Rev. Rul. 72-23

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 3767, C.B. 1945, 101.

The question presented is whether wages paid by a father to his unemancipated minor child for personal services rendered as a bona fide employee are deductible as ordinary and necessary expenses for Federal income tax purposes.

Section 162(a)(1) of the Internal Revenue Code of 1954 provides, in part, that there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered.

Sections 212(1) and 212(2) of the Code provides that in the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income.

Under section 73 of the Code, amounts received in respect of the services of a child are includible in the gross income of the child and not in the gross income of the parent. Section 73(c) of the Code provides that for purposes of section 73, the term "parent" includes an individual who is entitled to the services of a child by reason of having parental rights and duties in respect of the child.

Accordingly, it is held that reasonable wages paid by a father to his unemancipated minor child for personal services actually rendered as a bona fide employee in the conduct of a trade or business, or in the production of income, are deductible as ordinary and necessary expenses, for Federal income tax purposes.

I.T. 3767 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

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