Rev. Rul. 70-264

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in G.C.M. 22314, C.B. 1940-2, 157.

The question presented is whether certain income of a taxpayer, entitled to the benefits of section 931 of the Internal Revenue Code of 1954, was received by him in the United States for the purpose of section 931(b) of the Code.

The taxpayer, a United States citizen, has been engaged in the practice of his profession since 1966 in the Panama Canal Zone, a possession of the United States. In December 1968, the taxpayer began a vacation in the United States and his vacation extended into the year 1969. At the conclusion of his vacation he returned to his practice in the Panama Canal Zone.

During his absence from the Panama Canal Zone professional fees due him for services performed in the Canal Zone were received by his agents in that possession and deposited by them in his bank account there.

The specific question is whether such fees which accrued to the taxpayer while he was in the United States are taxable to him under section 931(b) of the Code as income constructively received in the United States.

Section 931(a) of the Code provides, in pertinent part, that in the case of citizens of the United States, gross income means only gross income from sources within the United States if the following conditions are satisfied: (1) if 80 percent or more of the gross amount of such citizen for the 3-year period immediately preceding the close of the taxable year was derived from sources within a possession of the United States; and (2) in the case of such citizen, 50 percent or more of his gross income for such period was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another.

Section 931(b) of the Code provides, in part, that notwithstanding section 931(a) of the Code, there shall be included in gross income all amounts received by such citizen within the United States, whether derived from sources within or without the United States.

The temporary presence of the taxpayer in the United States is in itself insufficient to warrant the conclusion that he constructively received income in the United States when such income was actually earned from the practice of his profession in the Canal Zone and received by his agents in the Panama Canal Zone, the place of his residence.

Accordingly, it is held that the fees received by the taxpayer were not received by him in the United States and do not come under the purview of section 931(b) of the Code. The receipt by the taxpayer's agents in the Panama Canal Zone is equivalent to receipt there by the taxpayer.

G.C.M. 22314 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.