Gross income - Uncle Fed's Tax*Board
Gross income - Uncle Fed's Tax*Board Gross income - Uncle Fed's Tax*Board
Gross income (See also specific subject headings)
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<strong>Gross</strong> <strong>income</strong><br />
(See also specific subject headings)
<strong>Gross</strong> <strong>income</strong><br />
Exclusions-inclusions<br />
274.1 Acreage and conservation reserve payments;<br />
farmers. Payments and cost-sharng<br />
benefits under the acreage and conservation<br />
reserve programs of the Soil Bank Act are includible<br />
in the gross <strong>income</strong> of the recipient whether<br />
paid in cash, grain, or reduction of Commodity<br />
Credit Corporation loans. Further, such payments<br />
are includable in the recipient’s net earnings from<br />
self-employment; however, if he does not operate<br />
or materially participate in the operation of his<br />
farm they are not includible. §§1.61-4, 1.451-1,<br />
1.1402(a)-1. (Secs. 61, 451, 1402; ’86 Code.)<br />
Rev. Rul. 60-32, 1960-1 C.B. 23.<br />
274.2 Actors; telecasting of old movies.<br />
Amounts distributed by an actors guild to actors as<br />
a result of the telecasting of certain motion pictures<br />
are includable in the gross <strong>income</strong> of the<br />
actors in the year received. Such amounts do not<br />
constitute wages for employment tax purposes.<br />
Rev. Rul. 54-225 distinguished. §1.61-1. (Sec.<br />
61, ’86 Code.)<br />
Rev. Rul. 60-89, 1960-1 C.B. 379.<br />
274.3 Adoption of poison pill plans. The adoption<br />
of a “poison pill” plan by a corporation does<br />
not cause any taxpayer to realize gross <strong>income</strong>.<br />
(Secs. 61, 301, 382, 1001, ’86 Code.)<br />
Rev. Rul. 90-11, 1990-1 C.B. 10.<br />
274.4 Advance payments; security deposits;<br />
coupon clearinghouse. Amounts received by a<br />
coupon clearinghouse as security deposits from its<br />
retail merchant clients to cover losses from invalid<br />
coupons submitted by the merchants are not<br />
includible in gross <strong>income</strong>. §1.61–1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 82–28, 1982–1 C.B. 11.<br />
274.5 Advance to investors; development of<br />
oil and gas leases. A group of investors contracted<br />
to sell natural gas from its leases to a gas company<br />
pursuant to an agreement calling for the interestfree<br />
advance of money by the purchaser to develop<br />
the leases. No <strong>income</strong> is realized by a cash method<br />
member of the group as a result of the loan. (Sec.<br />
61, ’86 Code.)<br />
Charles E. Marsh, 73 T.C. 317, Nonacq., 1980-2<br />
C.B. 2.<br />
274.6 Advances to commission salesmen;<br />
charged off by employer. Advances orginally<br />
intended as loans to commission salesmen, that<br />
are subsequently charged off by the employer are<br />
additional compensation to the salesmen and are<br />
deductible by the employer in the year of the<br />
charge-off. I.T. 2043 superseded. §§1.61–12,<br />
1.162-7. (Secs. 61, 162; ’86 Code.)<br />
Rev. Rul. 69-465, 1969–2 C.B. 27.<br />
274.7 Advances to drug manufacturers for<br />
self-insurance; Swine Flu Program. Funds<br />
advanced by the U.S. to drug manufacturers and<br />
placed in a segregated interest-bearing bank<br />
account to be used to satisfy claims against the<br />
manufacturers in connection with the National<br />
Swine Flu Immunization Program of 1976 are<br />
includable in the <strong>income</strong> of the drug manufacturers<br />
when withdrawn from the account. The manufacturer<br />
may deduct amounts paid or incurred in satisfaction<br />
of damage recoveries or for expenses<br />
incurred in the investigation, settlement, or<br />
defense of any actual or potential claim or suit.<br />
§§1.61-2, 1.162-1. (Secs. 61, 162; ’86 Code.)<br />
Rev. Rul. 77–120, 1977–1 C.B. 16.<br />
274.8 Advances to organization; year-end<br />
excess. An organization that received, from its<br />
retail florist membership, advertising and operating<br />
advances to be used for predetermined purposes,<br />
any year-end excess of advances over<br />
actual expenses being held by the organization as<br />
the member’s assets, will not have such excess<br />
amounts taxable to it as <strong>income</strong>. (Sec. 61, ’86<br />
Code.)<br />
Florists’ Transworld Delivery Assoc., 67 T.C.<br />
333, Nonacq., 1978-2 C.B. 3.<br />
274.9 Advertising and promotion by membership<br />
corporation. Amounts received from<br />
franchised automobile dealers and an automobile<br />
manufacturer by a corporation, organized and<br />
operated primarily to advertise and promote the<br />
manufacturer’s automobiles, are includable in the<br />
gross <strong>income</strong> of the corporation, which is entitled<br />
to all allowable deductions, subject to the rules<br />
relating to deductions by membership organizations<br />
from transactions with its members. The Service<br />
will not follow the contrary decisions in Ford<br />
and Broadcast Measurement Bureau. Rev. Rul.<br />
56-209 superseded. §1.61-1. (Secs. 61, 277; ’86<br />
Code.)<br />
Rev. Rul. 74-318, 1974-2 C.B. 14; Ford Dealers<br />
Advertising Fund, 55 T.C. 761, Nonacq., 1974-2<br />
C.B. 5.<br />
274.10 Advertising and promotion by membership<br />
fund. An advertising fund was established<br />
by franchised dealers for administration by<br />
the franchising manufacturer who would receive<br />
and accumulate the nonrefundable contributions<br />
and spend them exclusively to nationally advertise<br />
the franchised product, accounting for any yearend<br />
balance as a liability to the dealers. Held, the<br />
arrangement created an association taxable as a<br />
corporation and the association, not the manufacturer,<br />
realizes gross <strong>income</strong>. §§1.61-1,<br />
301.7701-1. (Sec. 22(a), ’39 Code; Secs. 61, 277,<br />
7701, ’86 Code.)<br />
Rev. Rul. 74-319, 1974-2 C.B. 15; Seven-Up<br />
Co., 14 T.C. 965, Acq. in result, 1974-2 C.B. 4.<br />
274.11 Advertising, freight, and promotion<br />
by distributors’ association. Independent distributors,<br />
all of whom were required to pay their<br />
own freight, advertising, and promotion costs,<br />
formed their own association and set up a trust<br />
fund in which their contributions were pooled and<br />
expended for authorized freight, advertising, and<br />
promotional costs. At the end of each year, the<br />
unexpended portion of the contributions was<br />
retained in the fund to redeem promotional tokens<br />
included in the products sold. Held, the amount<br />
retained in the fund does not constitute <strong>income</strong> to<br />
the association. (Secs. 61, 277; ’86 Code.)<br />
Dri-Powr Distributors Association Trust, 54<br />
T.C. 460, Nonacq., 1974-2 C.B. 5.<br />
274.12 Advertising, freight, and promotion<br />
by distributors’ association. Independent distributors,<br />
all of whom were required to pay their<br />
own freight, advertising, and promotion costs,<br />
formed their own association and set up a trust<br />
fund in which their contributions were pooled and<br />
expended for authorized freight, advertising, and<br />
promotional costs. The trust fund, managed by the<br />
manufacturer of the distributed products, had<br />
excess funds at the tax year’s end. Held, the excess<br />
funds did not constitute taxable <strong>income</strong> in the<br />
manufacturer. (Sec. 61, ’86 Code.)<br />
Clarence M. Wynn, 54 T.C. 460, Acq., 1974-2<br />
C.B. 4.<br />
274.13 Agreement not to compete; considerations<br />
received. Where a corporation sells its<br />
assets, including goodwill, to an unrelated corporation,<br />
one of the conditions of the sale being an<br />
agreement by the president of the vendor corporation<br />
not to engage in similar business in a stipulated<br />
area for which he is paid a money consideration,<br />
the amount so received by the president does<br />
not constitute a return of capital but is ordinary<br />
<strong>income</strong> to him in the year of receipt. O.D. 668<br />
superseded. §§1.61–1, 1.1221–1. (Secs. 61, 1221;<br />
’86 Code.)<br />
Rev. Rul. 69-643, 1969-2 C.B. 10.<br />
274.14 Alimony and separate maintenance<br />
payments; remarriage of spouse-payee; payments<br />
continued. Situations illustrate the treatment<br />
of alimony or separate maintenance payments<br />
made after the remarriage of the<br />
spouse-payee and after the legal obligation to<br />
make such payments has ceased. Rev. Rul. 81–8<br />
amplified and superseded. §§1.61–1, 1.71–1,<br />
1.102-1, 1.215–1. (Secs. 61, 71, 102, 215; ’86<br />
Code.)<br />
Rev. Rul. 82-155, 1982-2 C.B. 36.<br />
274.15 Allowances; acquisition and maintenance<br />
of uniforms. Reimbursements or allowances<br />
for the acquisition and maintenance of uniforms<br />
are includible in an employee’s gross<br />
<strong>income</strong>, and cost to the extent of such reimbursement<br />
is deductible in computing adjusted gross<br />
<strong>income</strong>; expenses in excess of the reimbursements<br />
or allowances are deductible in computing taxable<br />
<strong>income</strong> if deductions are itemized; I.T. 3978<br />
superseded. §§1.61–1, 1.62–1. (Secs. 61, 62; ’86<br />
Code.)<br />
Rev. Rul. 72-110, 1972-1 C.B. 24.<br />
274.16 Allowances; military officers. Personal<br />
money allowances received by certain highranking<br />
military officers for discretionary use in<br />
their positions are not excludable from gross<br />
<strong>income</strong>; however, expenditures of such funds for<br />
their intended purpose of defraying certain<br />
expenses incurred in connection with official<br />
duties are deductible as business expenses when<br />
the reporting, record keeping, and substantiation<br />
requirements are met. §§1.61–1, 1.162–17,<br />
1.274-5. (Secs. 61, 162, 274; ’86 Code.)<br />
Rev. Rul. 77–350, 1977-2 C.B. 21.<br />
274.17 Allowances; Navy physician and medical<br />
personnel assigned to U.S. Capitol. Allowances<br />
paid under the Legislative Branch<br />
Appropriations Acts to the Attending Physician in<br />
the U.S. Capitol and medical personnel assigned<br />
to assist that individual, all of whom are members<br />
of the U.S. Navy who are receiving regular Navy<br />
pay, are includible in their gross <strong>income</strong>s under<br />
section 61 and subject to <strong>income</strong> tax withholding.<br />
The allowances are excepted from employment<br />
for FUTA purposes. Whether the allowances are<br />
wages subject to FICA is to be determined by the<br />
head of the Department of Navy. §1.61–1. (Secs.<br />
61, 3121, 3306, 3402; ’86 Code.)<br />
Rev. Rul. 78-432, 1978-2 C.B. 69.<br />
274.18 Allowances; State court judge;<br />
accounting to employer not required. A State<br />
court judge who receives an expense allowance<br />
for which he does not account to his employer<br />
must submit as a part of his tax return a statement<br />
showing, among other things, the total of all such<br />
allowances received, which total must be included<br />
in gross <strong>income</strong>, and the amounts of his ordinary<br />
and necessary business expenses paid or incurred.<br />
Only the ordinary and necessary business<br />
expenses which can be substantiated are deductible.<br />
§§1.61–1, 1.162–17, 1.274–5. (Secs. 61, 162,<br />
274; ’86 Code.)<br />
Rev. Rul. 66-217, 1966–2 C.B. 107.<br />
274.19 Allowances; transporting children to<br />
school. Payments made by a school board to parents<br />
or other persons not engaged in the business<br />
of transporting children to school, for transporting<br />
children to school where bus service is not available,<br />
are not includible in the gross <strong>income</strong> of the<br />
recipient. Automobile expenses incurred in connection<br />
with such transportation are nondeductible<br />
personal expenses. Rev. Rul. 60-280 modifying<br />
Rev. Rul. 57-60. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 57–60, 1957–1 C.B. 25; Rev. Rul.<br />
60-280, 1960-2 C.B. 12.<br />
274.20 Amounts withheld from teacher’s<br />
salary to pay substitute teacher. A teacher is not<br />
in constructive receipt of <strong>income</strong> in the amount by<br />
which his regular salary is reduced in order to pay<br />
a substitute teacher during his extended illness.<br />
§§1.61-1, 1.451-2. (Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 71-71, 1971-1 C.B. 28.
