii) for purposes of this subparagraph, clauses (i) and (ii) of subparagraph (B) shall apply,

 (E) service included under an agreement entered into pursuant to section 218 of the Social Security Act, or

 (F) service in the employ of a State (other than the District of Columbia, Guam, or American Samoa), of any political subdivision thereof, or of any instrumentality of any one or more of the foregoing which is wholly owned thereby, by an individual who is not a member of a retirement system of such State, political subdivision, or instrumentality, except that the provisions of this subparagraph shall not be applicable to service performed—

(i) by an individual who is employed to relieve such individual from unemployment;

 (ii) in a hospital, home, or other institution by a patient or inmate thereof;

 (iii) by any individual as an employee serving on a temporary basis in case of fire, storm, snow, earthquake, flood, or other similar emergency;

 (iv) by an election official or election worker if the remuneration paid in a calendar year for such service is less than $1,000 with respect to service performed during any calendar year commencing on or after January 1, 1995, ending on or before December 31, 1999, and the adjusted amount determined under section 218(c)(8)(B) of the Social Security Act for any calendar year commencing on or after January 1, 2000, with respect to service performed during such calendar year; or

 (v) by an employee in a position compensated solely on a fee basis which is treated pursuant to section 1402(c)(2)(E) as a trade or business for purposes of inclusion of such fees in net earnings from self-employment;

for purposes of this subparagraph , except as provided in regulations prescribed by the Secretary, the term “retirement system” has the meaning given such term by section 218(b)(4) of the Social Security Act;

 (8) WG&L Treatises

(A) WG&L Treatises service performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order, except that this subparagraph shall not apply to service performed by a member of such an order in the exercise of such duties, if an election of coverage under subsection (r) is in effect with respect to such order, or with respect to the autonomous subdivision thereof to which such member belongs;

 (B) service performed in the employ of a church or qualified church-controlled organization if such church or organization has in effect an election under subsection (w) , other than service in an unrelated trade or business (within the meaning of section 513(a) );

 (9) service performed by an individual as an employee or employee representative as defined in section 3231 ;

 (10) service performed in the employ of—

(A) a school, college, or university, or

 (B) an organization described in section 509(a)(3) if the organization is organized, and at all times thereafter is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of a school, college, or university and is operated, supervised, or controlled by or in connection with such school, college, or university, unless it is a school, college, or university of a State or a political subdivision thereof and the services performed in its employ by a student referred to in section 218(c)(5) of the Social Security Act are covered under the agreement between the Commissioner of Social Security and such State entered into pursuant to section 218 of such Act;

if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university;

 (11) service performed in the employ of a foreign government (including service as a consular or other officer or employee or a nondiplomatic representative);

 (12) service performed in the employ of an instrumentality wholly owned by a foreign government—

(A) if the service is of a character similar to that performed in foreign countries by employees of the United States Government or of an instrumentality thereof; and

 (B) if the Secretary of State shall certify to the Secretary of the Treasury that the foreign government, with respect to whose instrumentality and employees thereof exemption is claimed, grants an equivalent exemption with respect to similar service performed in the foreign country by employees of the United States Government and of instrumentalities thereof;

 (13) service performed as a student nurse in the employ of a hospital or a nurses' training school by an individual who is enrolled and is regularly attending classes in a nurses' training school chartered or approved pursuant to State law;

 (14)

(A) service performed by an individual under the age of 18 in the delivery or distribution of newspapers or shopping news, not including delivery or distribution to any point for subsequent delivery or distribution;

 (B) service performed by an individual in, and at the time of, the sale of newspapers or magazines to ultimate consumers, under an arrangement under which the newspapers or magazines are to be sold by him at a fixed price, his compensation being based on the retention of the excess of such price over the amount at which the newspapers or magazines are charged to him, whether or not he is guaranteed a minimum amount of compensation for such service, or is entitled to be credited with the unsold newspapers or magazines turned back;

 (15) service performed in the employ of an international organization, except service which constitutes “employment” under subsection (y) ;

 (16) service performed by an individual under an arrangement with the owner or tenant of land pursuant to which—

(A) such individual undertakes to produce agricultural or horticultural commodities (including livestock, bees, poultry, and fur-bearing animals and wildlife) on such land,

 (B) the agricultural or horticultural commodities produced by such individual, or the proceeds therefrom, are to be divided between such individual and such owner or tenant, and

 (C) the amount of such individual's share depends on the amount of the agricultural or horticultural commodities produced;

 (17) service in the employ of any organization which is performed (A) in any year during any part of which such organization is registered, or there is in effect a final order of the Subversive Activities Control Board requiring such organization to register, under the Internal Security Act of 1950, as amended, as a Communist-action organization, a Communist-front organization, or a Communist-infiltrated organization, and (B) after June 30, 1956;

 (18) service performed in Guam by a resident of the Republic of the Philippines while in Guam on a temporary basis as a nonimmigrant alien admitted to Guam pursuant to section 101(a)(15)(H)(ii) of the Immigration and Nationality Act ( 8 U.S.C. 1101(a)(15)(H)(ii) );

