Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 70-87

1970-1 C.B. 29

IRS Headnote

A serviceman should include the tax-exempt basic allowance for quarters received under the Career Compensation Act of 1949, as amended, in determining whether his contribution to a claimed dependent meets the support test under section 152(a) of the Code; I.T. 4092 superseded.

Full Text

Rev. Rul. 70-87 /1/

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 4092, C.B. 1952-2, 115.

The question presented is whether a serviceman may take into consideration his basic allowance for quarters received under the Career Compensation Act of 1949, as amended (37 U.S.C. 403), and used for the support of an individual, in determining whether he furnished more than one-half of that individual's support, within the meaning of section 152(a) of the Internal Revenue Code of 1954, for purposes of the additional exemption for dependents provided by section 151(e) of the Code.

The Career Compensation Act of 1949, as amended, provides a "basic allowance for quarters" that substantially replaces the monthly family allowance previously provided by the Servicemen's Dependents Allowance Act of 1942 (56 Stat. 381). This allowance is paid to or on behalf of specified dependents, provided the enlisted member has in effect an allotment of pay for the support of his dependents of not less than the sum of the basic allowance for quarters to which he is entitled plus an additional amount determined by reference to his pay grade. The amount of the allowance is determined by reference to the enlisted man's pay grade and the number of his dependents.

Section 152(a) of the Code defines the term "dependent" as an individual who is related to the taxpayer in any of certain specified ways, over half of whose support for the calendar year in which the taxable year of the taxpayer begins was received from the taxpayer (or is treated under the Code as received from the taxpayer). The term "support" as defined in section 1.152-1(a)(2) of the Income Tax Regulations includes food, shelter, clothing, medical and dental care, education, and the like.

The term "support" clearly encompasses that part of the monthly payment to the individual that is charged to the serviceman's pay, to the extent that it is used for the support of the individual. The part of the payment charged to the serviceman's pay is, in effect, an assignment by him to the individual. This amount is treated for income tax purposes as constructively received by the assignor (the serviceman). It is includible in his gross income and is subject to withholding of income tax the same as it would be if it were paid directly to him. The amount is not taxable to the assignee.

The remaining portion of the monthly payment to the individual, which is the basic allowance for quarters under the Career Compensation Act of 1949, as amended, is not wages subject to withholding of income tax at the source and is excludable from gross income of both the serviceman and the individual.

The serviceman allots both the quarters allowance and the required amount of his service pay to his dependents. He is considered as furnishing the total amount thus received by his dependents in much the same manner as if he had actually assigned or given such amount to them.

Accordingly, in determining whether the serviceman has furnished more than one-half of the support of the individual for purposes of section 152(a) of the Code, the entire amount furnished by the serviceman, including the tax-exempt basic allowance for quarters to which the serviceman is entitled under the Career Compensation Act of 1949, as amended, and used for the support of the individual, must be considered.

I.T. 4092 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.