274.21 Annual adjustments due to change in<br />
accounting method. The sole proprietor of a retail<br />
store who obtained permission to effect a change<br />
in accounting method, agreeing to ratably account<br />
over a 10-year period for the adjustments required<br />
under section 481 and to include in <strong>income</strong> any<br />
unaccounted for adjustments upon ceasing to<br />
engage in the trade or business, and who three<br />
years later incorporated the business is no longer<br />
engaged in that particular trade or business and<br />
must include such unaccounted for adjustments in<br />
<strong>income</strong>. Rev. Rul. 66-206 distinguished.<br />
§1.481-1. (Sec. 481; ’86 Code.)<br />
Rev. Rul. 77-264, 1977-2 C.B. 187.<br />
274.22 Annuity insurance premiums; independent<br />
contractor. Premiums paid by a hospital<br />
on an annuity insurance policy for a radiologistbeneficiary<br />
while performing services for the hospital<br />
as an independent contractor are includable in<br />
his gross <strong>income</strong> for the taxable year in which they<br />
are paid. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 70-136, 1970-1 C.B. 12.<br />
274.23 Anti-poverty program payments.<br />
Amounts received by certain low-<strong>income</strong> families<br />
under an experimental anti-poverty program<br />
funded by the Office of Economic Opportunity are<br />
excludable from gross <strong>income</strong>. §1.61–1. (Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 73-87, 1973-1 C.B. 39.<br />
274.24 Armed Forces; dislocation or trailer<br />
allowances. The dislocation or trailer allowance<br />
received by a member of the uniformed services in<br />
connection with a change in duty station is includible<br />
in the gross <strong>income</strong> of the recipient under section<br />
82. However, such allowances are excepted<br />
from wages for purposes of <strong>income</strong> tax withholding<br />
unless the employer at the time of payment has<br />
reason to believe a corresponding deduction is not<br />
allowable under section 217. Rev. Rul. 64–153<br />
superseded and Rev. Rul. 65–158 modified.<br />
§§1.82-1, 1.217-2. (Secs. 82, 217, 3401; ’86<br />
Code.)<br />
Rev. Rul. 75-362, 1975-2 C.B. 413.<br />
274.25 Armed Forces; participation in scholarship<br />
programs. Rev. Ruls. 76-99,76-518, and<br />
76-519 are modified to remove the implication<br />
that all regular pay and allowances received by<br />
military participants in certain health, medical,<br />
dental, and veterinary scholastic programs are<br />
includible in gross <strong>income</strong>. §§1.61-2, 1.117-4.<br />
(Secs. 61, 117; ’86 Code.)<br />
Rev. Rul. 77-438, 1977-2 C.B. 49.<br />
274.26 Armed Forces; reimbursement of loss<br />
on sale of personal residence. Reimbursements<br />
received by Federal civilian employees or members<br />
of the Armed Forces from the Government for<br />
losses sustained on the private sale of personal residences,<br />
or the excess of the selling price received<br />
over the fair market value at the time of the sale<br />
resulting from Government purchases of the residences,<br />
as the result of the closing of a military<br />
base are includable in gross <strong>income</strong> as compensation<br />
for services under section 82 and, as such, are<br />
not considered a part of the selling price of the personal<br />
residences for purposes of the nonrecognition<br />
provisions of section 1034. §§1.82-1,<br />
1.1034-1. (Secs. 82, 1034, 3121, 3122, 3401; ’86<br />
Code.)<br />
Rev. Rul. 76-342, 1976–2 C.B. 22.<br />
274.27 Athletic scholarships. The value of athletic<br />
scholarships which may not exceed expenses<br />
for tuition, fees, room, board, and necessary supplies,<br />
awarded to students by a university that<br />
expects but does not require the students to participate<br />
in a particular sport, requires no particular<br />
activity in lieu of participation, and does not cancel<br />
the scholarship if the student cannot participate<br />
is excludable from the recipient’s gross <strong>income</strong><br />
under section 117. §§1.61–1, 1.117-4. (Secs. 61,<br />
117; ’86 Code.)<br />
Rev. Rul. 77–263, 1977-2 C.B. 47.<br />
274.28 Audience measurement by membership<br />
corporation. A nonprofit corporation,<br />
whose members were radio stations and networks,<br />
collected fees from its members to conduct a study<br />
to provide a uniform reliable standard for radio<br />
audience measurement. The fees remaining after<br />
the first study was conducted were to be either<br />
refunded or allowed as a credit on future studies.<br />
Held, the fees were not <strong>income</strong> but constituted a<br />
trust fund to be used for a specific purpose or<br />
returned. (Sec. 22(a), ’39 Code; Secs. 61, 277; ’86<br />
Code.)<br />
Broadcast Measurement Bureau, 16 T.C. 988,<br />
Nonacq., 1974-2 C.B. 4.<br />
274.29 Automobile rebates. Rebates paid by an<br />
automobile manufacturer to qualifying retail customers<br />
who purchase or lease a new automobile,<br />
or who purchase a new automobile and trade in a<br />
specified type of vehicle, are not includable in the<br />
gross <strong>income</strong> of the customer, require a downward<br />
adjustment to the customer’s basis, and are ordinary<br />
and necessary business expenses of the<br />
manufacturer. §§1.61–2, 1.162–1, 1.1012–1,<br />
1.1016-2. (Secs. 61, 162, 1012, 1016; ’86 Code.)<br />
Rev. Rul. 76–96, 1976-1 C.B. 23.<br />
274.30 Automobile; won as a prize. The cost<br />
of an automobile given away as a prize to a customer<br />
is deductible as a business expense. The fair<br />
market value of the automobile at the date of its<br />
acquisition is includable in the customer’s gross<br />
<strong>income</strong>. I.T. 1667 superseded. §§1.74-1, 1.162–1.<br />
(Secs. 74, 162; ’86 Code.)<br />
Rev. Rul. 69-510, 1969-2 C.B. 23.<br />
274.31 Awards; annual payments measured<br />
by age or retirement <strong>income</strong>. An award in the<br />
form of annual payments measured by the age or<br />
retirement <strong>income</strong> of the recipient is excludable<br />
from gross <strong>income</strong> under section 74(b) as long as<br />
the award is made in recognition of achievement<br />
in one of the categories listed. §1.74–1. (Sec. 74,<br />
’86 Code.)<br />
Rev. Rul. 84-9, 1984-1 C.B. 22.<br />
274.32 Awards; National Aeronautics and<br />
Space Act. Awards granted under the provisions<br />
of section 306 of the National Aeronautics and<br />
Space Act of 1958, for scientific or technical contributions<br />
are includible in the gross <strong>income</strong> of the<br />
recipients. Such amounts are subject to <strong>income</strong> tax<br />
withholding or reporting on information returns.<br />
§§1.61-2, 1.74-1. (Secs. 61, 74; ’86 Code.)<br />
Rev. Rul. 69-129, 1969-1 C.B. 35.<br />
274.33 Awards; service longevity. An award<br />
paid by a labor union to its members who complete<br />
25 years of service with a particular company is<br />
includable in the gross <strong>income</strong> of the recipient but<br />
does not constitute wages subject to <strong>income</strong> tax<br />
withholding. §1.74-1. (Sec. 74, ’86 Code.)<br />
Rev. Rul. 58-277, 1958-1 C.B. 41.<br />
274.34 Bank deposit; funds used to purchase<br />
bonds in taxpayer’s name. A large sum of money<br />
deposited in the taxpayer’s bank account by his<br />
brother for their mother was determined by the<br />
Commissioner to be gross <strong>income</strong> to the taxpayer<br />
rather than his mother’s funds due to inferences by<br />
the brothers to State taxing authorities that their<br />
mother had limited means. Held, their mother was<br />
in fact wealthy and the money was received and<br />
applied solely for her use by the taxpayer acting as<br />
agent in managing her financial affairs. (Sec. 61,<br />
’86 Code.)<br />
Robert M. Brittingham, 57 T.C. 91, Acq.,<br />
1971-2 C.B. 2.<br />
274.35 Bargain purchase; house for less than<br />
construction costs. Increased labor costs,<br />
“extras” requested by the taxpayers, and errors in<br />
<strong>Gross</strong> <strong>income</strong><br />
construction resulted in the construction cost and<br />
fair market value of the taxpayer’s house materially<br />
exceeding the contract price. The contractor,<br />
who had been employed by and had been referred<br />
business by the taxpayer’s father-in-law, took the<br />
loss in hopes of future business with the father-inlaw.<br />
Held, taxpayers did not receive <strong>income</strong> attributable<br />
to the value received exceeding the sum<br />
paid. (Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)<br />
Fred L. Pellar, 25 T.C. 299, Acq., 1956–1 C.B.<br />
5.<br />
274.36 Barter club transactions; value of services.<br />
The value of services exchanged by members<br />
of a barter club is includible in each member’s<br />
gross <strong>income</strong> for the taxable year in which<br />
received. Also, these exchanges are reportable by<br />
the barter club pursuant to section 6045. §§1.61–2,<br />
1.451-1, 1.6045–1. (Secs. 61, 451, 6045; ’86<br />
Code.)<br />
Rev. Rul. 83-163, 1983-2 C.B. 26.<br />
274.37 Barter transactions. Certain members<br />
of barter clubs must include in <strong>income</strong> the fair<br />
market value of services received in exchange for<br />
services rendered. Likewise, the owner of an<br />
apartment building who receives a work of art<br />
created by a professional artist in return for the<br />
rent-free use of an apartment must include in<br />
<strong>income</strong> the fair market value of the work of art, and<br />
the artist must include the fair rental value of the<br />
apartment. §1.61–2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 79–24, 1979–1 C.B. 60.<br />
274.38 Beauty contest winner. The winner of a<br />
national beauty contest and pageant contracts with<br />
the corporation conducting the contest to furnish<br />
her services to the corporation for one year. Prizes<br />
and awards she receives from the corporation,<br />
including a scholarship, amounts paid for personal<br />
appearances, and cash allowances are compensation<br />
for services subject to withholding, except to<br />
the extent that such amounts qualify as reimbursements<br />
for traveling expenses or business expenses<br />
of the corporation. Further, items received from<br />
various manufacturers (not related to her contract<br />
with the corporation) are includable in gross<br />
