Internal Revenue Service
Revenue Ruling
TaxLinks.com
smRev. Rul. 56-42
1956-1 C.B. 54
Sec. 37
Sec. 104
IRS Headnote
Retirement income, for the purpose of the credit provided by section 37 of the Internal Revenue Code of 1954, is not to be reduced by the amount of the death compensation paid by the Veterans' Administration to the widow of a veteran whose death in service or after discharge or retirement was due to service rendered during a war.
Full Text
Rev. Rul. 56-42
Advice has been requested whether retirement income should be reduced by the amount of the death compensation paid by the Veterans' Administration to a widow of a veteran whose death in service or after discharge or retirement was due to service rendered during a war.
The taxpayer in the instant case received a survivor's annuity from her husband's civil service retirement and $87 a month from the Veterans' Administration as the fixed amount of death compensation payable to the childless widow of a veteran whose death, either in service or after discharge or retirement, was due to wartime service.
Section 37 of the Internal Revenue Code of 1954 allows an individual, who has received earned income in excess of $600 in each of ten prior calendar years, to take as a credit against the tax computed on his return for the taxable year an amount equal to the amount received as retirement income (as defined in subsection (c) and limited by subsection (d)), multiplied by the first bracket rate of tax (20 percent under the present law), but this credit may not exceed the tax shown on the return reduced by certain credits. A widow whose husband had received such earned income during prior years shall be considered to have received earned income.
Section 37 of the Code provides in part as follows:
(d) LIMITATION ON RETIREMENT INCOME.-For purposes of subsection (a), the amount of retirement income shall not exceed $1,200 less-
(1) in the case of any individual, any amount received by the individual as a pension or annuity-
(A) under title II of the Social Security Act,
(B) under the Railroad Retirement Acts of 1935 or 1937, or
(C) otherwise excluded from gross income, * * *
*
(e) RULE FOR APPLICATION OF SUBSECTION (d)(1).-Subsection (d)(1) shall not apply to any amount excluded from gross income under section 72 (relating to annuities), 101 (relating to life insurance proceeds), 104 (relating to compensation for injuries or sickness), 105 (relating to amounts received under accident and health plans), 402 (relating to taxability of beneficiary of employees' trust), or 403 (relating to taxation of employee annuities).
The death benefits received by the taxpayer are tax exempt and the basic problem that arises is whether they are payments of a pension or annuity excluded from gross income within the meaning of section 37(d)(1)(C) of the Code and outside the scope of the exceptions contained in section 37(e) of the Code.
The legislative history of the retirement income credit provisions of the Code indicates that Congress intended to prevent the duplication of retirement income benefits in the enactment of sections 37(d)(1) and 37(e). The Report of the Committee on Finance, United States Senate, No. 1622, Eighty-third Congress, Second Session, page 8, to accompany H.R. 8300, furnishes a general characterization of the purposes of section 37(d)(1) of the Code as follows:
Since some types of retirement pensions are already excluded from gross income, an adjustment is made to avoid duplication. The amount of retirement income up to $1,200 which an individual receives is to be reduced for purposes of computing the credit, by any social security, railroad retirement, military retirement pension, or other retirement pension which is excluded from gross income. Military disability pensions or workmen's compensation payments, however, do not serve to reduce retirement income.
Of the exceptions provided by section 37(e) of the Code, section 104(a) requires the most careful consideration. It provides that gross income does not include-
(1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness;
*
(4) amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the Coast and Geodetic Survey or the Public Health Service.
The history of section 104 of the 1954 Code discloses that it was not the purpose of Congress in enactment of laws which resulted in the provisions of section 22(b)(5) of the 1939 Code, the section from which section 104 of the 1954 Code is derived, to change the broad intent of the Act of August 12, 1935, which amended the World War Veterans' Act of 1924, 49 Stat. 607, 38 U.S.C. 454a, C.B. XIV-2, 538 (1935), but only to extend its provisions to cover services in the armed forces of Allied armies in World War I. The Act by its terms was broad enough to cover amounts received as compensation for injuries or sickness by either a veteran of the American Armed Forces or his survivor.
Section 104(a)(1) and section 104(a)(4) of the Code are phrased in similar language. There are striking similarities between the type of compensation for injuries or sickness paid by the United States to veterans and their survivors and workmen's compensation. Death benefits are commonly paid to a surviving widow under workmen's compensation laws. There appears to be nothing in the legislative history of the pertinent statutory provisions, or otherwise, to justify a difference in the tax treatment of these two types of compensation payments to survivors.
The payments made to the taxpayer representing amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the Armed Forces are, accordingly, considered to come within the scope of section 104(a)(4) of the Code, one of the exceptions of excluded income provided by section 37(e) of the Code for the application of section 37(d)(1) in determining the limitation on retirement income. Since such payments come within the exceptions of excluded income, they do not reduce the taxpayer's retirement income on which the retirement income credit is based.
Accordingly, it is held that retirement income, for the purpose of the credit provided by section 37 of the Internal Revenue Code of 1954, is not to be reduced by the amount of the death compensation paid to the widow of a veteran by the Veterans' Administration whose death in service or after discharge or retirement was due to service rendered during a war.