Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-81

1968-1 C.B. 40

Sec. 61
Sec. 871
Sec. 911
Sec. 6013

IRS Headnote

One-half of the income received from the United States Government by a Federal employee who is a United States citizen domiciled in Spain and who is the wife of a Spanish citizen (a nonresident alien with respect to the United States), is taxable to her on a separate return in the absence of an election under section 981(a) of the Internal Revenue Code of 1954. The remaining one-half which is attributable to her husband under the Community Property Law of Spain is not subject to Federal income tax.

Full Text

Rev. Rul. 68-81

I.T. 1513, C.B. I-2, 149 (1922), revoked.

The Internal Revenue Service has been requested to state its position, in view of the principles stated in I.T. 1513, C.B. I-2, 149 (1922), regarding the taxability of amounts received under the following circumstances.

The taxpayer, a United States citizen and a bona fide resident of Spain, is the wife of a Spanish citizen who is a nonresident alien with respect to the United States. She is in receipt of income from personal services performed  in Spain as an employee of the United States Government. The taxpayer has not made the election provided by section 981(a) of the Internal Revenue Code of 1954 to have such income treated in accordance with the provisions of section 981 of the Code relating to the treatment of income subject to foreign community property laws.

I.T. 1513 holds that inasmuch as under the Community Property Law of Spain, the wife's interest in community property is, prior to liquidation, an inchoate interest, or a mere expectancy, the income of a nonresident alien, residing in Spain, derived from a partnership engaged in business in the United States should be returned in its entirety by the nonresident alien husband.

Section 61 of the Code provides that gross income includes, among other items, compensation for services from whatever source derived.

The amounts received, in the instant case, are not exempt from taxation under section 911(a) of the Code as earned income from sources without the United States since the taxpayer is an employee of the United States Government.

Thus, the ultimate determination of the amount taxable is dependent upon the resolution of the nature of the interest of a husband and wife in community property under the laws of Spain. A study of current authorities on the subject and an analysis of cases in related areas supports the position that each spouse, under the Community Property Law of Spain, has a present vested interest in one-half of the community property, including the income earned by each.

Accordingly, in the instant case, one-half of the income received from the United States Government by a Federal employee who is a citizen of the United States domiciled in Spain and who is the wife of a Spanish citizen (a nonresident alien with respect to the United States) is taxable to her on a separate return in the absence of an election under section 981(a) of the Code. The remaining one-half which is attributable to her husband under the Community Property Law of Spain is not subject to Federal income tax.

I.T. 1513 is hereby revoked.