<strong>income</strong>. §§1.61–2, 1.74–1, 1.117–4. (Secs. 61, 74,<br />
117; ’86 Code.)<br />
Rev. Rul. 68-20, 1968–1 C.B. 55.<br />
274.39 Benefit payments to blind; Pennsylvania.<br />
A benefit payment to a blind person under the<br />
Public Assistance Law of Pennsylvania is not<br />
includible in the recipient’s gross <strong>income</strong>. (Sec.<br />
61, ’86 Code.)<br />
Rev. Rul. 57–102, 1957-1 C.B. 26.<br />
274.40 Benefits; firefighters’ and police officers’<br />
beneficiaries; Los Angeles. Benefits<br />
received by beneficiaries of deceased members of<br />
the Los Angeles fire or police departments under<br />
Los Angeles, California, Charter Art. XVII, section<br />
183, are excludable from gross <strong>income</strong> under<br />
section 104(a)(1) of the Code if the recipient can<br />
establish either (1) that the benefits are received<br />
under the service-connected death provision, or<br />
(2) that the benefits are received under the retirement<br />
provisions and that the employee on account<br />
of whose death the benefits are paid was retired<br />
under the service-connected disability provisions<br />
of the Charter at the time of that employee’s death.<br />
§1.104-1. (Sec. 104, ’86 Code.)<br />
Rev. Rul. 80-84, 1980-1 C.B. 35.<br />
274.41 Books received by book reviewer;<br />
donated to charity. The value of books received<br />
and accepted without charge by a book reviewer<br />
during his employment with a newspaper, which<br />
he donated to a charitable organization and<br />
claimed a contribution deduction for their value,<br />
is includible in his gross <strong>income</strong>. Rev. Rul. 70-330<br />
superseded. §1.61–1. (Sec. 61; ’86 Code.)<br />
Rev. Rul. 70-498, 1970-2 C.B. 6.<br />
274.42 Bottom hole contribution. A “bottom<br />
hole” contribution is includible in the recipient’s
<strong>Gross</strong> <strong>income</strong><br />
gross <strong>income</strong> and must be treated as a capital<br />
expenditure by the payor. §§1.61–1, 1.263(a)-1,<br />
1.612-4. (Secs. 61, 263, 612; ’86 Code.)<br />
Rev. Rul. 80-153, 1980-1 C.B. 10.<br />
274.43 Broker-dealer; order errors and security<br />
differences; treatment. The treatment of certain<br />
gains, losses, and expenses resulting from<br />
order errors or security differences incurred by a<br />
broker-dealer is explained. §§1.61-1, 1.162-1,<br />
1.165-1, 1.451-1, 1.461–1, 1.1236-1. (Secs. 61,<br />
162, 165, 451, 461, 1236; ’86 Code.)<br />
Rev. Rul. 79–80, 1979–1 C.B. 86.<br />
274.44 Cancellation of indebtedness; corporate<br />
indebtedness to corporate shareholder;<br />
insolvency. Pursuant to a bankruptcy reorganization,<br />
a parent corporation that was also a creditor<br />
of its subsidiary, discharged the subsidiary’s debt<br />
by canceling a note with accrued interest which<br />
had been deducted in prior year. Held, the discharge<br />
of indebtedness constituted a contribution<br />
to capital, and neither the parent or subsidiary realized<br />
<strong>income</strong>. (Sec. 22(a), ’39 Code; Sec. 61, ’86<br />
Code.)<br />
Utilities & Industries Corp., 41 T.C. 888, Acq.<br />
in result 1973–2 C.B. 4.<br />
274.45 Cancellation of indebtedness; disaster<br />
loan. The treatment is set forth for payments<br />
received by casualty victims under the Disaster<br />
Relief Acts of 1969 and 1970 where part of a disaster<br />
loan is cancelled in the year subsequent to the<br />
casualty for which a loss deduction had been<br />
claimed. Distinguished by Rev. Rul. 73-408.<br />
§§1.61-1, 1.111-1, 1.165-1. (Secs. 61, 111, 165;<br />
’86 Code.)<br />
Rev. Rul. 71–160, 1971–1 C.B. 75.<br />
274.46 Cancellation of indebtedness; farmer’s<br />
F.H.A. loan. The cancelled portion of an<br />
emergency loan granted by the Farmers Home<br />
Administration to a farmer who, as a result of a<br />
drought, sustained an uninsured loss in his growing<br />
crops for which he had no adjusted basis at the<br />
time of the loss is includable in his gross <strong>income</strong>.<br />
Rev. Rul. 71-160 distinguished. Amplified by<br />
Rev. Rul. 76-500. §§1.61-4, 1.165–1. (Secs. 61,<br />
165; ’86 Code.)<br />
Rev. Rul. 73-408, 1973–2 C.B. 15.<br />
274.47 Cemetery organization; perpetual<br />
care funds. A cemetery company or corporation<br />
operated for profit shall not be required to include<br />
in gross <strong>income</strong> that portion of the contract sale<br />
price of burial lots or mausoleums which, by<br />
requirement of state law or its own bylaws and/or<br />
contracts, it is obligated irrevocably to set aside in<br />
trust solely for perpetual care and maintenance of<br />
the cemetery, burial lots, or mausoleums to the<br />
extent that such portion is so set aside. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 58–190, 1958–1 C.B. 15.<br />
274.48 Charity-payee; compensation from<br />
contributed services. Payment made to a charitable<br />
organization by a third party for services rendered<br />
by an individual to the third party is <strong>income</strong><br />
to the individual, unless his contract of employment<br />
with the organization is made in good faith<br />
and for purposes other than tax avoidance, and his<br />
availability for services to the third party is without<br />
his participation in, or right to receive money<br />
under, the contract making his services available.<br />
§29.22(a)-2. (Sec. 22(a), ’39 Code; Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 71, 1953–1 C.B. 18.<br />
274.49 Charity-payee; industry fund-raising<br />
plan. Earnings for services donated by employees<br />
for charitable purposes under an industry-wide<br />
fund-raising plan are includible in the gross<br />
<strong>income</strong> of the employees and are subject to<br />
<strong>income</strong> tax withholding, even though such <strong>income</strong><br />
is paid directly to the charitable organizations by<br />
the employers. §1.61–2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 58-495, 1958-2 C.B. 27.<br />
274.50 Charity-payee; religious order; members’<br />
outside earnings remitted to order.<br />
Amounts received by members of an exempt<br />
religious order, not acting as agents of the order,<br />
for work performed outside the religious community<br />
and paid over, in full or part, to the order at its<br />
direction, are includible in the gross <strong>income</strong> of the<br />
members and are wages subject to the FICA and<br />
<strong>income</strong> tax withholding. However, the individual<br />
members are entitled to charitable contribution<br />
deductions for amounts remitted to the order.<br />
§§1.61-2, 1.170A-1. (Secs. 61, 170, 3121, 3401;<br />
’86 Code.)<br />
Rev. Rul. 76-323, 1976-2 C.B. 18.<br />
274.51 Charity-payee; religious order or<br />
organization; members outside earnings<br />
remitted to order or organization. A member of<br />
a religious order or organization who has taken a<br />
vow of poverty and is instructed by superiors to<br />
obtain outside employment must include the<br />
remuneration remitted to the order or organization<br />
in gross <strong>income</strong>. Another member who has taken<br />
a vow of poverty and is instructed to perform services<br />
in the business offices of the supervising<br />
church is not required to include the remuneration<br />
remitted to the order or organization in gross<br />
<strong>income</strong>. O.D. 119 superseded and Rev. Rul.<br />
76-323 clarified. §§61-2, 1.501(d)-1, 1.511-1.<br />
(Secs. 61, 501, 511, 3121, 3401; ’86 Code.)<br />
Rev. Rul. 77-290, 1977-2 C.B, 26; Rev. Rul.<br />
79-132, 1979-1 C.B. 62; Rev. Rul. 80-332,<br />
1980-2 C.B. 34.<br />
274.52 Charity-payee; service of registered<br />
nurse. Amounts received from a hospital by a registered<br />
nurse who is a member of an exempt<br />
religious organization are excludable from her<br />
gross <strong>income</strong> and are not wages subject to <strong>income</strong><br />
tax withholding, where she performed services in<br />
the hospital as agent of the organization to which<br />
she remitted the amounts. Clarified by Rev. Ruls.<br />
77-290 and 83-127. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 68-123, 1968-1 C.B. 35.<br />
274.53 Charity-payee; service of volunteer<br />
workers. Payments made by a hospital to a<br />
religious organization for services performed at<br />
the hospital by volunteer unpaid workers assigned<br />
by the organization to render such services are not<br />
“wages” and are not taxable to the volunteer<br />
workers. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 57-135, 1957-1 C.B. 307.<br />
274.54 Charity-payee; telethon fund-raising<br />
program. Amounts collected by a television<br />
broadcasting station during a “telethon” fundraising<br />
program for the benefit of a charitable<br />
organization, which are paid to the organization<br />
without reduction for any expenses incurred, are<br />
not <strong>income</strong> to the broadcasting station. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 58-276, 1958–1 C.B. 23.<br />
274.55 Child allotment payments; disabled<br />
policeman or fireman. Child allotment payments<br />
received by a disabled policeman or fireman under<br />
a municipal ordinance providing that such payments<br />
by the city are voluntary and terminable at<br />
will are not excludable from gross <strong>income</strong> as<br />
workmen’s compensation or as gifts. §§1.61–1,<br />
1.102-1, 1.104-1. (Secs. 61, 102, 104; ’86 Code.)<br />
Rev. Rul. 73-346, 1973–2 C.B. 24.<br />
274.56 Child Care Food Program payments.<br />
Payments received from a sponsoring charitable<br />
organization pursuant to the Child Care Food Program<br />
are excludable from a day care home operator’s<br />
gross <strong>income</strong> to the extent that such payments<br />
do not exceed expenses incurred in feeding children<br />
eligible for assistance under the program.<br />
Any portion of the payment that compensates the<br />
operator for services is includible in <strong>income</strong>. Outof-pocket<br />
expenses in excess of reimbursement<br />
are deductible under section 170 where no profit<br />
motive exists and under section 162 where such<br />
motive does exist. §§1.61–1, 1.162–1, 1.170A-1.<br />
(Secs. 61, 162, 170; ’86 Code.)<br />
Rev. Rul. 79-142, 1979-1 C.B. 58.<br />
274.57 Child care services in own home. Factual<br />
situations illustrate the tax treatment of<br />
