Rev. Rul. 60-9

Advice has been requested with respect to the treatment for Federal income tax purposes of additional longevity pay received by a member of the Armed Forces of the United States.

The member received additional longevity pay for the years June 1, 1942 to December 31, 1956, based on his service in the National Guard for three years prior to his becoming 18 years of age. Before March 6, 1946, service in the uniformed services or the National Guard prior to the attainment of age 18 was not includible in the computation of longevity pay.

The Act of March 6, 1946, Public Law 309, 79th Cong., 60 Stat. 32, provides that any service which would be creditable for the purpose of computing longevity pay, or for other pay purposes, of members of the uniformed services, except for the fact that such service was or shall be performed prior to the attainment of the age of 18 years, shall, under such regulations as the bead of the Department concerned may prescribe, be credited notwithstanding such fact. The provisions of this Act were effective from June 1, 1942, until six months after the termination of World War II.

The Career Compensation Act of 1949, 37 U.S.C. 233, with respect to services creditable in computation of basic pay, provides that the periods of time authorized to be counted in such computation shall, under such regulations as the Secretary concerned may prescribe, include all service theretofore or thereafter performed by the members of the uniformed services prior to their attainment of 18 years of age. The Act includes the National Guard as one of the uniformed services.

Section 1303 of the Internal Revenue Code of 1954 provides, in part, as follows:

(a) LIMITATION ON TAX.-If the amount of the back pay received or accrued by an individual during the taxable year exceeds 15 percent of the gross income of the individual for such year, the part of the tax attributable to the inclusion of such back pay in gross income for the taxable year shall not be greater than the aggregate of the increases in the taxes which would have resulted from the inclusion of the respective portions of such back pay in gross income for the taxable years to which such portions are respectively attributable, as determined under regulations prescribed by the Secretary or his delegate.

(b) DEFINITION OF BACK PAY.-For purposes of this section, the term `back pay' means amounts includible in gross income under this subtitle which are one of the following-

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(2) Wages or salaries which are received or accrued during the taxable year by an employee for services performed before the taxable year for his employer and which constitute retroactive wage or salary increases ordered, recommended, or approved by any Federal or State agency, and made retroactive to any period before the taxable year.

Section 1.1303-1(b)(2) of the Income Tax Regulations provides that `back pay' includes retroactive wages or salary increases received or accrued during a taxable year by an employee for services performed in a prior taxable year which have been ordered, recommended, or approved by any Federal or State agency.

Accordingly, it is held that the amount received by a member of the Armed Forces as additional longevity pay in accordance with the Act of March 6, 1946, supra , and the Career Compensation Act of 1949, supra , constitutes `back pay' under the provisions of section 1303(b)(2) of the Code. It the amount of such pay exceeds 15 percent of the taxpayer's gross income for the year in which it is received, it qualifies for treatment under section 1303(a) of the Code.

In such event it is not necessary that amended returns be filed for the prior years, as the additional pay is income for the year in which it is received. The tax for the current taxable year, however, will be the lesser of (a) the tax for the current taxable year, including in the gross income of such year the back pay received in such year, or (b) the tax for the current taxable year excluding from gross income the back pay received in such year, plus the aggregate of the increase in the taxes which would have resulted from the inclusion of the respective portions of the back pay received in the gross income for each taxable year to which such portion is respectively attributable. Separate schedules showing computation of the tax should be attached to the return for the taxable year in which it is included.