 (19) service which is performed by a nonresident alien individual for the period he is temporarily present in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act, as amended, and which is performed to carry out the purpose specified in subparagraph (F), (J), (M), or (Q), as the case may be;

 (20) WG&L Treatises service (other than service described in paragraph (3)(A) ) performed by an individual on a boat engaged in catching fish or other forms of aquatic animal life under an arrangement with the owner or operator of such boat pursuant to which—

(A) such individual does not receive any cash remuneration other than as provided in subparagraph (B) and other than cash remuneration—

(i) New Law Analysis which does not exceed $100 per trip;

 (ii) New Law Analysis which is contingent on a minimum catch; and

 (iii) New Law Analysis which is paid solely for additional dues (such as mate, engineer, or cook) for which additional cash remuneration is traditional in the industry,

 (B) such individual receives a share of the boat's (or the boats' in the case of a fishing operation involving more than one boat) catch of fish or other forms of aquatic animal life or a share of the proceeds from the sale of such catch, and

 (C) the amount of such individual's share depends on the amount of the boat's (or the boats' in the case of a fishing operation involving more than one boat) catch of fish or other forms of aquatic animal life,

but only if the operating crew of such boat (or each boat from which the individual receives a share in the case of a fishing operation involving more than one boat) is normally made up of fewer than 10 individuals; or

 (21) domestic service in a private home of the employer which—

(A) is performed in any year by an individual under the age of 18 during any portion of such year; and

 (B) is not the principal occupation of such employee.

For purposes of paragraph (20) , the operating crew of a boat shall be treated as normally made up of fewer than 10 individuals if the average size of the operating crew on trips made during the preceding 4 calendar quarters consisted of fewer than 10 individuals.

 (c) Included and excluded service.

For purposes of this chapter, if the services performed during one-half or more of any pay period by an employee for the person employing him constitute employment, all the services of such employee for such period shall be deemed to be employment; but if the services performed during more than one-half of any such pay period by an employee for the person employing him do not constitute employment, then none of the services of such employee for such period shall be deemed to be employment. As used in this subsection, the term “pay period” means a period (of not more than 31 consecutive days) for which a payment of remuneration is ordinarily made to the employee by the person employing him. This subsection shall not be applicable with respect to services performed in a pay period by an employee for the person employing him, where any of such service is excepted by subsection (b)(9) .

 (d) Employee.

For purposes of this chapter, the term “employee” means—

(1) any officer of a corporation; or

 (2) any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee; or

 (3) any individual (other than an individual who is an employee under paragraph (1) or (2) ) who performs services for remuneration for any person—

(A) WG&L Treatises as an agent-driver or commission-driver engaged in distributing meat products, vegetable products, fruit products, bakery products, beverages (other than milk), or laundry or dry-cleaning services, for his principal;

 (B) WG&L Treatises as a full-time life insurance salesman;

 (C) WG&L Treatises as a home worker performing work, according to specifications furnished by the person for whom the services are performed, on materials or goods furnished by such person which are required to be returned to such person or a person designated by him; or

 (D) WG&L Treatises as a traveling or city salesman, other than as an agent-driver or commission-driver, engaged upon a full-time basis in the solicitation on behalf of, and the transmission to, his principal (except for side-line sales activities on behalf of some other person) of orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or supplies for use in their business operations;

if the contract of service contemplates that substantially all of such services are to be performed personally by such individual; except that an individual shall not be included in the term “employee” under the provisions of this paragraph if such individual has a substantial investment in facilities used in connection with the performance of such services (other than in facilities for transportation), or if the services are in the nature of a single transaction not part of a continuing relationship with the person for whom the services are performed; or

 (4) any individual who performs services that are included under an agreement entered into pursuant to section 218 of the Social Security Act.

 (e) State, United States, and citizen.

For purposes of this chapter—

(1) WG&L Treatises State.

The term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.

 (2) United States.

The term “United States” when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.

An individual who is a citizen of the Commonwealth of Puerto Rico (but not otherwise a citizen of the United States) shall be considered, for purposes of this section , as a citizen of the United States.

 (f) American vessel and aircraft.

For purposes of this chapter, the term “American vessel” means any vessel documented or numbered under the laws of the United States; and includes any vessel which is neither documented or numbered under the laws of the United States nor documented under the laws of any foreign country, if its crew is employed solely by one or more citizens or residents of the United States or corporations organized under the laws of the United States or of any State; and the term “American aircraft” means an aircraft registered under the laws of the United States.

 (g) WG&L Treatises Agricultural labor.

