Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 56-37

1956-1 C.B. 499

IRS Headnote

Remuneration paid on or after August 9, 1955, for services performed in a possession of the United States by a citizen of the United States for an employer other than the United States or any agency thereof is not subject to withholding of income tax for the United States, if the employer is required by the law of any foreign country or possession of the United States to withhold income tax upon such remuneration.

Full Text

Rev. Rul. 56-37

The purpose of this Revenue Ruling is to inform employers and employees of the effect of the Act of August 9, 1955, Public Law 321, 84th Cong., 68A Stat. 455, 26 USC 3401, C.B. 1955-2, 761, 37, on the income tax withholding requirements set forth in section 3402 of the Internal Revenue Code of 1954.

Section 3402 of the 1954 Code requires that every employer making payment of wages shall withhold income tax upon such wages in accordance with the provisions of that section. Section 3401(a) of the Code defines the term `wages' for purposes of the income tax withholding required under section 3402 of such Code. Public Law 321, supra , amends paragraph (8)(A) of section 3401(a) of the Code, effective with respect to remuneration paid on or after August 9, 1955. Section 3401(a)(8)(A) as so amended provides as follows:

Section 3401. DEFINITIONS.

(a) WAGES.-For purposes of this chapter, the term `wages' means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash; except that such term shall not include remuneration paid-

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(8)(A) for services for an employer (other than the United States or any agency thereof)-

(i) performed by a citizen of the United States if, at the time of the payment of such remuneration, it is reasonable to believe that such remuneration will be excluded from gross income under section 911; or

(ii) performed in a foreign country or in a possession of the United States by such a citizen if, at the time of the payment of such remuneration, the employer is required by the law of any foreign country or possession of the United States to withhold income tax upon such remuneration; * * * (Italics supplied).

The italicized language of the section above was inserted by Public Law 321, supra . The effect of inserting such language is to except from `wages,' as that term is defined for purposes of the withholding required under section 3402 of the 1954 Code, any remuneration paid on or after August 9, 1955, to a citizen of the United States for services performed in a possession of the United States for an employer other than the United States or any agency thereof if, at the time of payment, income tax must be withheld from such remuneration pursuant to the law of any foreign country or possession of the United States.

Accordingly, any such employer who is required by the law of any foreign country or possession of the United States to withhold income tax from the remuneration paid United States citizens on or after August 9, 1955, for services performed in a possession of the United States should not also withhold income tax from that same remuneration in behalf of the United States.

Circular E, Employer's Tax Guide (revised January 1955) is hereby amended to the extent necessary to bring the Circular into conformity with the provisions of Public Law 321, supra .

The determination as to whether income earned in a foreign country or possession of the United States is includible in gross income, for purposes of the income tax, is not affected by Public Law 321, supra .