Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 64-70

1964-1 C.B. 67

Sec. 61

Sec. 72

Sec. 102

IRS Headnote

Supplemental pension amounts paid to state and local retired employees and teachers pursuant to the provisions of the `Supplemental Pension Act' of the State of New York, the provisions of that Act incorporated into the `Retirement and Social Security Law,' and the `Supplemental Retirement Allowance Act' are includible in the gross income of the recipients, except to the extent that section 72(d)(1) of the Internal Revenue Code of 1954 permits an exclusion.

Full Text

Rev. Rul. 64-70

Advice has been requested regarding the taxability of supplemental pension amounts paid to state and local retired employees and teachers of the State of New York.

Pursuant to the `Supplemental Pension Act' of the State of New York (Laws of New York, 1952, Vol. 1, Chapter 319, 964), the provisions of such act which were subsequently incorporated into the `Retirement and Social Security Law' (Laws of New York, 1955, Vol. 2, Chapter 687, 1611, beginning at page 1698) and the `Supplemental Retirement Allowance Act' (Laws of New York, 1960, Vol. 2, Chapter 816, 2160), certain qualified pensioners of the State of New York and its political subdivisions were paid supplemental pension amounts. These supplemental amounts were paid to all qualified retirees automatically, without regard to need or other means of support, to augment their pensions received for past services.

Section 61 of the Internal Revenue Code of 1954, corresponding to section 22(a) of the Internal Revenue Code of 1939, provides that gross income means all income from whatever source derived, including compensation for services, fees, pensions and similar items, except as otherwise provided by law.

Section 102 of the 1954 Code and its predecessor under the 1939 Code provides that gross income does not include the value of property acquired by gift.

It is the well settled position of the Internal Revenue Service that pensions paid by employers to persons by whom services have been rendered are in the nature of additional compensation for such services and are consequently distinguishable from gifts. Sections 1.61-2(a) and 1.61-11 of the Income Tax Regulations. Even when the pension is granted under a pension system inaugurated after the employment has commenced and without compansion, legal or moral, it may still be regarded as additional compensation. See L.O. 1040, C.B. 3, 120 (1920).

Revenue Ruling 57-508, C.B. 1957-2, 67, holds that the amount of an annuity payment under the United States Civil Service Retirement System to be excluded from gross income by an annuitant, who determines the portion of an annuity excludable from gross income by means of an exclusion ratio percentage, as provided by section 72(b) of the Code, remains the same as that computed at the annuity starting date, even though subsequent to such date there has been an increase in the amount of the monthly payments. Thus, in effect, the Ruling holds that an increase in the amount of pension payments made subsequent to the commencement of the payments, is includible in gross income.

It is apparent in the instant case that the State of New York has merely increased the compensation for past services received by the retirees. Thus, such increase is also in the nature of additional compensation.

Accordingly, it is held that the supplemental pension amounts paid to state and local retired employees and teachers of the State of New York pursuant to the provisions of the `Supplemental Pension Act,' the provisions of that Act incorporated into the `Retirement and Social Security Law,' and the `Supplemental Retirement Allowance Act' are includible in the gross income of the recipients, except to the extent that section 72(d)(1) of the Code permits the amount to be applied as an acceleration of the recovery of the consideration contributed by a recipient into a retirement system of the state.