Ezel / IRS Rulings / 1216038
Chief Counsel Advice 1216038 Released April 20, 2012 Advice

CCA 1216038: Advice treats employee payments as wages rather than royalties

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This page covers one taxpayer's ruling from 2012, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2012
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

Chief Counsel advice addresses payments made to employees under an unidentified royalty arrangement. The advice concludes that the payments appear to be compensation for services, so they should be treated and reported as wages on Forms W-2. It rejects royalty treatment because the employees performed the services and had no ownership interest in the property generating the income.

Ruling snapshot

  • Question: Should payments to employees be treated as royalties or as wages for services?
  • Outcome: Advice
  • Key authorities: IRC § 3121.

Full text (IRS public release)

ID: CCA_2012032912304032 Number: 201216038
Release Date: 4/20/2012
Office: -------------
UILC: 3121.01-00

From: --------------------
Sent: Thursday, March 29, 2012 12:30:52 PM
To: --------------------
Cc:
Subject: RE: Royalty case ---------

That sounds right to me. These payments definitely seem to be compensation for services (wages) that
should be reported as such on Forms W-2. I can't see any basis for classifying the payments as
royalties. The employees are performing services, and they don't have any ownership interest in the
property that is generating the income. I think you are on the right track.

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