Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 55-6

1955-1 C.B. 409

Sec. 901

Sec. 911

Sec. 931

IRS Headnote

The Ryukyu Islands, which include the island of Okinawa, do not constitute a possession of the United States within the meaning of section 251 of the Internal Revenue Code of 1939, but do constitute a foreign country under sections 116(a) and 131 of the Code. The Ryukyu Islands are within the geographical area covered by the terms of the Treaty of Peace with Japan and are not a part of the Territory of the Pacific Islands.

Revenue Ruling 199, C.B. 1953-2, 225, superseded.

Full Text

Rev. Rul. 55-6

A question has arisen as to the factual correctness of the holding in Revenue Ruling 199, C.B. 1953-2, 225, that Okinawa and the Ryukyu group to which it belongs are a part of the former Japanese mandated islands now known as the Territory of the Pacific Islands, which are administered by the United States under a trusteeship agreement between the United States and the Security Council of the United Nations. See I.T. 4080, C.B. 1952-1, 39.

Chapter II of the Treaty of Peace with Japan, U.S.C.C. & A.S. Vol. 2, 1951, p. 2730, which entered into effect on April 28, 1952 (Presidential Proclamation 2974, 17 Fed.Reg. 85, 3813 (1952)), is entitled `Territory' and provides in part as follows: `Article 2(d). Japan renounces all right, title and claim in connection with the League of Nations Mandate System, and accepts the action of the United Nations Security Council of April 2, 1947, extending the trusteeship system to the Pacific Islands formerly under mandate to Japan. * * * Article 3. Japan will concur in any proposal of the United States to the United Nations to place under its trusteeship system, with the United States as the sole administering authority, Nansei Shoto south of 29%A1 north latitude (including the Ryukyu Islands and the Daito Islands), * * * Pending the making of such a proposal and affirmative action thereon, the United States will have the right to exercise all and any powers of administration, legislation and jurisdiction over the territory and inhabitants of these islands, including their territorial waters.' Thus, the location of the Ryukyu Islands is fixed as being within the geographical area to which the terms of the Treaty of Peace apply and not a part of the Territory of the Pacific Islands.

The Internal Revenue Service has been advised that, in accordance with the terms of the Treaty of Peace with Japan, (1) the Ryukyu Islands are at present being administered by the Department of the Army, (2) no proposal to place these islands under a trusteeship has been made by the United States, and (3) it was intended that Japan retain `residual sovereignty' over these islands.

While the present powers of the United States over the Ryukyu Islands are generally no less extensive than if the United States had in fact acquired full sovereignty over them, the fact remains that the United States does not have absolute authority over these islands. See State of the Netherlands v. Federal Reserve Bank , 201 Fed.(2d) 455, at 461.

Accordingly, it is held that the Ryukyu Islands, which include the island of Okinawa, do not constitute a possession of the United States within the meaning of section 251 of the Internal Revenue Code of 1939, but do constitute a foreign country for the purposes of sections 116(a) and 131 of the Code.

Revenue Ruling 199, supra , is hereby superseded