Internal Revenue Service
Revenue Ruling
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smRev. Rul. 58-4
1958-1 C.B. 268
Sec. 911
IRS Headnote
A citizen of the United States, employed on a vessel owned, or owned for the time being, by an agency of the United States and operated by the United States, is paid wages by a private shipping line as agent of the United States from funds provided specifically for that purpose by the United States. Such compensation constitutes an amount paid by the United States or an agency thereof within the meaning of section 911(a) of the Internal Revenue Code of 1954 and is not excludable from gross income under section 911(a)(2) of the Code even though the employee may be physically present in a foreign country or countries for 510 full days or more of an 18 consecutive month period to which such wages are attributable. Section 1(a) of the Clarification Act of March 24, 1943, 57 Stat. 45, 50 U.S.C. 1291(a), affords no basis for holding that such conpensation is entitled to exemption from taxation under section 911(a)(2) of the Code.
Full Text
Rev. Rul. 58-4
Advice has been requested whether compensation received by a United States citizen, employed on a vessel owned, or owned for the time being, by the United States and paid from funds provided specifically for that purpose by the United States, is excludable from gross income under section 611(a)(2) of the Internal Revenue Code of 1954 or under section 1(a) of the Clarification Act of March 24, 1943, 57 Stat. 45, 50 U.S.C. 1291(a), read in conjunction with that section, when the services to which such compensation is attributable were performed under the circumstances described below.
From January 26, 1954, to July 24, 1955, inclusive, a total of 545 days, the taxpayer lived in Korea and was employed on a shuttle ship which sailed between Korea and Japan. During such period the taxpayer was not within the United States or any possession thereof. The United States, represented by the Maritime Administration, was owner, or owner for the time being, of the ship on which the taxpayer was employed. The ships are operated under a general arrangement whereby the United States, acting through the National Shipping Authority, Maritime Administration, enters into service agreements with various shipping lines for the operation of vessels of which the United States, represented by the Maritime Administration, is owner, or owner for the time being.
The instant agreement appointed a shipping line as general agent under the contract and defined the duties of the general agent. Among these duties was the procurement of a master who should be an agent and an employee of the United States. The general agent was required to procure and make available to the master, for engagement by him, the officers and men required by him to fill the complement of the vessel. This personnel was procured through usual channels and in accordance with the customary practices of commercial operators and upon the terms and conditions of the general agent's collective bargaining agreements, if any. All such personnel were paid by the general agent in the customary manner with funds provided by the United States for performing, procuring, or supplying services, and for paying all crew expenditures. Operating control of the ship was maintained by the United States through the ship's master.
The wages for the master and crew were paid out of a fund which was established by the Third Supplemental Appropriation Act (1951), 65 Stat. 52, 46 U.S.C. 1241a. That Act provides that the provisions of sections 1(a), 1(c), 3(c), and 4 of the Clarification Act of 1943, 57 Stat. 45, as amended, 50 U.S.C. 1291(a), (c), 1293(c), and 1294, amending and clarifying certain provisions of law relating to the functions of the War Shipping Administration, shall be applicable in connection with such operations and to seamen employed through general agents as employees of the United States, who may be employed in accordance with customary commercial practices in the maritime industry, notwithstanding the provisions of any law applicable in terms to the employment of persons by the United States.
Section 911 of the Internal Revenue Code of 1954 provides, in part, as follows:
(a) GENERAL RULE.-The following items shall not be included in gross income and shall be exempt from taxation under this subtitle:
*
(2) PRESENCE IN FOREIGN COUNTRY FOR 17 MONTHS.-In the case of an individual citizen of the United States, who during any period of 18 consecutive months is present in a foreign country or countries during at least 510 full days in such period, amounts received from sources without the United States (except amounts paid by the United States or an agency thereof) if such amounts constitute earned income (as defined in subsection (b)) attributable to such period; * * *.
(b) DEFINITION OF EARNED INCOME.-For purposes of this section, the term `earned income' means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered, * * *.
Section 1(a) of the Clarification Act, as amended, supra% i, provides, in part, as follows:
Officers and members of crews (hereinafter referred to as `seamen') employed on United States or foreign flag vessels as employees of the United States through the War Shipping Administration shall, with respect to (1) laws administered by the Public Health Service and the Social Security Act, as amended by subsection (b)(2) and (3) of this section; (2) death, injuries, illness, maintenance and cure, loss of effects, detention, or repatriation, or claims arising therefrom not covered by the foregoing clause (1); and (3) collection of wages and bonuses and making of allotments, have all the rights, benefits, exemptions, privileges, and liabilities, under law applicable to citizens of the United States employed as seamen on privately owned and operated American vessels. * * *
If an individual travels over international waters from one place in a foreign country to a place in another foreign country and if such travel extends over a period of less than 24 hours and does not involve travel within the United States or any possession thereof, such individual shall not be deemed to have been outside a foreign country during the period of such travel for the purpose of determining whether he satisfies the minimum of 510 full days presence in a foreign country or countries. See Revenue Ruling 55-171, C.B. 1955-1, 80. The taxpayer may, therefore, satisfy the minimum requirement of 510 full days presence in a foreign country or countries even though his employment on the shuttle ship between Korea and Japan took him over international waters for part of the qualifying period. Such services were performed as an employee of the United States on a ship of which the United States was owner, or owner for the time being, and operator Cf. Fink v. Shepard Steamship Co. , 337 U.S. 810. Compensation for such services from funds provided by the United States constitutes an amount paid by the United States or an agency thereof within the meaning of section 911(a)(2) of the Code even though actual payment was made by a private shipping company acting as general agent of the United States.
Section 1(a) of the Clarification Act, supra , assures officers and members of crews employed on United States vessels as employees of the United States through the War Shipping Administration all the safeguards in collecting wages and bonuses and making allotments to which seamen employed on privately owned American vessels are entitled, but has no effect on the income tax liability which accrues to such seamen by reason of such earnings.
Accordingly, it is held that wages paid by a private shipping line as general agent of the United States, from funds provided for that purpose by the United States, to a citizen of the United States as compensation for services performed on a vessel owned, or owned for the time being, by an agency of the United States and operated by the United States, are not excludable from gross income under the provisions of section 911(a)(2) of the Code even though the employee may be physically present in a foreign country or countries for 510 full days or more of an 18 consecutive month period to which such wages are attributable. Section 1(a) of the Clarification Act of March 24, 1943, affords no basis for holding that such compensation is entitled to exemption from taxation under section 911(a)(2) of the Code.