Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 76-97

1976-1 C.B. 15

Section 61
Section 861
Section 871

IRS Headnote

Interest on joint savings account of resident and nonresident aliens. A resident alien must include in gross income one-half the interest earned on a savings account owned jointly with a nonresident alien in a State under whose law joint tenants share profits equally. The nonresident alien is not required to report one-half of the interest paid or credited prior to 1977 if the interest is not effectively connected with the conduct of a trade or business in the U.S.

Full Text

Rev. Rul. 76-97

The Internal Revenue Service has been requested to state its position with respect to the Federal income tax treatment to be accorded interest earned under the circumstances described below.

A, a resident alien, and B, a nonresident alien and parent of A, own a joint savings account at a savings and loan association in State M. Both are citizens of a foreign country. The interest earned on the account is not effectively connected with the conduct of a trade or business by B in the United States. A resides in State M, and B resides in the foreign country. Under the law of State M, the joint account is held by A and B as joint tenants. Also, under the law of State M, joint tenants share equally in the profits derived from joint property.

The question arises as to who must report the interest in gross income and in what amount.

Section 61 of the Internal Revenue Code of 1954 provides, in part, that except as otherwise provided, gross income means all income from whatever source derived including interest.

Section 871 of the Code provides, in part, that nonresident aliens are taxable only on income from sources within the United States. Section 861(a)(1)(A) and section 861(c) of the Code provides that interest paid or credited to a nonresident alien before January 1, 1977, on deposits with savings institutions chartered and supervised as savings and loan associations under United States or state law is not considered to be income from sources within the United States, if the income is not effectively connected with the conduct of a trade or business in the United States.

For Federal income tax purposes, if two or more persons hold a savings account as joint tenants, the interest earned is owned by each person to the extent that each tenant is entitled under local law to a share of such income. Under the law of State M, the joint account is held by A and B as joint tenants. Further, under the law of State M, joint tenants share equally in the profits derived from joint property. Thus, the interest income earned by the funds on deposit with the savings and loan association in State M is owned one-half by each A and B.

Accordingly, in the instant case, A must report one-half of the interest income earned by the funds on deposit as gross income pursuant to section 61 of the Code. Further, pursuant to section 861, B is not required to report the one-half share of interest income paid or credited before January 1, 1977, attributable to B's one-half interest in the account.