amounts received and amounts expended by individuals<br />
providing child care services in their own<br />
homes. Rev. Rul. 56-70 superseded. §§1.61-1,<br />
1.62–1, 1.162-1, 1.170–2, 1.1401–1. (Secs. 61,<br />
62, 162, 170, 1401; ’86 Code.)<br />
Rev. Rul. 77-279, 1977-2 C.B. 12.<br />
274.58 Christmas fund distributed to<br />
employees by club. Amounts distributed to<br />
employees of a club from a Christmas fund made<br />
up of contributions by members of the club constitute<br />
compensation which is includable in the gross<br />
<strong>income</strong> of the recipients. Such amounts are not<br />
tips, but rather constitute wages for purposes of<br />
employment taxes and <strong>income</strong> tax withholding.<br />
The provisions relating to employment taxes and<br />
withholding will be applied only to distributions<br />
made on or after October 1, 1963. S.S.T. 261<br />
revoked. §1.61–2. (Secs. 61, 3121, 3306, 3401;<br />
’86 Code.)<br />
Rev. Rul. 64-40, 1964-1 (Part 1) C.B. 68.<br />
274.59 Citizen in foreign country; U.S. sponsored<br />
project. Compensation received by a U.S.<br />
citizen for services performed in a foreign country,<br />
under a contract with the foreign government<br />
which required him to render advisory services for<br />
a period of two years, is not an amount paid by the<br />
U.S. or any agency thereof, even though the project<br />
on which he worked was financed in part by an<br />
agency of the U.S. Therefore, such compensation<br />
is excludable from the gross <strong>income</strong> of the taxpayer.<br />
§1.911-2. (Sec. 911, ’86 Code.)<br />
Rev. Rul. 67-87, 1967-1 C.B. 186.<br />
274.60 Claim of right; overpayments; truck<br />
rental contract. Taxpayer, on the cash basis,<br />
received an overpayment of truck rental <strong>income</strong> in<br />
1956 and 1957. He agreed to repay the overpayment<br />
upon its discovery in 1957. Held, the overpayment<br />
received in 1957 should be excluded<br />
from gross <strong>income</strong>. (Sec. 61, ’86 Code.)<br />
J.W. Gaddy, 38 T.C. 943, Acq., 1969-2 C.B.<br />
xxiv.<br />
274.61 Collateral; pledged; collateral agreement.<br />
Subordinated debentures issued under<br />
collateral and cash agreements by member organizations<br />
of the New York Stock Exchange to<br />
maintain the required debt-to-capital ratio constitute<br />
valid indebtedness. The amounts, other than<br />
principal, paid under the cash agreements and the<br />
interest paid on the indebtedness are deductible by<br />
the organizations under section 163. Amounts<br />
paid to the lender for the use of the collateral are<br />
deductible under section 162. Income from the<br />
pledged collateral is includible in the lender-owner’s<br />
gross <strong>income</strong> and sale of the collateralized<br />
securities results in a recognized gain or loss. Distinguished<br />
by Rev. Rul. 83-98. §§1.61–1, 1.162–1,<br />
1.163-1, 1.302-1. (Secs. 61, 162, 163, 302; ’86<br />
Code.)<br />
Rev. Rul. 73–122, 1973-1 C.B. 66.<br />
274.62 Combat pay; accrued leave payments.<br />
Accrued leave payments, attributable to active<br />
service in a combat zone, paid to members of the<br />
Armed Forces at the time of their discharge from<br />
the service are excludable from gross <strong>income</strong>.<br />
Rev. Rul. 71–343 amplified. §1.112–1. (Sec. 112,<br />
’86 Code.)<br />
Rev. Rul. 73-187, 1973-1 C.B. 51.<br />
274.63 Combat pay; compensation other<br />
than active duty pay. Compensation other than<br />
active duty pay received by members of the<br />
Armed Forces may qualify as excludable com-
pensation for active service in a combat zone. The<br />
inapplicability of <strong>income</strong> tax withholding on the<br />
gross <strong>income</strong> of a commissioned officer serving in<br />
a combat zone is not limited by the $500 exclusion<br />
provision of section 112. Amplified by Rev. Rul.<br />
73-187. §1.112-1. (Sec. 112, ’86 Code.)<br />
Rev. Rul. 71–343, 1971–2 C.B. 92.<br />
274.64 Combat pay; member of Armed<br />
Forces detailed to another agency. A member of<br />
the Armed Forces serving in a combat zone while<br />
on detail to the Agency for International Development<br />
continues in an active service status during<br />
the period of his detail and is entitled to the combat<br />
pay exclusion and is excepted from <strong>income</strong> tax<br />
withholding. §1.112–1. (Sec. 112, ’86 Code.)<br />
Rev. Rul. 69-353, 1969-1 C.B. 49.<br />
274.65 Combat pay; temporary commissioned<br />
officers. Enlisted men and warrant officers<br />
who serve in the temporary rank of a commissioned<br />
officer in a combat zone are entitled to<br />
exclude from gross <strong>income</strong> (1) the entire amount<br />
of their active service compensation attributable<br />
to their service below the grade of commissioned<br />
officer, and (2) that portion of their active service<br />
compensation attributable to their service as a<br />
temporary commissioned officer which does not<br />
exceed $500 per month. §1.112–1. (Sec. 112, ’86<br />
Code.)<br />
Rev. Rul. 68-11, 1968-1 C.B. 54.<br />
274.66 Combat pay; U.S. merchant marine<br />
members. A member of the U.S. merchant marine<br />
is not a member of the Armed Forces of the U.S.<br />
and is not entitled to a combat pay exclusion.<br />
§§1.112-1, 301.7701-8. (Secs. 112, 7701; ’86<br />
Code.)<br />
Rev. Rul. 70-537, 1970-2 C.B. 17.<br />
274.67 Commodity Credit Corporation<br />
loans; wheat pledged as collateral. A cash<br />
method wheat farmer obtained a loan from the<br />
Commodity Credit Corporation pledging that<br />
year’s crop as collateral. The farmer elected under<br />
section 77 to include the loan proceeds in gross<br />
<strong>income</strong>. The next year the loan was repaid and the<br />
crop pledged as collateral was redeemed. Thirteen<br />
months later, the redeemed crop was sold at a price<br />
that exceeded the amount of the loan. The crop<br />
was not a capital asset, and the excess sale price for<br />
the crop over its basis, as adjusted under section<br />
1016(a)(8), is includable in the farmer’s gross<br />
<strong>income</strong> as ordinary <strong>income</strong>. §§1.61-4, 1.77–1,<br />
1.1016-5, 1.1221–1. (Secs. 61, 77, 1016, 1221;<br />
’86 Code.)<br />
Rev. Rul. 80-19, 1980-1 C.B. 185.<br />
274.68 Condominium management assessments.<br />
Excess assessments by a condominium<br />
management corporation over and above the<br />
amounts used for the operation of the condominium<br />
property that are returned to the stockholderowners<br />
or applied to the following year’s assessments<br />
are not gross <strong>income</strong> to the corporation.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 70-604, 1970-2 C.B. 9.<br />
274.69 Condominium management assessments;<br />
personal property. Special assessments<br />
for the replacement of personal property, collected<br />
by a nonexempt condominium management corporation<br />
from its unit owner-shareholders and<br />
accumulated in a separate bank account, are contributions<br />
to capital. §§1.61–1, 1.118–1. (Secs. 61,<br />
118; ’86 Code.)<br />
Rev. Rul. 75–371, 1975–2 C.B. 52.<br />
274.70 Condominium management assessments;<br />
realty improvements. Special assessments<br />
collected by a nonexempt condominium<br />
management corporation from its unit ownerstockholders<br />
and accumulated in a separate bank<br />
account for replacement of the roof and elevators<br />
in the condominium are not includible in the corporation’s<br />
gross <strong>income</strong>. §1.61-1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 75–370, 1975-2 C.B. 25.<br />
274.71 Contest prize; television set purchased<br />
at nominal price. A television set that an<br />
individual purchased for a nominal price, as a<br />
result of winning a contest, is a prize and he must<br />
include in gross <strong>income</strong> the difference between the<br />
fair market value of the television set and the price<br />
he paid. §1.74-1. (Sec. 74, ’86 Code.)<br />
Rev. Rul. 67-40, 1967-1 C.B. 19.<br />
274.72 Corporate assets distributed;<br />
accounting method. Neither the market value of<br />
an unharvested crop and land preparation made for<br />
later planting nor the expenses incurred in producing<br />
the unharvested crop and preparing the land<br />
are includible in the <strong>income</strong> of a corporation,<br />
under section 446(b), in the year of its liquidation<br />
to which section 336 applies. (Secs. 446, 482; ’86<br />
Code.)<br />
South Lake Farms, Inc., 36 T.C. 1027, Nonacq.,<br />
1977-1 C.B. 2.<br />
274.73 Corporate assets distributed; recovery<br />
of previously deducted amounts. A subsidiary<br />
corporation liquidated into its parent corporation<br />
in a nontaxable transaction under sections 332<br />
and 334(b)(2), to which section 336 also applies,<br />
is required under the “tax-benefit rule” to include<br />
in its gross <strong>income</strong> in the year liquidated the allocated<br />
value of incidental supplies it distributed to<br />
its parent for which a deduction had been taken in<br />
the previous year resulting in a full tax benefit.<br />
Similar treatment applies to similar distributions<br />
in full or partial liquidations governed by sections<br />
331, 333, and 346 but not to acquisitions under<br />
section 381(a)(1). §§1.61–1, 1.111–1, 1.331–1,<br />
1.332-1, 1.333-1, 1.334-1, 1.336-1, 1.346-1,<br />
1.381(a)-1. (Secs. 61, 111, 331, 332, 333, 334,<br />
336, 346, 381; ’86 Code.)<br />
Rev. Rul. 74-396, 1974–2 C.B. 106.<br />
274.74 Corporate assets distributed; recovery<br />
of previously deducted amounts. The tax<br />
benefit rule described in Rev. Rul. 74–396 is applicable<br />
to liquidations under section 336; the position<br />
of the Service with respect to South Lake<br />
Farms, Inc. is explained. §§1.111-1, 1.334-1.<br />
(Secs. 111, 334; ’86 Code.)<br />
Rev. Rul. 77-67, 1977-1 C.B. 33.<br />
274.75 Corporate assets distributed in liquidation;<br />
recovery of previously deducted<br />
amounts. A corporation does recognize <strong>income</strong><br />
with respect to the distribution of expensed assets<br />
on liquidation. §§1.164-7, 1.336-1. (Secs. 164,<br />
336; ’86 Code.)<br />
Hillsboro National Bank, 460 U.S.--, Ct. D.<br />
2015, 1983-1 C.B. 50.<br />
274.76 Corporate assets sold; recovery of<br />
previously deducted amounts. Where a corporation,<br />
under a plan of complete liquidation, sold to<br />
a single buyer all of its assets, including certain<br />
