Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 60-66

1960-1 C.B. 21

Sec. 61

IRS Headnote

The subsistence and rental allowances paid in cash to a contract surgeon by the Department of the Army constitute wages which are includible in gross income and are subject to the withholding of income tax at source.

Full Text

Rev. Rul. 60-66

Advice has been requested with respect to the status of subsistence and rental allowances paid in cash to a contract surgeon with the Department of the Army.

In the instant case, the surgeon agreed, duridng the term of an employment contract, to perform for and on behalf of the Government the professional and administrative duties of an officer of the Medical Corps, United States Army, in accordance with laws and regulations in effect upon the execution of the contract and as they may be amended. The surgeon under the contract is paid the basic allowances for subsistence and quarters provided for members of the uniformed services.

Section 61 of the Internal Revenue Code of 1954 provides, with certain exceptions, that gross income means all income from whatever source derived. Section 1.61-2 of the Income Tax Regulations provides, in part, as follows:

(b) Members of the Armed Forces, Coast and Geodetic Survey, and Public Health Service .-Subsistence and uniform allowances granted commissioned officers, * * * and enlisted personnel of the Armed Forces, * * * and amounts received as commutation of quarters are to be excluded from gross income. Similarly, the value of quarters or subsistence furnished to such persons is to be excluded from gross income.

This section of the regulations is based upon the decision in Clifford Jones v. United States , 60 Ct.Cls. 552, T.D. 3724, C.B. IV-2, 136 (1925), that the value of quarters furnished in kind to an Army officer, or cash allowances in commutation thereof, is excludable from gross income, and Mimeograph 3413, C.B. V-1, 29 (1926), which extended this position to exempt the basic money allowance for subsistence received by all members of the uniformed services of the United States. However, Gunnar Van Rosen v. Commissioner , 17 T.C. 834, it was held that the Clifford Jones decision did not apply to a civilian shipmaster employed by the Army Transportation Corps.

Under the circumstances described, the contract surgeon is not a member of the uniformed services. Accordingly, it is held that the subsistence and rental allowances paid in cash to him by the Department of the Army constitute wages within the meaning of section 3401 of the Code and are includible in gross income and subject to the withholding of income tax at source.