Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 56-22

1956-1 C.B. 558

Sec. 1402

Sec. 6012

Caution: Modified by Rev. Rul. 58-267

IRS Headnote

An income tax return, Form 1040, not accompanied by a prescribed power of attorney constitutes a valid return within the meaning of section 6012 of the Internal Revenue Code of 1954 when signed and filed by a wife on behalf of her mentally incompetent husband while she is managing his property prior to the appointment of a legal guardian.

Income derived from the husband's business, while it is managed by his wife during his disability before the appointment of a legal guardian, constitutes self-employment income to the husband within the meaning of section 1402 of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 56-22

Advice has been requested whether a wife can execute a valid income tax return on behalf of her husband while he is confined to a mental institution and before he is adjudicated to be of unsound mind (legally incompetent). Advice has also been requested whether income derived from the husband's business during such period, while it is managed by his wife in his behalf, constitutes self-employment income to the husband within the meaning of section 1402(b) of the Internal Revenue Code of 1954.

In the instant case, the husband, being unable to manage his own affairs, was committed to a mental institution and was subsequently adjudicated of unsound mind, at which time his wife was appointed legal guardian of his estate. During the period between the husband's commitment and his adjudication as being of unsound mind and while he was a patient in the mental institution, his business was operated by his wife. During such period, an income tax return, Form 1040, was signed and filed by the wife on behalf of the husband, without the benefit of a power of attorney from the husband. The return contained a notation to the effect that the self-employment income was not reported for the husband because he was mentally incompetent and because the business had been managed by his wife.

Section 6012(b)(2) of the Internal Revenue Code of 1954 provides that `If an individual is unable to make a return * * * the return of such individual shall be made by a duly authorized agent, his committee, guardian, fiduciary or other person charged with the care of the person or property of such individual.' Under the provisions of this section, it appears that a wife is required to file returns for her incompetent spouse where she has taken over control of all his business affairs.

On the basis of the foregoing, it is held that an income tax return, Form 1040, although not accompanied by a prescribed power of attorney, constitutes a valid return within the meaning of section 6012 of the Internal Revenue Code of 1954 when signed and filed by a wife on behalf of her mentally incompetent husband while she is managing his property prior to the appointment of a legal guardian.

Section 1401 of the Code imposes a tax upon the self-employment income of every individual. Self-employment income means the net earnings from self-employment as defined in section 1402(a). The term `net earnings from self-employment' means the gross income derived by an individual from any trade or business carried on by such individual , less the deductions allowed by subtitle A of the Code which are attributable to such trade or business plus his distributive share of the ordinary net income or loss from any trade or business carried on by a partnership of which he is a member, with certain exclusions and deductions therefrom as defined in section 1402(c) of the Code. The trade or business must be carried on by the individual, either personally or through agents or employees in order for the income to be included in his `net earnings from self-employment.' Income derived by a beneficiary from an estate or trust, accordingly, is not derived from business carried on through the beneficiary's agents or employees. See Section 34.481-1(b) of Regulations 118, made applicable herein by T.D. 6091, C.B. 1954-2, 47.

It is concluded that the husband owned his business until he was adjudicated of unsound mind and that his wife carried on the business for him as agent or employee until such time. Accordingly, it is held that the business income reported on the return by the wife for the husband constitutes self-employment income to the husband within the meaning of section 1402(b) of the Code. It is further concluded that subsequent to being adjudicated of unsound mind, the husband was the beneficiary of an estate which consisted of property which he had previously owned legally. The income derived from the business during this period does not constitute self-employment income to the husband.