items from which the taxpayer derived full tax<br />
benefits through deductions in prior taxable years,<br />
that portion of the proceeds representing recovery<br />
of previously deducted items is ordinary <strong>income</strong> to<br />
the corporation and not proceeds of a nontaxable<br />
sale. §§1.61–1, 1.337–1. (Secs. 61, 337; ’86<br />
Code.)<br />
Rev. Rul. 61-214, 1961-2 C.B. 60.<br />
274.77 Corporate-beneficiary; life insurance<br />
contracts sold officers. A corporate-beneficiary<br />
on life insurance contracts carried on its officers<br />
that later sells the contracts to the officers at less<br />
than the nondeductible premiums paid is not<br />
required to include the amount received from the<br />
sale in gross <strong>income</strong>. O.D. 724 superseded.<br />
§§1.61-1, 1.264-1. (Secs. 61, 264; ’86 Code.)<br />
Rev. Rul. 70-38, 1970-1 C.B. 11.<br />
<strong>Gross</strong> <strong>income</strong><br />
274.78 Corporate contributions; charities<br />
designated by employees. Amounts paid by a<br />
corporation to qualified religious, charitable, and<br />
educational organizations designated by its<br />
employees pursuant to a charitable designation<br />
plan are deductible by the corporation; the<br />
employees are not in receipt of gross <strong>income</strong> with<br />
respect to these contributions. §§1.61–1, 1.170-1.<br />
(Secs. 61, 170; ’86 Code.)<br />
Rev. Rul. 67-137, 1967-1 C.B. 63.<br />
274.79 Corporate liquidation sale of LIFO<br />
valued inventory; “tax benefit rule.” A corporation<br />
which, in a bulk sale to one person pursuant<br />
to a plan of complete liquidation under section<br />
337, sold appreciated inventory accounted for<br />
under the LIFO dollar-value method is not<br />
required under the “tax benefit rule” to include<br />
such appreciation in <strong>income</strong>. §§1.337–1, 1.472–8.<br />
(Secs. 337, 472; ’86 Code.)<br />
Rev. Rul. 74-431, 1974–2 C.B. 107.<br />
274.80 Corporation; sale of homes purchased<br />
from employees under relocation plan. Homes<br />
purchased under a home-buying plan by a corporation<br />
to assist relocating employees in the sale of<br />
their personal residences, when sold by the corporation,<br />
are capital assets within the meaning of section<br />
1221. §§1.61-1, 1.165-1, 1.1211-1,<br />
1.1221-1, 301.7805–1. (Secs. 61, 165, 1211, 1221,<br />
7805; ’86 Code.)<br />
Rev. Rul. 82–204, 1982–2 C.B. 192.<br />
274.81 Cost-of-living allowances; differentials;<br />
Government employees overseas. Territorial<br />
cost-of-living allowances paid to certain civilian<br />
employees of the U.S. Government stationed<br />
in territories and possessions of the U.S. are<br />
excludable from gross <strong>income</strong>. Clarified to identify<br />
various overseas allowances and differentials<br />
as taxable or nontaxable types. Rev. Rul. 237 distinguished<br />
by Rev. Ruls. 57–591 and 57–592, and<br />
Rev. Rul. 59-407 distinguished by Rev. Rul.<br />
65-125. and modified by Rev. Rul. 76-210.<br />
§§39.116-4, 1.61-1, 1.912-1, 1.931-1. (Sec. 116,<br />
’39 Code; Secs. 61, 912, 931, ’86 Code.)<br />
Rev. Rul. 237, 1953–2 C.B. 52; Rev. Rul.<br />
59-407, 1959-2 C.B. 19.<br />
274.82 Cost-of-living allowances; Government<br />
employees; Alaska. The cost-of-living<br />
allowances received by certain civilian employees<br />
of the U.S. Government under the jurisdiction of<br />
the Director of Nonappropriated Funds at Elmendorf<br />
Air Force Base, Alaska, are exempt from tax.<br />
Rev. Ruls. 57–591 and 59-407 modified.<br />
§1.912-1. (Sec. 912, ’86 Code.)<br />
Rev. Rul. 76-210, 1976-1 C.B. 202.<br />
274.83 Cost-of-living allowances; Government<br />
employees; Republic of Panama; differentials.<br />
The Overseas Tropical Differential<br />
(OTD) paid to civilian employees of a United<br />
States government agency living and working in<br />
the Republic of Panama is not excludable from the<br />
gross <strong>income</strong> of such employees under section<br />
912. §1.912-1. (Sec. 912, ’86 Code.)<br />
Rev. Rul. 84-19, 1984-1 C.B. 179.<br />
274.84 Cost-of-living allowances; Government<br />
employees on Santa Barbara islands.<br />
Cost-of-living allowances received by U.S. Government<br />
employees stationed on California’s<br />
Santa Barbara group of islands are not excludable<br />
from gross <strong>income</strong>. §1.912-1. (Sec. 912, ’86<br />
Code.)<br />
Rev. Rul. 71–303, 1971–2 C.B. 272.<br />
274.85 Cost-of-living allowances; Government<br />
employees overseas. Cost-of-living allowances<br />
paid to civilian employees from nonappropriated<br />
funds of instrumentalities of the U.S. under<br />
the jurisdiction of the Armed Forces at installations<br />
of the Defense Department in territories and<br />
possessions of the U.S. and those paid from Federal<br />
appropriated funds to National Guard civilian<br />
employees stationed in the territories of the U.S.,
<strong>Gross</strong> <strong>income</strong><br />
whose basic compensation is fixed by administrative<br />
order and not by statute, are includible in gross<br />
<strong>income</strong>. Rev. Rul. 237 distinguished. Rev. Rul.<br />
57-591 modified by Rev. Rul. 76-210. §1.912-1.<br />
(Sec. 912, ’86 Code.)<br />
Rev. Rul. 57–591, 1957–2 C.B. 460; Rev. Rul.<br />
57-592, 1957-2 C.B. 459.<br />
274.86 Cost-of-living allowances; Government<br />
employees overseas. Amounts paid to Government<br />
employees stationed outside the continental<br />
U.S. which, before conversion of their<br />
positions under the Classification Act of 1949, as<br />
amended, were designated as territorial cost-ofliving<br />
allowances, but which by administrative<br />
order became part of their basic compensation,<br />
must be included in gross <strong>income</strong>. Further, such<br />
amounts are wages and are subject to the <strong>income</strong><br />
tax withholding. §§1.61-1, 1.912–1. (Secs. 61,<br />
912; ’86 Code.)<br />
Rev. Rul. 58-503, 1958-2 C.B. 390.<br />
274.87 Cost-of-living allowances; Joint Federal-State<br />
Land Use Planning Commission for<br />
Alaska. The regulation providing for cost-of-living<br />
allowances for employees of the Joint Federal-<br />
State Land Use Planning Commission for Alaska<br />
has been approved retroactively and such allowances<br />
are excludable from gross <strong>income</strong>.<br />
§1.912-1. (Sec. 912, ’86 Code.)<br />
E.O. 11744, 1973-2 C.B. 292.<br />
274.88 Cost-of-living allowances; paid by foreign<br />
government; U.S. Armed Forces. The<br />
housing and cost-of-living allowance received by<br />
a member of the U.S. Armed Forces, to defray the<br />
excess cost of quarters and subsistence while on<br />
permanent duty at a post outside the U.S. is not<br />
includible in the recipient’s gross <strong>income</strong> irrespective<br />
of whether the allowance is paid by the U.S.<br />
Government or, by agreement, is paid by the government<br />
of the foreign country in which the serviceman<br />
is stationed. §1.61–2. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 61-5, 1961-1 C.B. 8.<br />
274.89 Cost-of-living allowances; Peace<br />
Corps volunteer; paid by foreign government.<br />
The amounts received from the government of a<br />
foreign country by a Peace Corps volunteer while<br />
stationed in that country in lieu of living allowances<br />
ordinarily paid by the U.S. Peace Corps are<br />
excludable from gross <strong>income</strong> to the extent that<br />
they are noncompensatory. §§1.61–2, 1.912–1.<br />
(Secs. 61, 912; ’86 Code.)<br />
Rev. Rul. 70-154, 1970-1 C.B. 162.<br />
274.90 Cost-of-living allowances; Red Cross<br />
staff members. Cost-of-living allowances paid by<br />
the Red Cross to members of its staff stationed outside<br />
the continental U.S. are not excludable from<br />
gross <strong>income</strong>. §1.912-1. (Sec. 912, ’86 Code.)<br />
Rev. Rul. 70-500, 1970-2 C.B. 155.<br />
274.91 Crop insurance proceeds; section<br />
451(d). In the circumstances described in this<br />
notice, the Service will permit a taxpayer to elect<br />
to defer crop insurance proceeds under section<br />
451(d) without requiring the taxpayer to also defer<br />
federal disaster payments.<br />
Notice 90-28, 1990-1 C.B. 339.<br />
274.92 Damages; back pay; unpaid life and<br />
health insurance premiums. Payments made to<br />
an individual as court-awarded damages for back<br />
pay, unpaid life insurance premiums and unpaid<br />
health insurance premiums are includible in the<br />
individual’s gross <strong>income</strong>. Rev. Rul. 61–146 distinguished.<br />
§§1.61–1, 1.79–1, 1.106–1. (Secs. 61,<br />
79, 106; ’86 Code.)<br />
Rev. Rul. 85-44; 1985–1 C.B. 22.<br />
274.93 Death benefits; Armed Forces. The<br />
allowance equal to six months’ pay paid by the<br />
Government because of the death of an officer or<br />
enlisted member of the Armed Forces does not<br />
constitute property of the decedent for estate tax<br />
purposes and is not includable in the gross <strong>income</strong><br />
of the recipients for <strong>income</strong> tax purposes. (Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 55-581, 1955-2 C.B. 381.<br />
274.94 Death benefits; bonuses awarded<br />
before and after death. Where bonuses awarded<br />
to a decedent before his death but payable thereafter<br />
and bonuses awarded after his death were forfeitable<br />
immediately before his death, the aggregate<br />
amount of such bonuses (not in excess of<br />
$5,000) is excludable from the gross <strong>income</strong> of the<br />
beneficiaries or the estate of the decedent. Any<br />
amount in excess of $5,000, together with all nonforfeitable<br />
amounts, is includable as <strong>income</strong> in<br />
respect of a decedent subject to <strong>income</strong> tax. Rev.<br />
Rul. 65-217 amplified. §§1.101-2, 1.691(a)-1.<br />
(Secs. 101, 691; ’86 Code.)<br />
Rev. Rul. 68–124, 1968-1 C.B. 44.<br />
274.95 Death benefits; Civil Service annuity.<br />
If no election is made by a disabled federal<br />
employee to treat disability retirement <strong>income</strong> as<br />
annuity <strong>income</strong>, the payments received by the<br />
spouse under a joint and survivor annuity upon the<br />
death of the employee before age 65 qualify for the<br />
death benefit exclusion. If the election is made, the<br />
payments received by the employee constitute<br />
annuity <strong>income</strong> and the amounts received by the<br />