For purposes of this chapter, the term “agricultural labor” includes all service performed—

(1) WG&L Treatises on a farm, in the employ of any person, in connection with cultivating the soil, or in connection with raising or harvesting any agricultural or horticultural commodity, including the raising, shearing, feeding, caring for, training, and management of livestock, bees, poultry, and fur-bearing animals and wildlife;

 (2) in the employ of the owner or tenant or other operator of a farm, in connection with the operation, management, conservation, improvement, or maintenance of such farm and its tools and equipment, or in salvaging timber or clearing land of brush and other debris left by a hurricane, if the major part of such service is performed on a farm;

 (3) in connection with the production or harvesting of any commodity defined as an agricultural commodity in section 15(g) of the Agricultural Marketing Act, as amended ( 12 U.S.C. 1141j) , or in connection with the ginning of cotton, or in connection with the operation or maintenance of ditches, canals, reservoirs, or waterways, not owned or operated for profit, used exclusively for supplying and storing water for farming purposes;

 (4)

(A) in the employ of the operator of a farm in handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to a carrier for transportation to market, in its unmanufactured state, any agricultural or horticultural commodity; but only if such operator produced more than one-half of the commodity with respect to which such service is performed;

 (B) in the employ of a group of operators of farms (other than a cooperative organization) in the performance of service described in subparagraph (A) , but only if such operators produced all of the commodity with respect to which such service is performed. For purposes of this subparagraph, any unincorporated group of operators shall be deemed a cooperative organization if the number of operators comprising such group is more than 20 at any time during the calendar year in which such service is performed;

 (C) the provisions of subparagraphs (A) and (B) shall not be deemed to be applicable with respect to service performed in connection with commercial canning or commercial freezing or in connection with any agricultural or horticultural commodity after its delivery to a terminal market for distribution for consumption; or

 (5) on a farm operated for profit if such service is not in the course of the employer's trade or business .

As used in this subsection , the term “farm” includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards.

 (h) American employer.

For purposes of this chapter, the term “American employer” means an employer which is—

(1) the United States or any instrumentality thereof,

 (2) an individual who is a resident of the United States,

 (3) a partnership, if two-thirds or more of the partners are residents of the United States,

 (4) a trust, if all of the trustees are residents of the United States, or

 (5) a corporation organized under the laws of the United States or of any State.

 (i) WG&L Treatises Computation of wages in certain cases.

(1) Domestic service.

For purposes of this chapter, in the case of domestic service described in subsection (a)(7)(B) , any payment of cash remuneration for such service which is more or less than a whole-dollar amount shall, under such conditions and to such extent as may be prescribed by regulations made under this chapter, be computed to the nearest dollar. For the purpose of the computation to the nearest dollar, the payment of a fractional part of a dollar shall be disregarded unless it amounts to one-half dollar or more, in which case it shall be increased to $1. The amount of any payment of cash remuneration so computed to the nearest dollar shall, in lieu of the amount actually paid, be deemed to constitute the amount of cash remuneration for purposes of subsection (a)(7)(B) .

 (2) Service in the uniformed services.

For purposes of this chapter, in the case of an individual performing service, as a member of a uniformed service, to which the provisions of subsection (m)(1) are applicable, the term “wages” shall, subject to the provisions of subsection (a)(1) of this section , include as such individual's remuneration for such service only (A) his basic pay as described in chapter 3 and section 1009 of title 37, United States Code , in the case of an individual performing service to which subparagraph (A) of such subsection (m)(1) applies, or (B) his compensation for such service as determined under section 206(a) of title 37, United States Code , in the case of an individual performing service to which subparagraph (B) of such subsection (m)(1) applies.

 (3) Peace Corps volunteer service.

For purposes of this chapter, in the case of an individual performing service, as a volunteer or volunteer leader within the meaning of the Peace Corps Act, to which the provisions of section 3121(p) are applicable, the term “wages” shall, subject to the provisions of subsection (a)(1) of this section , include as such individual's remuneration for such service only amounts paid pursuant to section 5(c) or 6(1) of the Peace Corps Act.

 (4) Service performed by certain members of religious orders.

For purposes of this chapter, in any case where an individual is a member of a religious order (as defined in subsection (r)(2) ) performing service in the exercise of duties required by such order, and an election of coverage under subsection (r) is in effect with respect to such order or with respect to the autonomous subdivision thereof to which such member belongs, the term “wages” shall, subject to the provisions of subsection (a)(1) , include as such individual's remuneration for such service the fair market value of any board, lodging, clothing, and other perquisites furnished to such member by such order or subdivision thereof or by any other person or organization pursuant to an agreement with such order or subdivision, except that the amount included as such individual's remuneration under this paragraph shall not be less than $100 a month.

 (5) Service performed by certain retired justices and judges.

For purposes of this chapter, in the case of an individual performing service under the provisions of section 294 of title 28, United States Code (relating to assignment of retired justices and judges to active duty), the term “wages” shall not include any payment under section 371(b) of such title 28 which is received during the period of such service.

 (j) Covered transportation service.

For purposes of this chapter—

(1) Existing transportation systems—General rule.

Except as provided in paragraph (2) , all service performed in the employ of a State or political subdivision in connection with its operation of a public transportation system shall constitute covered transportation service if any part of the transportation system was acquired from private ownership after 1936 and prior to 1951.

