Rev. Rul. 65-140

The Internal Revenue Service has been requested to explain the application of Revenue Ruling 60-216, C.B. 1960-1, 126, to cases where there is a change in marital status because of the death of one of the parties to the marriage.

Revenue Ruling 60-216 holds that where, in a community property State, there is a change in marital status by divorce, and subsequently one of the parties to the marriage sustains a net operating loss, the loss may be carried back only to that portion of the taxable income reported on a previously filed joint return of community income which is vested in the party who sustained the loss.

Although Revenue Ruling 60-216 involved taxpayers residing in a community property State where the marital status was change by divorce, it would also be applicable in noncommunity property States and to a change in marital status because of the death of one of the parties to the marriage.

Accordingly, when there is a change in marital status because of the death of one of the parties to the marriage, and in a succeeding year the survivor sustains a net operating loss, the loss may be carried back only to that portion of the income reported on a joint return previously filed with the decedent, which is vested in the survivor.

After deducting the net operating loss in the carryback year, the joint rates are applicable to the resulting taxable income in accordance with section 2 of the Internal Revenue Code of 1954.

Revenue Ruling 60-216, C.B. 1960-1, 126, is hereby amplified.