spouse do not qualify for the death benefit exclusion.<br />
Rev. Rul. 61–161 superseded. §§1.72–15,<br />
1.101–2, 1.105-1. (Secs. 72, 101, 105; ’86 Code.)<br />
Rev. Rul. 81–121, 1981-1 C.B. 43.<br />
274.96 Death benefits; employee pension<br />
plans. Taxpayer’s husband had fully vested rights<br />
under a qualified employees’ pension plan that he<br />
would have forfeited had he been fired for conviction<br />
of a felony, or for certain other reasons. Held,<br />
his rights in the plan were forfeitable and payments<br />
made by the trust upon his death were paid<br />
by reason of the death of an employee and qualified<br />
for the $5,000 exclusion. (Sec. 22(b), ’39<br />
Code; Sec. 101, ’86 Code.)<br />
Hazel W. Polhrow, 35 T.C. 715, Acq., 1961-2<br />
C.B. 5.<br />
274.97 Death benefits; employee’s deferred<br />
compensation plan; payment to widow. The balance<br />
of an unfunded compensation account, not<br />
exceeding $5,000, paid to the widow of a deceased<br />
retired employee is excludable from her gross<br />
<strong>income</strong> where the deceased employee’s rights to<br />
receive the deferred compensation were forfeitable<br />
while he was living. §1.101–2. (Sec. 101, ’86<br />
Code.)<br />
Rev. Rul. 71–361, 1971-2 C.B. 90.<br />
274.98 Death benefits; employee’s life insurance<br />
policy transferred to pension trust. An<br />
agreement between an employee, the employer,<br />
and a trust, provided for the employer’s purchase<br />
of an existing insurance policy from the employee<br />
for its cash surrender value and transfer to the<br />
trustee as part of the employer’s required contribution<br />
under a qualified pension plan providing incidental<br />
death benefits. The employee died and the<br />
insurance proceeds were paid to the trustee who<br />
turned them over to the insured’s widow, the beneficiary.<br />
Held, the proceeds in excess of the cash<br />
value of the policy at the time of the employee’s<br />
death is excludable from the widow’s gross<br />
<strong>income</strong> under section 101(a) but that portion of the<br />
remaining amount in excess of premiums or other<br />
consideration deemed paid by the decedent is<br />
includible. Premiums paid by the trustee after<br />
transfer of the policy to the trust that represent the<br />
cost of life insurance protection and premiums<br />
paid by the employer before its transfer are includible<br />
in the employee’s gross <strong>income</strong> under regs.<br />
1.72–16(a) and 1.61–2(d)(2)(ii)(a), respectively.<br />
§§1.61-2, 1.72-16, 1.101-1, 1.402(a)-1. (Secs.<br />
61, 72, 101, 402; ’86 Code.)<br />
Rev. Rul. 73–338, 1973–2 C.B. 20.<br />
274.99 Death benefits; employee’s life insurance<br />
policy transferred to pension trust. The<br />
transfer of a participating employee’s life insurance<br />
contract to a trust under a profit-sharing plan<br />
permitting the assignment of such a policy with a<br />
cash surrender value in lieu of voluntary cash contributions<br />
and providing that the cash surrender<br />
value would be payable to the employee upon<br />
retirement or earlier termination of employment<br />
and that the insurance proceeds continue to be<br />
payable to his beneficiary is not a “transfer for<br />
valuable consideration”. §§1.72–16, 1.101–1.<br />
(Secs. 72, 101; ’86 Code.)<br />
Rev. Rul. 74-76, 1974-1 C.B. 30.<br />
274.100 Death benefits; employees’ plans.<br />
Where the right of the employees of a corporation<br />
to receive pension benefits is contingent upon<br />
whether they withdraw their contributions to the<br />
employees’ plan upon leaving the service of the<br />
corporation, the beneficial interest of the<br />
employees in the contributions made by the corporation<br />
are forfeitable. Consequently, aggregate<br />
amounts, not exceeding $5,000, paid to a beneficiary<br />
by reason of the death of an employee whose<br />
interest in such amounts was forfeitable are<br />
excludable from gross <strong>income</strong>. §1.101–2. (Sec.<br />
101, ’86 Code.)<br />
Rev. Rul. 59-255, 1959-2 C.B. 36.<br />
274.101 Death benefits; employees’ retirement<br />
plan. Where, in addition to providing pensions<br />
for employees, a retirement plan provides<br />
survivor benefits and neither the contributions<br />
which an employee makes nor the monthly pension<br />
which he is to receive upon retirement are<br />
affected by the presence or absence of the possibility<br />
of the survivor benefits and there is no fixed<br />
obligation, prior to the employee’s death, to make<br />
any payment after his death, not even a guaranteed<br />
return of the employee’s contributions, such benefits<br />
are not amounts received under a joint and survivor<br />
annuity or amounts to which the employee<br />
had a nonforfeitable right to receive while living.<br />
Accordingly, amounts, not in excess of $5,000,<br />
paid to survivors may be excluded from gross<br />
<strong>income</strong> as death benefits. §1.101–2. (Sec. 101, ’86<br />
Code.)<br />
Rev. Rul. 64-229, 1964-2 C.B. 21.<br />
274.102 Death benefits; employment relationship.<br />
Where a common law employer-employee<br />
relationship exists, for employment tax<br />
purposes, such relationship will be considered to<br />
exist for purposes of section 22(b)(1)(B) of the ’39<br />
Code, dealing with death benefits.<br />
§39.22(b)(1)-2. (Sec. 22(b), ’39 Code; Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 54-547, 1954–2 C.B. 57.<br />
274.103 Death benefits; group annuity contracts.<br />
Amounts not in excess of $5,000, paid<br />
under a group annuity contract by an insurance<br />
company on behalf of an employer to beneficiaries<br />
of deceased employees, are excludable from the<br />
gross <strong>income</strong> of the beneficiaries, if under the<br />
terms of the contract with the employee or the provisions<br />
of the plan providing for such payments,<br />
the payment is specifically designated and<br />
intended as a death payment made only by reason<br />
of the employee’s death. §§39.22(b)(1)–2,<br />
39.22(b)(2)–2. (Sec. 22(b), ’39 Code; Secs. 61, 72,<br />
’86 Code.)<br />
Rev. Rul. 55-74, 1955-1 C.B. 230.<br />
274.104 Death benefits; installment payments.<br />
Where survivor benefit payments are<br />
received over a period of years, pursuant to a noncontributory<br />
plan of an employer, the amount<br />
excludable is $5,000 and this amount is treated as<br />
consideration paid by the employee; the entire<br />
amount of each installment shall be excluded from<br />
gross <strong>income</strong> until there has been received and<br />
excluded an amount not in excess of $5,000, after<br />
which all amounts received are includable in gross
<strong>Gross</strong> <strong>income</strong><br />
<strong>income</strong>. Rev. Rul. 57-483 revoked. §§1.72–2,<br />
1.101-2. (Secs. 72, 101; ’86 Code.)<br />
Rev. Rul. 58-153, 1958-1 C.B. 43.<br />
274.105 Death benefits; nonresident citizen<br />
widow. Amounts paid, under an employees’ survivor<br />
benefit plan, to the spouse of a U.S. citizen<br />
employed abroad as a resident of a foreign country<br />
are not amounts received for personal services<br />
rendered by the survivor but represent death benefits<br />
accruing under the plan. They do not qualify<br />
for exemption as earned <strong>income</strong> from sources<br />
without the U.S. (Sec. 911, ’86 Code.)<br />
Rev. Rul. 56-524, 1956-2 C.B. 504.<br />
274.106 Death benefits; nontrusteed group<br />
life insurance and annuity plan. Life insurance<br />
premiums paid by an employer under a nontrusteed<br />
combination group term life insurance<br />
and group annuity contract are deductible by the<br />
employer and excludable by the employee. Insurance<br />
benefits paid to beneficiaries by reason of the<br />
death of an employee are not taxable. Annuity<br />
benefits paid on the employee’s death prior to<br />
retirement are taxable to the beneficiary; however,<br />
amounts paid as a death benefit in excess of that in<br />
which the employee had a nonforfeitable interest<br />
is excluded from the beneficiary’s gross <strong>income</strong><br />
subject to the $5,000 limitation. §§39.22(a)–3,<br />
39.22(b)(1)–1, 39.22(b)(2)–5, 39.23(a)-1. (Secs.<br />
22(a), 22(b), 23(a), ’39 Code; Secs. 61, 72, 162,<br />
’86 Code.)<br />
Rev. Rul. 55-193, 1955-1 C.B. 266.<br />
274.107 Death benefits; paid in installments.<br />
In determining the annuity reportable under section<br />
72, the exclusion under section 101(b) applies<br />
to installments payable to a deceased employee’s<br />
beneficiary under a qualified, noncontributory<br />
pension plan that exceeds the employee’s nonforfeitable<br />
interest. Rev. Rul. 55–64 superseded.<br />
§§1.72-13, 1.101-2, 1.402(a)-1. (Secs. 72, 101,<br />
402; ’86 Code.)<br />
Rev. Rul. 71-146, 1971-1 C.B. 34.<br />
274.108 Death benefits; payments to<br />
deceased employee’s widow or estate. Payments<br />
made by a corporation to its decedent president’s<br />
estate or widow representing the salary that would<br />
have been earned from the date of death to the end<br />
of the year (Foote), the equivalent of two years<br />
salary (Lurztz), or an amount equal to the decedent’s<br />
customary annual bonus (Maycann), were<br />
gifts, not dividends or compensation for services<br />
rendered. (Sec. 22(b), ’39 Code; Sec. 102, ’86<br />
Code.)<br />
Frank J. Foote, 28 T.C. 547, Florence S. Luntz,<br />
29 T.C, 647, and John A. Maycann, Sr., 29 T.C. 81,<br />
Acqs., 1972-2 C.B. 2.<br />
274.109 Death benefits; payments to spouse<br />
of deceased employee. The Service will no longer<br />
contend that section 101(b) applies to limit to<br />
$5,000 the exclusion from gross <strong>income</strong> of an<br />
amount paid to the widow of a deceased employee,<br />
where the payment otherwise qualifies as a gift<br />
under section 102(a). However, in extending section<br />
101(b) to noncontractual payments, the Service,<br />
although abandoning its former contention in<br />
view of adverse court decisions, will continue to<br />
argue that widow’s payments generally are not<br />
gifts. Rev. Rul. 60–326, which held that the Reed<br />
decision will not be followed as a precedent in the<br />
disposition of similar cases pending further development<br />
on the issue, is modified. §§1.101–2,<br />
1.102-1. (Secs. 101, 102; ’86 Code.)<br />
Rev. Rul. 62–102, C.B. 1962-2, 37.<br />
274.110 Death benefits; payments to spouse<br />
of deceased employee. Pursuant to a commission<br />
