1935 BTA LEXIS 807">*807 Petitioner, during the taxable years, was employed by four firemen's and policemen's annuity and benefit funds as an actuary. Compensation was paid under letter contracts embodying petitioner's duties and compensation. Petitioner was not exclusively engaged in actuarial work for these funds, but maintained his own offices with a staff of employees, retained the right to hire and fire them, and used them indiscriminately in performing actuarial services for all the funds and for private employers. Held, services were rendered by petitioner as an independent contractor rather than an employee, and compensation received was not exempt from Federal income tax.
33 B.T.A. 101">*101 This proceeding is for a redetermination of deficiencies in income tax liability for the years 1926, 1927, and 1928 in the respective amounts of $1,032.79, $646.27, and $606.71.
The petitioner claims that certain sums paid to him for personal services rendered during the years in question are exempt from the1935 BTA LEXIS 807">*808 Federal income tax, contending that he was an employee of political subdivisions of states and that such services were rendered in connection with the exercise of an essential governmental function.
FINDINGS OF FACT.
The facts were developed by stipulation, the testimony of witnesses, and documentary evidence. The deficiencies represent the tax which the Commissioner determined to be due upon income received by the petitioner for actuarial services rendered to four annuity and benefit funds as follows:
| 1926 | 1927 | 1928 | |
| Firemen's Annuity & Benefit Fund of Milwaukee | $1,016.35 | $825.00 | $900.00 |
| Policemen's Annuity & Benefit Fund of | |||
| Milwaukee | 1,004.00 | 900.00 | 900.00 |
| County Employees Annuity & Benefit Fund of | |||
| Cook County, Illinois | 8,736.00 | 9,157.00 | 3,326.08 |
| Municipal Employees Annuity & Benefit Fund of | |||
| Chicago, Illinois | 8,143.45 | 10,026.37 | 15,291.35 |
33 B.T.A. 101">*102 The legislatures of the States of Illinois and Wisconsin enacted in 1921 and 1923 general laws providing for the creation, establishment, maintenance, and administration of annuity and benefit funds in cities of the first class for the benefit of firemen and policemen employed by1935 BTA LEXIS 807">*809 such cities. The acts were fully set out and referred to in the stipulation, but it is not deemed essential to set them out in full herein. They provide, in substance, that in cities electing to take advantage of the special enactments, a board of trustees, called "Retirement Board", composed of five members (three firemen or three policemen and two others) shall administer the funds. The funds in question were to be raised and were raised by the imposition of a tax levied by the common councils of the cities and augmented by contributions made by the firemen and policemen, the sums thus contributed being deducted by "the proper officers of such city" from their salaries. The retirement boards were charged with the duty of seeing that the various sums were deducted; that the sums to be contributed by the city were contributed and received into the fund; and that the moneys were invested in interest-bearing bonds and the revenue in the form of interest was placed in the fund. It was authorized to accept by gift, grant, bequest, or otherwise any money or property and to use it for the purposes provided by the act; to consider and pass upon all applications for annuities and benefits; 1935 BTA LEXIS 807">*810 to issue certificates, appoint such actuarial, medical, clerical, or other employees as should be necessary, and to make rules and regulations necessary for the proper conduct of the affairs of such funds. Various annuities and benefits were provided for, such as "Prior Service Annuity", "Widow's Annuity", "Widow's Prior Service Annuity", "Child's Annuity", "Duty Disability Benefit", "Child's Disability Benefit", "Ordinary Disability Benefit", etc.
It was made the duty of the commissioner of insurance to examine into the affairs of the annuity and benefit funds at least once in every three years, the expense of such examination to be paid by the funds, and it was provided that the funds should supersede and take the place of any firemen's (or policemen's) pension fund which should be in operation in the city at the time the law came into effect.
The petitioner, a resident of Evanston, Illinois, is a consulting actuary, with offices located in Chicago, Illinois, rendering actuarial services to private individuals and corporations. He realized and reported a net income of $14,161.33 in 1926, $10,174.13 in 1927, and $16,251.71 in 1928, approximately 90 percent of which was derived1935 BTA LEXIS 807">*811 from the practice of his profession. These sums, however, did not include any income derived from the funds or boards hereinabove referred to.
Petitioner's service to the various boards was performed pursuant to letter contracts terminable upon 30 days notice by either party, 33 B.T.A. 101">*103 initiated by the submission of a proposal in writing embodying petitioner's duties and compensation, which proposals were accepted by the respective boards. Under such contracts he received $75 per month from the Firemen's Annuity & Benefit Fund of Milwaukee and a like sum from the Policemen's Annuity & Benefit Fund of Milwaukee. He received from the County Employees Annuity & Benefit Fund of Cook County, Illinois, a salary of $250 per month and fixed sums for each "prior service certificate" issued. His contract with Municipal Employees Annuity & Benefit Fund of Chicago, Illinois, provided for the payment to him of "$4.25 per hour when working strictly alone or with the Board. He paid the wages of his own clerks while working on this fund and in compensation for paying their wages, supervising their work and assuming responsibility for their results, and supplying materials and office space1935 BTA LEXIS 807">*812 for the work of said clerks and assistants, petitioner received for head clerk $2.50 per hour, stenographer $1.25 per hour, and for other clerks $1.60 per hour."
