[Code of Federal Regulations]
[Title 26, Volume 15]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3121(j)-1]

[Page 75-77]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
 
  Subpart B_Federal Insurance Contributions Act (Chapter 21, Internal 
                          Revenue Code of 1954)
 
Sec. 31.3121(j)-1  Covered transportation service.

    (a) Transportation systems acquired in whole or in part after 1936 
and before 1951--(1) In general. Except as provided in subparagraph (2) 
of this paragraph, all service performed in the employ of a State or 
political subdivision thereof in connection with its operation of a 
public transportation system constitutes covered transportation service 
if any part of the transportation system was acquired from private 
ownership after 1936 and before 1951. For purposes of this subparagraph, 
it is immaterial whether any part of the transportation system was 
acquired before 1937 or after 1950, whether the employee was hired 
before, during, or after 1950, or whether the employee had been employed 
by the employer from whom the State or political subdivision acquired 
its transportation system or any part thereof.
    (2) General retirement system protected by State constitution. 
Except as provided in paragraph (a)(3) of this section, service 
performed in the employ of a State or political subdivision in 
connection with its operation of a public transportation system acquired 
in whole or in part from private ownership after 1936 and before 1951 
does not constitute covered transportation service, if 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 are protected from diminution or impairment 
under the State constitution by reason of an express provision, dealing 
specifically with retirement systems established by the State or 
political subdivisions of the State, which forbids such diminution or 
impairment.
    (3) Additions to certain transportation systems by acquisition after 
1950. This subparagraph is applicable only in case of an acquisition 
after 1950 from private ownership of an addition to an existing public 
transportation system which was acquired in whole or in part by a State 
or political subdivision thereof from private ownership after 1936 and 
before 1951 and then only in case service for such existing 
transportation system did not constitute covered transportation service 
by reason of the provisions of subparagraph (2) of this paragraph. 
Service in connection with the operation of such transportation system 
(including any additions acquired after 1950) constitutes covered 
transportation service commencing with the first day of the third 
calendar quarter following the calendar quarter in which the addition to 
the existing transportation system was acquired, if such service is 
performed by an employee who became an employee of the State or 
political subdivision in connection with and at the time of its 
acquisition from private ownership of such addition and who before the 
acquisition of such addition rendered service in employment in 
connection with the operation of the addition so acquired by such State 
or political subdivision. However, service performed by such employee in 
connection with

[[Page 76]]

the operation of the transportation system does not constitute covered 
transportation service if, on the first day of the third calendar 
quarter following the calendar quarter in which the addition was 
acquired, such service is covered by a general retirement system which 
does not, with respect to such employee, contain special provisions 
applicable only to employees who became employees of the State or 
political subdivision in connection with and at the time of its 
acquisition of such addition.
    (b) Transportation systems in operation on December 31, 1950, no 
part of which was acquired after 1936 and before 1951--(1) In general. 
Except as provided in paragraph (b)(2) of this section, no service 
performed in the employ of a State or a political subdivision thereof in 
connection with its operation of a public transportation system 
constitutes covered transportation service if no part of such 
transportation system operated by the State or political subdivision on 
December 31, 1950, was acquired from private ownership after 1936 and 
before 1951.
    (2) Additions acquired after 1950. This subparagraph is applicable 
only in case of an acquisition after 1950 from private ownership of an 
addition to an existing public transportation system which was operated 
by a State or political subdivision on December 31, 1950, but no part of 
which was acquired from private ownership after 1936 and before 1951. 
Service in connection with the operation of such transportation system 
(including any additions acquired after 1950) constitutes covered 
transportation service commencing with the first day of the third 
calendar quarter following the calendar quarter in which the addition to 
the existing transportation system was acquired, if such service is 
performed by an employee who became an employee of the State or 
political subdivision in connection with and at the time of its 
acquisition from private ownership of such addition and who before the 
acquisition of such addition rendered service in employment in 
connection with the operation of the addition so acquired by such State 
or political subdivision. However, service performed by such employee in 
connection with the operation of the transportation system does not 
constitute covered transportation service if, on the first day of the 
third calendar quarter following the calendar quarter in which the 
addition was acquired, such service is covered by a general retirement 
system which does not, with respect to such employee, contain special 
provisions applicable only to employees who became employees of the 
State or political subdivision in connection with and at the time of its 
acquisition of such addition.
    (c) 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 
constitutes covered transportation service if the transportation system 
was not operated by the State or political subdivision before 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.
    (d) Definitions. For purposes of this section:
    (1) 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 does not include such a fund or 
system which covers only service performed in positions connected with 
the operation of its public transportation system.
    (2) A transportation system or a part thereof is considered to have 
been acquired by a State or political subdivision from private ownership 
if prior to the acquisition service performed by the employees in 
connection with the operation of the system or an acquired part thereof 
constituted employment under the act or under subchapter A of chapter 9 
of the Internal Revenue Code of 1939 or was covered by an agreement 
entered into pursuant to section 218 of the Social Security Act (42 
U.S.C. 418), and some of such employees became

[[Page 77]]

employees of the State or political subdivision in connection with and 
at the time of such acquisition.
    (3) The term ``political subdivision'' includes an instrumentality 
of a State, of one or more political subdivisions of a State, or of a 
State and one or more of its political subdivisions.
    (4) The term ``employment'' includes service covered by an agreement 
entered into pursuant to section 218 of the Social Security Act.