 (2) Existing transportation systems—Cases in which no transportation employees, or only certain employees, are covered.

Service performed in the employ of a State or political subdivision in connection with the operation of its public transportation system shall not constitute covered transportation service if—

(A) any part of the transportation system was acquired from private ownership after 1936 and prior to 1951, and substantially all service in connection with the operation of the transportation system was, on December 31, 1950, covered under a general retirement system providing benefits which, by reason of a provision of the State constitution dealing specifically with retirement systems of the State or political subdivisions thereof, cannot be diminished or impaired; or

 (B) no part of the transportation system operated by the State or political subdivision on December 31, 1950, was acquired from private ownership after 1936 and prior to 1951; except that if such State or political subdivision makes an acquisition after 1950 from private ownership of any part of its transportation system, then, in the case of any employee who—

(C) became an employee of such State or political subdivision in connection with and at the time of its acquisition after 1950 of such part, and

 (D) prior to such acquisition rendered service in employment (including as employment service covered by an agreement under section 218 of the Social Security Act) in connection with the operation of such part of the transportation system acquired by the State or political subdivision,

the service of such employee in connection with the operation of the transportation system shall constitute covered transportation service, commencing with the first day of the third calendar quarter following the calendar quarter in which the acquisition of such part took place, unless on such first day such service of such employee is covered by a general retirement system which does not, with respect to such employee, contain special provisions applicable only to employees described in subparagraph (C) .

 (3) Transportation systems acquired after 1950.

All service performed in the employ of a State or political subdivision thereof in connection with its operation of a public transportation system shall constitute covered transportation service if the transportation system was not operated by the State or political subdivision prior to 1951 and, at the time of its first acquisition (after 1950) from private ownership of any part of its transportation system, the State or political subdivision did not have a general retirement system covering substantially all service performed in connection with the operation of the transportation system.

 (4) Definitions.

For purposes of this subsection —

(A) The term “general retirement system” means any pension, annuity, retirement, or similar fund or system established by a State or by a political subdivision thereof for employees of the State, political subdivision, or both; but such term shall not include such a fund or system which covers only service performed in positions connected with the operation of its public transportation system.

 (B) A transportation system or a part thereof shall be considered to have been acquired by a State or political subdivision from private ownership if prior to the acquisition service performed by employees in connection with the operation of the system or part thereof acquired constituted employment under this chapter or subchapter A of chapter 9 of the Internal Revenue Code of 1939 or was covered by an agreement made pursuant to section 218 of the Social Security Act and some of such employees became employees of the State or political subdivision in connection with and at the time of such acquisition.

 (C) The term “political subdivision” includes an instrumentality of—

(i) a State,

 (ii) one or more political subdivisions of a State, or

 (iii) a State and one or more of its political subdivisions.

 (k) Repealed.

 (l) WG&L Treatises Agreements entered into by American employers with respect to foreign affiliates.

(1) WG&L Treatises Agreement with respect to certain employees of foreign affiliate.

The Secretary shall, at the American employer's request, enter into an agreement (in such manner and form as may be prescribed by the Secretary) with any American employer (as defined in subsection (h) ) who desires to have the insurance system established by title II of the Social Security Act extended to service performed outside the United States in the employ of any 1 or more of such employer's foreign affiliates (as defined in paragraph (6) ) by all employees who are citizens or residents of the United States, except that the agreement shall not apply to any service performed by, or remuneration paid to, an employee if such service or remuneration would be excluded from the term “employment” or “wages”, as defined in this section , had the service been performed in the United States. Such agreement may be amended at any time so as to be made applicable, in the same manner and under the same conditions, with respect to any other foreign affiliate of such American employer. Such agreement shall be applicable with respect to citizens or residents of the United States who, on or after the effective date of the agreement, are employees of and perform services outside the United States for any foreign affiliate specified in the agreement. Such agreement shall provide—

(A) that the American employer shall pay to the Secretary, at such time or times as the Secretary may by regulations prescribe, amounts equivalent to the sum of the taxes which would be imposed by sections 3101 and 3111 (including amounts equivalent to the interest, additions to the taxes, additional amounts, and penalties which would be applicable) with respect to the remuneration which would be wages if the services covered by the agreement constituted employment as defined in this section ; and

 (B) that the American employer will comply with such regulations relating to payments and reports as the Secretary may prescribe to carry out the purposes of this subsection .

 (2) Effective period of agreement.

An agreement entered into pursuant to paragraph (1) shall be in effect for the period beginning with the first day of the calendar quarter in which such agreement is entered into or the first day of the succeeding calendar quarter, as may be specified in the agreement; except that in case such agreement is amended to include the services performed for any other affiliate and such amendment is executed after the first month following the first calendar quarter for which the agreement is in effect, the agreement shall be in effect with respect to service performed for such other affiliate only after the calendar quarter in which such amendment is executed. Notwithstanding any other provision of this subsection , the period for which any such agreement is effective with respect to any foreign entity shall terminate at the end of any calendar quarter in which the foreign entity, at any time in such quarter, ceases to be a foreign affiliate as defined in paragraph (6) .