agreement, the decedent’s employer made commission<br />
payments to his spouse for five years after<br />
his death. Upon the expiration of the agreement,<br />
the Board of Directors voted to provide her with<br />
additional annual payments. Held, the first $5,000<br />
of the otherwise taxable gift was an excludable<br />
death benefit. (Sec. 101, ’86 Code.)<br />
Irving S. Wright, 39 T.C. 597, Nonacq., 1966-2<br />
C.B. 8.<br />
274.111 Death benefits; railroad retirement.<br />
Lump sum payments, received by individuals<br />
under section 5(f) of the Railroad Retirement Act<br />
commonly known as the insurance lump sum payment<br />
and the residual payment, are not includible<br />
in the recipients’ gross <strong>income</strong>. I.T. 3662 superseded.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 74-561, 1974-2 C.B. 24.<br />
274.112 Death benefits; recovery of investment<br />
in contract; unequal benefits. Computation<br />
of the amounts to be excluded from <strong>income</strong> by<br />
a widow and children receiving different yearly<br />
payments under a pension plan as beneficiaries of<br />
a deceased employee whose cost will be recovered<br />
within three years. §§1.72-13, 1.101–2,<br />
1.402(a)-1. (Secs. 72, 101, 402; ’86 Code.)<br />
Rev. Rul. 72-555, 1972-2 C.B. 44.<br />
274.113 Death benefits; surviving spouse<br />
beneficiary; remarriage. A surviving spouse’s<br />
exclusion of life insurance proceeds from gross<br />
<strong>income</strong> under section 101(d)(l)(B) is not affected<br />
by her remarriage. §1.101-4. (Sec. 104, ’86<br />
Code.)<br />
Rev. Rul. 72-164, 1972-1 C.B. 28.<br />
274.114 Death benefits; survivor benefit<br />
plan. Amounts, not in excess of $5,000 paid by an<br />
employer under an established survivorship benefit<br />
plan to the beneficiaries of employees dying<br />
while employed and prior to retirement are<br />
excludable from the gross <strong>income</strong> of the beneficiaries.<br />
§39.22(b)(1)–2. (Sec. 22(b), ’39 Code; Sec.<br />
61, ’86 Code.)<br />
Rev. Rul. 55-228, 1955-1 C.B. 231.<br />
274.115 Death benefits; variable life insurance<br />
contracts. Variable life insurance death<br />
benefits that may increase or decrease, but not<br />
below a guaranteed minimum amount, on each<br />
policy anniversary depending on the investment<br />
experience of the separate account of the prior<br />
year’s net premiums, are entirely excludable from<br />
the beneficiary’s gross <strong>income</strong> under section<br />
101(a). §1.101-1. (Sec. 101, ’86 Code.)<br />
Rev. Rul. 79–87, 1979-1 C.B. 73.<br />
274.116 Death benefits; wife and child of<br />
deceased annuitant. The limited death benefit<br />
exclusion does not apply to amounts received by<br />
a widow under a qualified pension plan of a retired<br />
employee who died after retirement but before<br />
receiving the first annuity payment. Such amounts<br />
were received by the widow as a surviving annuitant<br />
under a joint and survivor’s annuity contract<br />
after the annuity starting date. However, the exclusion<br />
applies to amounts received by the deceased<br />
employee’s child since they were paid by or on<br />
behalf of the employer and by reason of the death<br />
of the employee. §§ 1.72-4, 1.101–2, 1.402(a)-1.<br />
(Secs. 72, 101, 402; ’86 Code.)<br />
Rev. Rul. 72-313, 1972-1 C.B. 27.<br />
274.117 Death gratuity payment; authorized<br />
by Congress. A death gratuity specifically authorized<br />
by Congress or at any time made out of the<br />
contingent fund of the House of Representatives<br />
or of the Senate is a gift excludable from gross<br />
<strong>income</strong> of the recipient. §39.22(b)(3)-1. (Sec.<br />
22(b)(3), ’39 Code; Sec. 102, ’86 Code.)<br />
Rev. Rul. 55-609, 1955-2 C.B. 34.<br />
274.118 Death gratuity payment; stock<br />
exchange. In 1876 the Philadelphia-Baltimore<br />
Stock Exchange established a Gratuity Fund.<br />
Since its establishment the Fund has been maintamed<br />
exclusively to provide benefits upon the<br />
death of members of the Exchange. During 1950<br />
and 1954 the Fund paid benefits to beneficiaries of<br />
deceased members. Held, the payments received<br />
constituted amounts received under life insurance<br />
contracts, paid by reason of the death of the<br />
insured, and consequently, were excludable from<br />
the gross <strong>income</strong> of the recipients. (Sec. 22(b), ’39<br />
Code; Sec. 101, ’86 Code.)<br />
Clarence L. Moyer, 32 T.C. 515, Acq., 1960-2<br />
C.B. 6.<br />
274.119 Dependent care assistance payments;<br />
exclusion limit under a cafeteria plan.<br />
Guidance is provided under section 129(a), as<br />
amended by the Tax Reform Act of 1986, regarding<br />
the exclusion limit on dependent care assistance<br />
payments that are provided under a cafeteria<br />
plan.<br />
Notice 88-3, 1988-1 C.B. 474.<br />
274.120 Disability benefits; police officer;<br />
New York City. A disabled police officer<br />
employed by the City of New York may not<br />
exclude from gross <strong>income</strong> under section<br />
104(a)(1) any payments received under the terms<br />
of a union contract between the City and the<br />
Patrolmen’s Benevolent Association. §1.61-2,<br />
1.104-1. (Secs. 61, 104; ’86 Code.)<br />
Rev. Rul. 83–77, 1983-1 C.B. 37.<br />
274.121 Discharge of indebtedness; certain<br />
nonrecognition transactions. This notice clarifies<br />
the discussion in the preamble to proposed<br />
section 1.108–2 concerning the scope of regulations<br />
to be issued on discharge of indebtedness<br />
<strong>income</strong> in certain nonrecognition transactions.<br />
Notice 91-15, 1991–1 C.B. 319.<br />
274.122 Discharge of indebtedness; prepayment<br />
of mortgage note at discount. An individual<br />
taxpayer realizes discharge of indebtedness<br />
<strong>income</strong> under section 61(a)(12) upon the discounted<br />
prepayment to a lender of all or a portion<br />
of mortgage indebtedness. The amount of the discount<br />
is includable whether the mortgage note is<br />
recourse or nonrecourse. §§1.61–12, 1.108(a)-1.<br />
(Secs. 61, 108; ’86 Code.)<br />
Rev. Rul. 82–202, 1982–2 C.B. 35.<br />
274.123 Dividends and premiums received;<br />
farm production credit association; life insurance.<br />
Insurance premiums from borrowers and<br />
dividends from the insurance company received<br />
by a farm production credit association administering<br />
group credit life insurance for its memberborrowers<br />
in accordance with requirements of the<br />
Federal Farm Credit Association are not includable<br />
in the association’s gross <strong>income</strong> and the<br />
association is not entitled to a deduction for its<br />
annual premium payment. Rev. Rul. 69-96 superseded.<br />
§§1.61–1, 1.162–1. (Secs. 61, 162: ’86<br />
Code.)<br />
Rev. Rul. 74-321, 1974–2 C.B. 16.<br />
274.124 Domestic minerals purchase program.<br />
Payments received as the purchase price of<br />
domestic manganese ore under the Domestic<br />
Manganese Purchase Program administered by<br />
the General Services Administration, or other<br />
minerals or ores and concentrates under similar<br />
domestic purchase programs, may not be excluded<br />
from gross <strong>income</strong>. §1.621-1. (Sec. 621, ’86<br />
Code.)<br />
Rev. Rul. 60-305, 1960-2 C.B. 199.<br />
274.125 Donations refunded; previously<br />
deducted. Cash donations to a charitable organization<br />
over a period of years that are repaid to a<br />
taxpayer and redonated to another charitable organization<br />
in the same year are, to the extent a tax<br />
benefit was derived from deductions claimed in<br />
prior years, includable in gross <strong>income</strong> in the year<br />
of recovery under section 111. However, the<br />
repaid funds donated to the other organization are<br />
considered a charitable contribution. §§1.61–1,<br />
1.111-1, 1.170A-1. (Secs. 61, 111, 170; ’86 Code.)<br />
Rev. Rul. 76-150, 1976-1 C.B. 38.<br />
274.126 Earnings of reciprocal insurance<br />
investment fund. An annual premium deposit
<strong>Gross</strong> <strong>income</strong><br />
paid to a reciprocal flood insurance exchange, the<br />
total of which made over a number of years will<br />
equal the amount of insurance coverage desired,<br />
represents a nondeductible contingent deposit to<br />
the extent that it is withdrawable by the taxpayer.<br />
Amounts representing earnings from investment<br />
of the funds are <strong>income</strong> to the taxpayer in the taxable<br />
year such amounts are applied to the taxpayer’s<br />
annual premium deposit or become with<br />
drawable. The Weber Paper Co. decision holding<br />
that premium deposits made with a reciprocal<br />
flood insurance exchange were deductible business<br />
expenses will not be followed. §§1.61–1,<br />
1.162-1. (Sec. 61, 162; ’86 Code.)<br />
Rev. Rul. 60–275, 1960–2 C.B. 43; Rev. Rul.<br />
64-72, 1964-1 (Part 1) C.B. 85.<br />
274.127 Educational assistance programs.<br />
Guidance is provided regarding the proper tax<br />
treatment of educational assistance received by an<br />
employee in 1988 under an employer provided<br />
educational assistance program described in section<br />
127 of the Code.<br />
Notice 89-33, 1989–1 C.B. 674.<br />
274.128 Educational assistance programs.<br />
Recent tax law changes affect the tax treatment of<br />
educational assistance provided under employerprovided<br />
educational assistance plans.<br />
Notice 93–48, 1993–2 C.B. 335.<br />
274.129 Educational expenses; employee;<br />
tuition paid by employer. Tuition fees paid by an<br />
employer on behalf of employees who have at<br />
least three months continuous service, enroll in<br />
courses that are not required to be job related or<br />
leading to a degree, are not committed to continue<br />
as employees either during the course of study or<br />
for any length of time after the tuition is paid, and<br />
are required to produce grade “C” or better to be<br />
eligible for further aid, are not excludable from the<br />
employees’ gross <strong>income</strong> as scholarships or fellowship<br />
grants. However, the educational<br />
expenses may be deductible if they meet the<br />
requirements of section 1.162-5. Rev. Ruls.<br />
76-62, 76-65, and 76-71 distinguished. Amplified<br />
by Rev. Rul. 78-184. §§1.61-1, 1.117-4.<br />
(Secs. 61, 117; ’86 Code.)<br />
Rev. Rul. 76-352, 1976-2 C.B. 37.<br />
