Rev. Rul. 73-390

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. 18884, 1937-2 C.B. 58.

The question presented is whether, under the circumstances described below, the separately earned income of spouses residing in California is treated as their separate or community income, for Federal income tax purposes.

A husband and wife, residing and working in California, entered into a valid agreement whereby it was stated that any income subsequently earned by either of them for personal services would be his or her separate property.

Under California law, the respective interests of the husband and wife in community property during continuance of the marriage relation are present, existing, and equal. See section 5105 of the Civil Code of California. The earnings of a husband and a wife during marriage are normally community property of the spouses. Thorpe v. Thorpe, 75 Cal. App. 2d 605 (1946); Sbarbaro v. Rosa, 48 Cal. App. 2d 584 (1942).

Under California law, either husband or wife may enter into any engagement or transaction with the other, or with any other person, respecting property, which either might if unmarried, subject, in transactions between themselves, to the general rules which control the actions of persons occupying confidential relations with each other. See section 5103 of the Civil Code of California.

Where a husband and wife, residing in California, entered into a valid agreement that the wife's earnings would be her separate property, such earnings could not be taxed as community income. See Dale Van Every v. Commissioner, 108 F.2d 650 (1940), certiorari denied, 309 U.S. 689 (1940); Helvering v. Hickman, 70 F.2d 985 (1934), XIII-2 C.B. 274 (1934). See also Rev. Rul. 73-391, this page, which involves the treatment of amounts paid by a partnership to a husband for services where the husband and his wife are members of the partnership.

Accordingly, in the instant case, since the husband and wife entered into a valid agreement under the law of California, whereby any income subsequently earned by either of them for personal services would be his or her separate property, such income earned by either of them after the agreement was consummated is treated as the separate income of the spouse earning the income and not as community income, for Federal income tax purposes.

G.C.M. 18884 is hereby superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, 1967-1 C.B. 576.