 (3) No termination of agreement.

No agreement under this subsection may be terminated, either in its entirety or with respect to any foreign affiliate, on or after June 15, 1989.

 (4) Deposits in trust funds.

For purposes of section 201 of the Social Security Act, relating to appropriations to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, such remuneration—

(A) paid for services covered by an agreement entered into pursuant to paragraph (1) as would be wages if the services constituted employment, and

 (B) as is reported to the Secretary pursuant to the provisions of such agreement or of the regulations issued under this subsection ,

shall be considered wages subject to the taxes imposed by this chapter.

 (5) Overpayments and underpayments.

(A) If more or less than the correct amount due under an agreement entered into pursuant to this subsection is paid with respect to any payment of remuneration, proper adjustments with respect to the amounts due under such agreement shall be made, without interest, in such manner and at such times as may be required by regulations prescribed by the Secretary.

 (B) If an overpayment cannot be adjusted under subparagraph (A) , the amount thereof shall be paid by the Secretary, through the Fiscal Service of the Treasury Department, but only if a claim for such overpayment is filed with the Secretary within two years from the time such overpayment was made.

 (6) Foreign affiliate defined.

For purposes of this subsection and section 210(a) of the Social Security Act—

(A) In general. A foreign affiliate of an American employer is any foreign entity in which such American employer has not less than a 10-percent interest.

 (B) Determination of 10-percent interest. For purposes of subparagraph (A) , an American employer has a 10-percent interest in any entity if such employer has such an interest directly (or through one or more entities)—

(i) in the case of a corporation, in the voting stock thereof, and

 (ii) in the case of any other entity, in the profits thereof.

 (7) American employer as separate entity.

Each American employer which enters into an agreement pursuant to paragraph (1) of this subsection shall, for purposes of this subsection and section 6413(c)(2)(C) , relating to special refunds in the case of employees of certain foreign entities, be considered an employer in its capacity as a party to such agreement separate and distinct from its identity as a person employing individuals on its own account.

 (8) Regulations.

Regulations of the Secretary to carry out the purposes of this subsection shall be designed to make the requirements imposed on American employers with respect to services covered by an agreement entered into pursuant to this subsection the same, so far as practicable, as those imposed upon employers pursuant to this title with respect to the taxes imposed by this chapter.

 (m) WG&L Treatises Service in the uniformed services.

For purposes of this chapter—

(1) Inclusion of service.

The term “employment” shall, notwithstanding the provisions of subsection (b) of this section , include—

(A) service performed by an individual as a member of a uniformed service on active duty, but such term shall not include any such service which is performed while on leave without pay, and

 (B) service performed by an individual as a member of a uniformed service on inactive duty training.

 (2) Active duty.

The term “active duty” means “active duty” as described in paragraph (21) of section 101 of title 38, United States Code , except that it shall also include “active duty for training” as described in paragraph (22) of such section .

 (3) Inactive duty training.

The term “inactive duty training” means “inactive duty training” as described in paragraph (23) of such section 101 .

 (n) WG&L Treatises Member of a uniformed service.

For purposes of this chapter, the term “member of a uniformed service” means any person appointed, enlisted, or inducted in a component of the Army, Navy, Air Force, Marine Corps, or Coast Guard (including a reserve component as defined in section 101(27) of title 38, United States Code ), or in one of those services without specification of component, or as a commissioned officer of the Coast and Geodetic Survey, the National Oceanic and Atmospheric Administration Corps, or the Regular or Reserve Corps of the Public Health Service, and any person serving in the Army or Air Force under call or conscription. The term includes—

(1) a retired member of any of those services;

 (2) a member of the Fleet Reserve or Fleet Marine Corps Reserve;

 (3) a cadet at the United States Military Academy, a midshipman at the United States Naval Academy, and a cadet at the United States Coast Guard Academy or United States Air Force Academy;

 (4) a member of the Reserve Officers' Training Corps, the Naval Reserve Officers' Training Corps, or the Air Force Reserve Officers' Training Corps, when ordered to annual training duty for fourteen days or more, and while performing authorized travel to and from that duty; and

 (5) any person while en route to or from, or at, a place for final acceptance or for entry upon active duty in the military, naval, or air service—

(A) who has been provisionally accepted for such duty; or

 (B) who, under the Military Selective Service Act, has been selected for active military, naval, or air service;

and has been ordered or directed to proceed to such place.

The term does not include a temporary member of the Coast Guard Reserve.

 (o) WG&L Treatises Crew leader.

