Rev. Rul. 75-460

Advice has been requested whether, under the circumstances described below, an individual qualifies for the limitation on tax provided in section 1301 of the Internal Revenue Code of 1954.

In 1969, 1970, and 1971 the taxpayer and spouse filed joint Federal income tax returns reporting taxable income in the amount of $20,000 each year. This income was entirely attributable to the spouse's earnings as a self-employed individual. In 1972 the taxpayer was divorced and reported $2,000 taxable income as a single individual. In 1973 and 1974 the taxpayer, filing as a single person, had taxable income of $8,000 and $20,000 respectively. During the years 1969 through 1974 the taxpayer was over 25 years of age and was not a full-time student. The taxpayer and spouse did not have earned income from sources outside the United States or from sources within United States possessions during this time.

Section 1301 of the Code provides that if an eligible individual has averageable income for the computation year, and if the amount of such income exceeds $3,000, then the tax imposed by section 1 for the computation year which is attributable to averageable income shall be five times the increase in tax under section 1 which would result from adding 20 percent of such income to 120 percent of average base period income.

Section 1302(a) of the Code provides that "averageable income" means the amount by which taxable income for the computation year (reduced as provided therein) exceeds 120 percent of average base period income.

Section 1302(b) of the Code provides, in part, that the term "average base period income" means one-fourth of the sum of the base period incomes for the base period, and that "base period income" for any taxable year is the taxable income for such year adjusted as provided therein.

Section 1302(c) of the Code defines the term "computation year" to mean the taxable year for which the taxpayer chooses the benefits of income averaging and the term "base period" to mean the four taxable years immediately preceding the computation year.

In the case of an individual who is not married in the computation year, but who was married during any of the base period years, section 1304(c)(2)(B) of the Code provides that the base period income of an individual for any base period year shall not be less than 50 percent of the base period income resulting from combining the individual's income and deductions for such year with the income and deductions for such year of the individual who was his spouse for such base period year.

The computations necessary to determine whether the individual in the instant case qualifies for the limitation on tax provided by section 1301 of the Code for the years 1973 and 1974 are shown below:

 1.                                              Computation Year