In one of the "letter contracts", it being stipulated that similar ones were used in each case, petitioner outlines his duties as follows:
I shall do the actuarial work required * * * You are to furnish me with data regarding the service and date of birth of each contributor. * * * It will then be my duty to compute the credit in the case of each contributor and furnish you with the results of my computations on a certificate prepared under your direction, signed as the Board shall determine, and certified to as to accuracy of computations by me as actuary of the Board. Payment for such work shall be made upon receipt of bill for same, accompanied by certificates as they are being completed.
The books of the Fund are to be kept by you. You are to make the entries required in the Individual Ledgers so as to show the amounts deducted from contributors salaries for annuity and disability purposes and the interest accretions to the end of the year together with the totals of the columns. It shall then be my duty to1935 BTA LEXIS 807">*813 insert the proper amounts to be contributed by the County, take the grand totals of all the sheets, make the proper calculations on the service sheets so as to find the proper credits for prior service for all contributors to and beneficiaries of the Fund and otherwise prepare and complete the Annual Statement.
It shall be part of my duties to attend all your meetings either in person or by my assistant, in an advisory capacity; to compute the amounts to which annuitants will be entitled, and furnish you a letter and the proper entrees to be made on your books in each case; supervise the work of your head clerk in your presenting the Board with proper information on all disability cases; prepare by-laws under your direction, and otherwise do such work of an actuarial nature as the Board may require.
Payment was made to petitioner semimonthly by warrant drawn on the county treasurer, signed by the president and secretary of the board against its "expense fund." There is no controversy as to the amounts received. Petitioner was not required to take any oath, to give bond, or to work any specified amount of time for 33 B.T.A. 101">*104 any of the various boards. He spent about 50 percent1935 BTA LEXIS 807">*814 of his time at such work during the year 1926, about 60 percent during the year 1927, and about 70 percent during the year 1928. He employed his own assistants, retained the right to hire and fire them, and used them indiscriminately in his work for the four boards and in his private work for insurance companies.
OPINION.
MELLOTT: Petitioner contends that the boards possess and exercise governmental functions, and that he was an employee rendering personal service to political subdivisions of states "in connection with the exercise of an essential governmental function." Respondent contends that petitioner was an independent contractor.
We have found that petitioner was engaged in rendering actuarial services to private individuals and corporations and that he realized and reported a net income of more than $10,000 from the practice of such profession during each of the years in question, exclusive of the amounts received from the four annuity and benefit funds.
In connection with his work for the annuity and benefit funds in question, petitioner was not required to give any specific amount of time per day, per week, or per month. He performed the same type of work which1935 BTA LEXIS 807">*815 was performed for various insurance companies. He, like petitioner in the case of , took no oath of office, gave no bond, held no statutorily defined position, employed his own assistants, retained the right to hire or fire them and to use them indiscriminately on all of his business as an actuary, either for one or more of the boards, or for other clients. All of the work was performed in his own office and with his own employees. In that case, as in many similar cases, we held that the petitioner was an independent contractor and not an employee of a state or political subdivision thereof, and that his income was not exempt from the Federal tax. To the same effect see also ; ; ; ; affd., ; ; ; 1935 BTA LEXIS 807">*816 ; affd., ; ; .
The facts in the instant case are quite similar to those in the case of , which we have frequently cited. In that case it was held that exemption from the tax would not be granted where
* * * The income of one who is neither an officer nor an employee of government and whose relation to it is that of contract, under which there is 33 B.T.A. 101">*105 an obligation to furnish service, for practical purposes not unlike a contract to sell and deliver a commodity. In such a situation it cannot be said that the tax is imposed upon an agency of government in any technical sense, and the tax itself cannot be deemed to be an interference with government, or an impairment of the efficiency of its agency in any substantial way.
It is ingeniously argued that the creation, maintenance, and operation of the funds in question was the exercise of an essential governmental function, the purpose of the funds being similar to the purpose underlying the creation by the state of1935 BTA LEXIS 807">*817 an industrial board for administering the Workmen's Compensation Act, which this Board in , held to be an essential function of government. We do not deem it essential for the determination of this case to pass upon this question. The state undoubtedly has the right to undertake the enterprise in question, and the fact, if it be a fact, that it is undertaken for what the state conceives to be the public benefit, does not in itself establish immunity.
In the case of , affirming the ruling of this Board, it was held that the salary received by a lawyer as general counsel for a drainage district was not exempt where the relation was that of attorney and client, even though the district possessed and exercised governmental functions. To the same effect see , affirming the decision of this Board rendered in the case of .
We hold that the undisputed facts show petitioner to be an independent contractor and not an officer or employee of a state or political subdivision. 1935 BTA LEXIS 807">*818 It follows that respondent's contention must be sustained. Petitioner is not entitled to the exemption contended for, and the amounts received by him from the various funds should have been included in his income for the years in question.
Judgment will be entered for the respondent.