For purposes of this chapter, the term “crew leader” means an individual who furnishes individuals to perform agricultural labor for another person, if such individual pays (either on his own behalf or on behalf of such person) the individuals so furnished by him for the agricultural labor performed by them and if such individual has not entered into a written agreement with such person whereby such individual has been designated as an employee of such person; and such individuals furnished by the crew leader to perform agricultural labor for another person shall be deemed to be the employees of such crew leader. For purposes of this chapter and chapter 2, a crew leader shall, with respect to service performed in furnishing individuals to perform agricultural labor for another person and service performed as a member of the crew, be deemed not to be an employee of such other person.

 (p) Peace Corps volunteer service.

For purposes of this chapter, the term “employment” shall, notwithstanding the provisions of subsection (b) of this section , include service performed by an individual as a volunteer or volunteer leader within the meaning of the Peace Corps Act.

 (q) WG&L Treatises Tips included for both employee and employer taxes.

For purposes of this chapter, tips received by an employee in the course of his employment shall be considered remuneration for such employment (and deemed to have been paid by the employer for purposes of subsections (a) and (b) of section 3111 ). Such remuneration shall be deemed to be paid at the time a written statement including such tips is furnished to the employer pursuant to section 6053(a) or (if no statement including such tips is so furnished) at the time received; except that, in determining the employer's liability in connection with the taxes imposed by section 3111 with respect to such tips in any case where no statement including such tips was so furnished (or to the extent that the statement so furnished was inaccurate or incomplete), such remuneration shall be deemed for purposes of subtitle F to be paid on the date on which notice and demand for such taxes is made to the employer by the Secretary.

 (r) Election of coverage by religious orders.

(1) Certificate of election by order.

A religious order whose members are required to take a vow of poverty, or any autonomous subdivision of such order, may file a certificate (in such form and manner, and with such official, as may be prescribed by regulations under this chapter) electing to have the insurance system established by title II of the Social Security Act extended to services performed by its members in the exercise of duties required by such order or such subdivision thereof. Such certificate of election shall provide that—

(A) such election of coverage by such order or subdivision shall be irrevocable;

 (B) such election shall apply to all current and future members of such order, or in the case of a subdivision thereof to all current and future members of such order who belong to such subdivision;

 (C) all services performedby a member of such an order or subdivision in the exercise of duties required by such order or subdivision shall be deemed to have been performed by such member as an employee of such order or subdivision; and

 (D) the wages of each member, upon which such order or subdivision shall pay the taxes imposed by sections 3101 and 3111 , will be determined as provided in subsection (i)(4) .

 (2) Definition of member.

For purposes of this subsection , a member of a religious order means any individual who is subject to a vow of poverty as a member of such order and who performs tasks usually required (and to the extent usually required) of an active member of such order and who is not considered retired because of old age or total disability.

 (3) Effective date for election.

(A) A certificate of election of coverage shall be in effect, for purposes of subsection (b)(8) and for purposes of section 210(a)(8) of the Social Security Act, for the period beginning with whichever of the following may be designated by the order or subdivision thereof:

(i) the first day of the calendar quarter in which the certificate is filed,

 (ii) the first day of the calendar quarter succeeding such quarter, or

 (iii) the first day of any calendar quarter preceding the calendar quarter in which the certificate is filed, except that such date may not be earlier than the first day of the twentieth calendar quarter preceding the quarter in which such certificate is filed.

Whenever a date is designated under clause (iii) , the election shall apply to services performed before the quarter in which the certificate is filed only if the member performing such services was a member at the time such services were performed and is living on the first day of the quarter in which such certificate is filed.

 (B) If a certificate of election filed pursuant to this subsection is effective for one or more calendar quarters prior to the quarter in which such certificate is filed, then—

(i) for purposes of computing interest and for purposes of section 6651 (relating to addition to tax for failure to file tax return), the due date for the return and payment of the tax for such prior calendar quarters resulting from the filing of such certificate shall be the last day of the calendar month following the calendar quarter in which the certificate is filed; and

 (ii) the statutory period for the assessment of such tax shall not expire before the expiration of 3 years from such due date.

 (s) WG&L Treatises Concurrent employment by two or more employers.

For purposes of sections 3102 , 3111 , and 3121(a)(1) , if two or more related corporations concurrently employ the same individual and compensate such individual through a common paymaster which is one of such corporations, each such corporation shall be considered to have paid as remuneration to such individual only the amounts actually disbursed by it to such individual and shall not be considered to have paid as remuneration to such individual amounts actually disbursed to such individual by another of such corporations.

 (t) Repealed.

 (u) Application of hospital insurance tax to federal, state, and local employment.

(1) Federal employment.

For purposes of the taxes imposed by sections 3101(b) and 3111(b) , subsection (b) shall be applied without regard to paragraph (5) thereof.

 (2) State and local employment.

For purposes of the taxes imposed by sections 3101(b) and 3111(b) —

(A) In general. Except as provided in subparagraphs (B) and (C) , subsection (b) shall be applied without regard to paragraph (7) thereof.

