Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 70-71

1970-1 C.B. 1

Sec. 37

IRS Headnote

An annuity received by a 61-year-old taxpayer pursuant to a retirement plan for civilian employees of the Army and Air Force Exchange Service is an amount received under a public retirement system for purposes of section 37(c)(2) of the Code.

Full Text

Rev. Rul. 70-71

Advice has been requested whether an annuity received by a 61-year-old taxpayer, pursuant to a retirement plan for civilian employees of the Army and Air Force Exchange Service, is an amount received under a public retirement system for purposes of section 37(c)(2) of the Internal Revenue Code of 1954.

Section 37(a) of the Code provides a credit against tax in the case of an individual who receives in the taxable year retirement income as defined in section 37(c) and who meets the eligibility requirements of section 37(b). Section 37(c)(2) of the Code provides, in pertinent part, that "retirement income" means, in the case of an individual who has not attained the age of 65 before the close of the taxable year, income from pensions and annuities under a public retirement system as defined in subsection (f). The term "public retirement system" is defined in section 37(f) of the Code as meaning a pension, annuity, retirement, or similar fund or system established by the United States, a State, a Territory, a possession of the United States, any political subdivision of any of the foregoing, or the District of Columbia.

The Army and Air Force Exchange Service (referred to herein as the AAFES) operates pursuant to the authority contained in the Department of Defense regulations 32 CFR 554. The AAFES is an instrumentality of the United States, and suits by or against the AAFES must be brought in the name of the United States (32 CFR 554.6). Control of the AAFES is vested jointly and co-equally in the Secretary of the Army and the Secretary of the Air Force (32 CFR 554.3).

The Departments of the Army and the Air Force have issued joint regulations for the administration of the AAFES. Army Regulation 60-21/Air Force Regulation 147-15 provides that the AAFES employee benefit program includes retirement annuity benefits (paragraphs 5-23) and requires that all eligible employees participate in the retirement program (paragraph 5-24).

The Supreme Court of the United States held, in Standard Oil Co. of California v. Charles G. Johnson, 316 U.S. 481 (1942), that the United States Army Post Exchanges (which are now part of and under the administration of the AAFES) are an arm of the United States. The Court's decision was based, in part, on the fact that Post Exchanges were established and controlled in accordance with War Department regulations. The Court stated that these regulations have the force of law.

The Department of Defense is the successor to the War Department and the AAFES stands in the same position in relation to the Department of Defense as the United States Post Exchanges stood in relation to the War Department. Therefore, a pension system established by the AAFES is established by the United States.

Accordingly, it is held that the annuity the taxpayer received pursuant to the retirement plan for civilian employees of the AAFES is an amount received under a public retirement system for purposes of section 37(c)(2) of the Code.