Rev. Rul. 54-567

Advice has been requested whether a taxpayer who furnishes the amount of $1,500 (more than 50 percent) for the support of his son and his son's wife will be allowed a dependency credit for them if the son who is domiciled in the State of Texas, a community property State, earns only $1,000 but filed a joint return to obtain a refund of the tax withheld from his wages.

Under the community property laws of Texas the $1,000 earned by the son constitutes community income to him and his wife in the amount of $500 each. See George C. Hopkins, Collector v. C. W. Bacon , Ct. D. 260, 282 U.S. 122, C.B. IX-2, 201 (1930). Since neither had a gross income of $600 or more neither was required to file an income tax return for such year.

Section 39.322-3 of Regulations 118 requires that claims by the taxpayer for the refund of taxes erroneously or illegally collected shall be made on Form 843, or on Individual Income Tax Return, Form 1040 or Form 1040A, or an amended return, and should be filed with the District Director of Internal Revenue. Such section further provides that a properly executed return on Form 1040 shall, at the election of the taxpayer, constitute a claim for refund or credit within the meaning of section 322 of the Code for the amount of the overpayment disclosed by such return, and that the filing of a properly executed return on Form 1040A shall constitute an election by the taxpayer to have the return treated as a claim for refund. Such return shall constitute a claim for refund within the meaning of that section.

Section 405.401 of Regulations 116 provides that the entire amount of the wages from which tax is withheld shall be included in gross income in the return required to be made by the recipient of the income without deductions for the amount of tax withheld. The tax withheld is allowable as a credit against the tax imposed by chapter 1 of the Internal Revenue Code of 1939 upon the recipient of the income. In section 322(a)(2) of the Code (chapter 1) it is provided that where the amount of the tax withheld at the source under subchapter D of chapter 9 of the Code exceeds the taxes imposed by chapter 1, against which the tax so withheld may be credited within the provisions of section 35 of the Code, the amount of such excess shall be considered an overpayment. Under section 322(a)(1) of the Code where there has been an overpayment of any tax imposed by chapter 1, the amount of such overpayment shall be credited against any income, war-profits, or excess-profits tax or installment thereof then due from the taxpayer, and any balance shall be refunded immediately to the taxpayer.

Section 25(b)(1)(D) of the Code provides that a taxpayer shall be allowed an exemption of $600 for each dependent whose gross income for the calendar year in which the taxable year of the taxpayer begins is less than $600. But as an exception to the rule that section further provides that the exemption `shall not be allowed in respect of a dependent who has made a joint return with his spouse under section 51 for the taxable year beginning in such calendar year.'

The son and his wife in this case were not required under section 51 of the Code to file a joint return. The return form which was filed is not regarded as `a joint return with his spouse under section 51' for the purpose of the exemption set forth in section 25(b)(1)(D) of the Code but instead constitutes a claim for refund within the scope of section 322 of the Code. Accordingly, it is held that the taxpayer may claim his son and his daughter-in-law as his dependents for Federal income tax purposes provided the other requirements for a dependency credit are met.