 (B) Exception for certain services. Service shall not be treated as employment by reason of subparagraph (A) if—

(i) the service is included under an agreement under section 218 of the Social Security Act, or

 (ii) the service is performed—

(I) by an individual who is employed by a State or political subdivision thereof to relieve him from unemployment,

 (II) in a hospital, home, or other institution by a patient or inmate thereof as an employee of a State or political subdivision thereof or of the District of Columbia,

 (III) by an individual, as an employee of a State or political subdivision thereof or of the District of Columbia, serving on a temporary basis in case of fire, storm, snow, earthquake, flood or other similar emergency,

 (IV) by any individual as an employee included under section 5351(2) of title 5, United States Code (relating to certain interns, student nurses, and other student employees of hospitals of the District of Columbia Government), other than as a medical or dental intern or a medical or dental resident in training,

 (V) by an election official or election worker if the remuneration paid in a calendar year for such service is less than $1,000 with respect to service performed during any calendar year commencing on or after January 1, 1995, ending on or before December 31, 1999, and the adjusted amount determined under section 218(c)(8)(B) of the Social Security Act for any calendar year commencing on or after January 1, 2000, with respect to service performed during such calendar year, or

 (VI) by an individual in a position described in section 1402(c)(2)(E) .

As used in this subparagraph , the terms “State” and “political subdivision” have the meanings given those terms in section 218(b) of the Social Security Act.

 (C) Exception for current employment which continues. Service performed for an employer shall not be treated as employment by reason of subparagraph (A) if—

(i) such service would be excluded from the term “employment” for purposes of this chapter if subparagraph (A) did not apply;

 (ii) such service is performed by an individual—

(I) who was performing substantial and regular service for remuneration for that employer before April 1, 1986,

 (II) who is a bona fide employee of that employer on March 31, 1986, and

 (III) whose employment relationship with that employer was not entered into for purposes of meeting the requirements of this subparagraph ; and

 (iii) the employment relationship with that employer has not been terminated after March 31, 1986.

 (D) Treatment of agencies and instrumentalities. For purposes of subparagraph (C) , under regulations—

(i) All agencies and instrumentalities of a State (as defined in section 218(b) of the Social Security Act) or of the District of Columbia shall be treated as a single employer.

 (ii) All agencies and instrumentalities of a political subdivision of a State (as so defined) shall be treated as a single employer and shall not be treated as described in clause (i) .

 (3) Medicare qualified government employment.

For purposes of this chapter, the term “medicare qualified government employment” means service which—

(A) is employment (as defined in subsection (b) ) with the application of paragraphs (1) and (2) , but

 (B) would not be employment (as so defined) without the application of such paragraphs.

 (v) Treatment of certain deferred compensation and salary reduction arrangements.

(1) Certain employer contributions treated as wages.

Nothing in any paragraph of subsection (a) (other than paragraph (1) ) shall exclude from the term “wages” —

(A) New Law Analysis any employer contribution under a qualified cash or deferred arrangement (as defined in section 401(k) ) to the extent not included in gross income by reason of section 402(e)(3) or consisting of designated Roth contributions (as defined in section 402A(c)) , or

 (B) any amount treated as an employer contribution under section 414(h)(2) where the pickup referred to in such section is pursuant to a salary reduction agreement (whether evidenced by a written instrument or otherwise).

 (2) Treatment of certain nonqualified deferred compensation plans.

(A) WG&L Treatises In general. Any amount deferred under a nonqualified deferred compensation plan shall be taken into account for purposes of this chapter as of the later of—

(i) when the services are performed, or

 (ii) when there is no substantial risk of forfeiture of the rights to such amount.

The preceding sentence shall not apply to any excess parachute payment (as defined in section 280G(b) ) or to any specified stock compensation (as defined in section 4985 ) on which tax is imposed by section 4985 .

(B) Taxed only once. Any amount taken into account as wages by reason of subparagraph (A) (and the income attributable thereto) shall not thereafter be treated as wages for purposes of this chapter.

 (C) Nonqualified deferred compensation plan. For purposes of this paragraph , the term “nonqualified deferred compensation plan” means any plan or other arrangement for deferral of compensation other than a plan described in subsection (a)(5) .

 (3) Exempt governmental deferred compensation plan.

For purposes of subsection (a)(5) , the term “exempt governmental deferred compensation plan” means any plan providing for deferral of compensation established and maintained for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing. Such term shall not include—

(A) any plan to which section 83 , 402(b) , 403(c) , 457(a) , or 457(f)(1) applies,

 (B) any annuity contract described in section 403(b) , and

 (C) the Thrift Savings Fund (within the meaning of subchapter III of chapter 84 of title 5, United States Code).

 (w) Exemption of churches and qualified church-controlled organizations.

(1) General rule.

Any church or qualified church-controlled organization (as defined in paragraph (3) ) may make an election within the time period described in paragraph (2) , in accordance with such procedures as the Secretary determines to be appropriate, that services performed in the employ of such church or organization shall be excluded from employment for purposes of title II of the Social Security Act and this chapter. An election may be made under this subsection only if the church or qualified church-controlled organization states that such church or organization is opposed for religious reasons to the payment of the tax imposed under section 3111 .

