Rev. Rul. 64-51

Advice has been requested regarding the withholding of tax under section 1441 of the Internal Revenue Code of 1954 from income derived by an insured nonresident alien individual from sources within the United States either upon the surrender of, or at the maturity of, a life insurance policy.

Under section 61(a)(10) of the Code, the proceeds received by an insured upon the surrender of, or at the maturity of, a life insurance policy constitutes ordinary income to the extent such proceeds exceed the cost of the policy.

Section 1441(a) of the Code provides that tax is to be withheld from any of the income items specified in subsection (b) of that section. The amount of tax to be withheld is equal 30 percent of the fixed or determinable annual or periodical income payable to a nonresident alien individual to the extent that such items constitute gross income from sources within the United States unless such income is subject to a lower rate of tax under a treaty between the United States and the country of which the nonresident alien is a citizen or resident. Items which constitute such gross income are enumerated in subsection (b), in part, as dividends, rent, salaries wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income.

Section 1.1441-2(a) of the Income Tax Regulations states that income is fixed when it is paid in amounts which can be definitely predetermined and that income is determinable whenever there is a basis of calculation by which the amount to be paid may be ascertained. The term `fixed or determinable annual or periodical' income is merely descriptive of a class of income. The fact that an item is paid in a lump-sum or in repeated payments is immaterial so long as some part of each item falls within the class of income contemplated by the statute.

The Supreme Court of the United States in Commissioner v. Pelham G. Wodehouse , 337 U.S. 369, Ct. D. 1722, C.B. 1949-2, 62, held, in effect, that a single payment to a nonresident alien author for publication rights to a story constituted income which was subject to the withholding of tax under section 143(b) of the Internal Revenue Code of 1939 (now section 1441 of the 1954 Code).

Thus in the present case, even though there was a single payment to a nonresident alien, the income realized from the transaction comes within section 1441 of the Code.

Generally, the company issuing the life insurance policy can predetermine and has a basis of calcuation to ascertain the amounts to be paid to and the income to be included in the cash surrender value or the maturity value of such a policy. Therefore, the income realized upon surrender or maturity of a life insurance policy comes within the definition of the term `fixed or determinable annual or periodical income.'

Accordingly it is held that the income derived from sources within the United States paid to a nonresident alien upon the surrender of, or at the maturity of, a life insurance policy is subject to the withholding of tax under section 1441 of the Code.