November 24, 1988
Financial Industries Division R. Nanner 957-3494
SUBJECT: XXXX Retiring Allowance
We are writing in response to your memorandum of October 18, 1988 concerning the above-mentioned subject. Your memorandum was accompanied by additional representations made by XXXX in his letter dated September 22, 1988.
We have reviewed XXXX submission and agree with you that there is no additional information in it to warrant a change in our position. The master servant relationship that existed in the employment was not severed by either party. While we agree that the employment contract with the subject employees was, in some respects, different from the one between the XXXX and other employees, it does not alter the fact that these pilots were to continue and did continue as employees in seasons subsequent to the year in which the payments under review were made.
We do not agree with XXXX contention that a change in duties of an employee with the same employer or a reduction in hours of work accompanied by a reduction in benefits result in retirement of that employee.
To conclude, in our view, the pilots did not retire at the end of the 1985 season as they were to return to their duties in the following year. Therefore, payments made to them on account of their so-called retirement should be taxed as employment income.
Please inform XXXX accordingly.
Chief Deferred Income Plans & Trusts Section Financial Industries Division Rulings Directorate