 (2) Timing and duration of election.

An election under this subsection must be made prior to the first date, more than 90 days after July 18, 1984, on which a quarterly employment tax return for the tax imposed under section 3111 is due, or would be due but for the election, from such church or organization. An election under this subsection shall apply to current and future employees, and shall apply to service performed after December 31, 1983. The election may be revoked by the church or organization under regulations prescribed by the Secretary. The election shall be revoked by the Secretary if such church or organization fails to furnish the information required under section 6051 to the Secretary for a period of 2 years or more with respect to remuneration paid for such services by such church or organization, and, upon request by the Secretary, fails to furnish all such previously unfurnished information for the period covered by the election. Any revocation under the preceding sentence shall apply retroactively to the beginning of the 2-year period for which the information was not furnished.

 (3) WG&L Treatises Definitions.

(A) For purposes of this subsection , the term “church” means a church, a convention or association of churches, or an elementary or secondary school which is controlled, operated, or principally supported by a church or by a convention or association of churches.

 (B) For purposes of this subsection , the term “qualified church-controlled organization” means any church-controlled tax-exempt organization described in section 501(c)(3) , other than an organization which—

(i) offers goods, services, or facilities for sale, other than on an incidental basis, to the general public, other than goods, services, or facilities which are sold at a nominal charge which is substantially less than the cost of providing such goods, services, or facilities; and

 (ii) normally receives more than 25 percent of its support from either (I) governmental sources, or (II) receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities which are not unrelated trades or businesses, or both.

 (x) WG&L Treatises Applicable dollar threshold.

For purposes of subsection (a)(7)(B) , the term “applicable dollar threshold” means $1,000. In the case of calendar years after 1995, the Commissioner of Social Security shall adjust such $1,000 amount at the same time and in the same manner as under section 215(a)(1)(B)(ii) of the Social Security Act with respect to the amounts referred to in section 215(a)(1)(B)(i) of such Act, except that, for purposes of this paragraph, 1993 shall be substituted for the calendar year referred to in section 215(a)(1)(B)(ii)(II) of such Act. If any amount as adjusted under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100.

 (y) Service in the employ of international organizations by certain transferred Federal employees.

(1) In general.

For purposes of this chapter, service performed in the employ of an international organization by an individual pursuant to a transfer of such individual to such international organization pursuant to section 3582 of title 5, United States Code , shall constitute “employment” if—

(A) immediately before such transfer, such individual performed service with a Federal agency which constituted “employment” under subsection (b) for purposes of the taxes imposed by sections 3101(a) and 3111(a) , and

 (B) such individual would be entitled, upon separation from such international organization and proper application, to reemployment with such Federal agency under such section 3582 .

 (2) Definitions.

For purposes of this subsection —

(A) Federal agency. The term “Federal agency” means an agency, as defined in section 3581(1) of title 5, United States Code .

 (B) International organization. The term “international organization” has the meaning provided such term by section 3581(3) of title 5, United States Code .

 (z) Treatment of Certain Foreign Persons as American Employers.

(1) New Law Analysis In general.

If any employee of a foreign person is performing services in connection with a contract between the United States Government (or any instrumentality thereof) and any member of any domestically controlled group of entities which includes such foreign person, such foreign person shall be treated for purposes of this chapter as an American employer with respect to such services performed by such employee.

 (2) Domestically controlled group of entities.

For purposes of this subsection—

(A) New Law Analysis In general. The term “domestically controlled group of entities” means a controlled group of entities the common parent of which is a domestic corporation.

 (B) New Law Analysis Controlled group of entities. The term “controlled group of entities” means a controlled group of corporations as defined in section 1563(a)(1) , except that—

(i) New Law Analysis “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears therein, and

 (ii) New Law Analysis the determination shall be made without regard to subsections (a)(4) and (b)(2) of section 1563 .

A partnership or any other entity (other than a corporation) shall be treated as a member of a controlled group of entities if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this sentence).

 (3) New Law Analysis Liability of common parent.

In the case of a foreign person who is a member of any domestically controlled group of entities, the common parent of such group shall be jointly and severally liable for any tax under this chapter for which such foreign person is liable by reason of this subsection, and for any penalty imposed on such person by this title with respect to any failure to pay such tax or to file any return or statement with respect to such tax or wages subject to such tax. No deduction shall be allowed under this title for any liability imposed by the preceding sentence.

 (4) Provisions preventing double taxation.

(A) New Law Analysis Agreements. Paragraph (1) shall not apply to any services which are covered by an agreement under subsection (l) .

 (B) New Law Analysis Equivalent foreign taxation. Paragraph (1) shall not apply to any services if the employer establishes to the satisfaction of the Secretary that the remuneration paid by such employer for such services is subject to a tax imposed by a foreign country which is substantially equivalent to the taxes imposed by this chapter.

 (5) New Law Analysis Cross reference.

For relief from taxes in cases covered by certain international agreements, see sections 3101(c) and 3111(c) .

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