274.130 Educational expenses; employer<br />
payments of employee tuition fees. Tuition fees<br />
paid by an employer on behalf of employees that<br />
are not excludable from gross <strong>income</strong> as scholarship<br />
or fellowship grants under section 117, but are<br />
compensatory and includable in the employees’<br />
gross <strong>income</strong>, constitute wages for purposes of the<br />
FICA, FUTA, and <strong>income</strong> tax withholding. Rev.<br />
Rul. 76-352 amplified. §§1.61–1, 1.117-4. (Secs.<br />
61, 117, 3121, 3306, 3401; ’86 Code.)<br />
Rev. Rul. 78-184, 1978–1 C.B. 304.<br />
274.131 Educational expenses; Internal Revenue<br />
Service Scholarship Program. The Internal<br />
Revenue Service Scholarship Program is a workstudy<br />
program for internal revenue agent trainees<br />
that usually selects disadvantaged high school<br />
seniors who intend to major in accounting at a college<br />
or university and who agree to work for the<br />
Service for at least two years after graduation. The<br />
amounts the Service pays for the educational<br />
expenses of the participants in the program,<br />
including travel and per diem, are not excludable<br />
from their gross <strong>income</strong>s either as unemployment<br />
benefits or as scholarships or fellowship grants<br />
and are not deductible by the participants as<br />
educational expenses. §§1.61-1, 1.117-4<br />
1.162-5. (Secs. 61, 117, 162, 3402; ’86 Code.)<br />
Rev. Rul. 76-230, 1976-1 C.B. 19.<br />
274.132 Educational expenses paid by<br />
employer; job-related law courses. Amounts a<br />
government agency pays to a correspondence<br />
school for employees’ job-related law courses,<br />
leading to a degree but not entitling them to sit for<br />
any State Bar Examination, are noncompensatory<br />
business expenses for the agency and are not<br />
includable in the employees’ gross <strong>income</strong>. However,<br />
amounts paid to reimburse employees for<br />
expenses incurred in taking job-related evening<br />
law school courses, the completion of which with<br />
other courses not job-related leads to a degree and<br />
entitles them to sit for bar examinations, are<br />
includible in the employees’ gross <strong>income</strong>. Distinguished<br />
by Rev. Rul. 76-352. §§1.61-1, 1.117-4,<br />
1.162-5. (Secs. 61, 117, 162; ’86 Code.)<br />
Rev. Rul. 76-62, 1976–1 C.B. 12.<br />
274.133 Educational leave; payments to<br />
employees. Monthly payments a state public welfare<br />
department makes to its employees while on<br />
educational leave to pursue job-related training,<br />
with the employees obligated to return to the public<br />
welfare program for a minimum period of service,<br />
are not excludable from gross <strong>income</strong> as<br />
scholarships. However, tuition fees the department<br />
pays directly to a university for the<br />
employees are not includable in gross <strong>income</strong> and<br />
the employees may deduct amounts paid for<br />
books, travel, and incidental expenses related to<br />
the education. Distinguished by Rev. Rul. 76–352.<br />
§§1.61-1, 1.117-4, 1.162-5. (Secs. 61, 117, 162;<br />
’86 Code.)<br />
Rev. Rul. 76-65, 1976-1 C.B. 46.<br />
274.134 Emergency shelter payments to foster<br />
parents. Payments by a department of public<br />
welfare of a state to foster parents who make available<br />
emergency shelter care facilities are gross<br />
<strong>income</strong> to the recipients. Information returns on<br />
Forms 1099 and 1096 must be made with respect<br />
to such payments aggregating $600 or more to any<br />
person in a calendar year. §§1.61-1, 1.6041-1.<br />
(Secs. 61, 6041; ’86 Code.)<br />
Rev. Rul. 68-97, 1968-1 C.B. 34.<br />
274.135 Employee contributions to state or<br />
municipal plan. Where state law or municipal<br />
ordinance sets up an employee pension plan, the<br />
employee’s contributions deducted from his<br />
salary are includable in his gross <strong>income</strong> if participation<br />
in the plan is voluntary and he forfeits his<br />
own contributions upon termination of service<br />
prior to retirement or death, or participation in the<br />
plan is compulsory and the plan contains refund<br />
provisions in the event of separation prior to retirement<br />
or death. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 57-326, 1957-2 C.B. 42.<br />
274.136 Employee stock option; disposition<br />
of stock; U.S. citizen; foreign resident. Treatment<br />
of amounts received by a U.S. citizen, a bona<br />
fide resident of a foreign country, on the disposition<br />
of stock obtained upon the exercise of an<br />
option granted pursuant to an employee stock purchase<br />
plan. §§1.61–2, 1.421–5, 1.423–1, 1.911-1,<br />
1.911-2. (Secs. 61, 421, 423, 911; ’86 Code.)<br />
Rev. Rul. 69-118, 1969-1 C.B. 135.<br />
274.137 Employees of Naval cafeteria<br />
association. Remuneration for services performed<br />
in the employ of a cafeteria association,<br />
organized and operated under Navy Department<br />
regulations for the purpose of providing in-plant<br />
feeding services for civilian employees of a Naval<br />
shore establishment, is includible in gross <strong>income</strong>.<br />
Further, the association is an instrumentality<br />
wholly-owned by the U.S. and services performed<br />
in its employ are excepted from employment for<br />
FUTA purposes. §1.61-2. (Secs. 61, 3306; ’86<br />
Code.)<br />
Rev. Rul. 58-527, 1958-2 C.B. 741.<br />
274.138 Employer contributions; nonoccupational<br />
disability benefits; New York.<br />
Employer contributions to a fund to provide for<br />
nonoccupational disability benefits for employees<br />
pursuant to Article 9 of the New York Workmen’s<br />
Compensation Law are contributions to an accident<br />
or health plan excludable from the<br />
employees’ gross <strong>income</strong> and are not wages subject<br />
to <strong>income</strong> tax withholding; however, they are<br />
deductible by the employer as business expenses.<br />
Employees must include any nonoccupational disability<br />
benefits in their gross <strong>income</strong> unless the<br />
payments qualify for exclusion as amounts<br />
received under a wage continuation plan. I.T.s<br />
4010, 4060, 4075 and Rev. Ruls. 130, 257 superseded.<br />
Amplified by Rev. Rul. 75-499. Modified<br />
by Rev. Rul. 81-192. Distinguished by Rev. Rul.<br />
82-95. §§1.61-1, 1.104-1, 1.105-1, 1.106-1,<br />
1.162–10. (Secs. 61, 104, 105, 106, 162, 3402; ’86<br />
Code.)<br />
Rev. Rul. 72-191, 1972-1 C.B. 45.<br />
274.139 Employment agency fees; paid by<br />
employer. An employment agency fee paid by an<br />
employer under a contract with an agency providing<br />
that a job applicant will incur no liability for<br />
the fee to either the employer or the agency does<br />
not constitute wages for FICA, FUTA, or <strong>income</strong><br />
tax withholding purposes and is not includable in<br />
the employee’s gross <strong>income</strong>. Rev. Rul. 66-41 distinguished.<br />
§1.61–1. (Secs. 61, 3121, 3306, 3401;<br />
’86 Code.)<br />
Rev. Rul. 73-351, 1973–2 C.B. 323.<br />
274.140 Employment agency fees; reimbursed<br />
by employer. An amount equal to an<br />
employment agency fee previously paid by an<br />
employee which is reimbursed by the employer to<br />
the employee after he has completed a specified<br />
period of satisfactory service is includable in gross<br />
<strong>income</strong> and is additional wages to the employee<br />
subject to employment taxes. Distinguished by<br />
Rev. Rul. 73–351. §1.61-1. (Secs. 61, 3121, 3306,<br />
3401; ’86 Code.)<br />
Rev. Rul. 66-41, 1966-1 C.B. 233.<br />
274.141 Equipment; unrelated owner; no<br />
economic benefit. A corporation that contracts to<br />
construct and operate equipment on its own premises<br />
solely for the benefit of the unrelated owner of<br />
the equipment realizes <strong>income</strong> only with respect to<br />
amounts received or accrued for construction and<br />
operation. §§1.48-1, 1.61-1, 1.162-1,<br />
1.167(a)-2. (Secs. 48, 61, 162, 167; ’86 Code.)<br />
Rev. Rul. 79-264, 1979-2 C.B. 92.<br />
274.142 Excess compensation restored.<br />
Examples illustrate the treatment of amounts<br />
advanced to an employee in excess of remuneration<br />
earned where such excess is repaid by the<br />
employee, under an employment contract, upon<br />
termination of the employer-employee relationship.<br />
S.S.T. 316 superseded. §§1.61–1, 1.162–17,<br />
1.451-1, 1.461-1. (Secs. 61, 162, 451, 461, 3121,<br />
3306, 3401, 6413; ’86 Code.)<br />
Rev. Rul. 79–311, 1979–2 C.B. 25.<br />
274.143 Evacuation allowances; Guantanamo<br />
Naval Base. Special allowances paid to, or<br />
on behalf of, civilian employees and military personnel<br />
of the U.S. and their families incident to the<br />
evacuation of the U.S. Naval Base at Guantanamo,<br />
Cuba, are not includable in the recipient’s gross<br />
<strong>income</strong>. No deduction is allowable for any personal<br />
expenses incurred in excess of the allowances<br />
received. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 63–258, 1963–2 C.B. 22.<br />
274.144 Excess compensation restored;<br />
promissory note. A cash method taxpayer<br />
entered into an agreement with the corporation of<br />
which he was president and principal shareholder<br />
limiting his compensation to the amount allowable<br />
by the Commissioner as a deduction. He gave<br />
the corporation a promissory note for the excess<br />
compensation already received that year. Held, the<br />
amount repaid by the promissory note is not<br />
includible in the taxpayer’s <strong>income</strong> for that year.<br />
(Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)<br />
Willis W. Clark, 11 T.C. 672, Acq., 1953-1 C.B.<br />
3.<br />
274.145 Excess indemnification under medical<br />
insurance policies or plans. That portion of<br />
excess indemnification received from medical<br />
insurance policies or plans attributable to the tax-
payer’s contributions is not includable in gross<br />
<strong>income</strong>, but that portion attributable to an employer’s<br />
contributions is includible. §§1.104-1,<br />
1.105-1. (Secs. 104, 105; ’86 Code.)<br />
Rev. Rul. 69-154, 1969-1 C.B. 46.<br />
274.146 Fair market value of tour. The fair<br />
market value of a tour, furnished taxpayer free of<br />
charge by a travel agency for which he organized<br />
a group of tourists, is includable in his gross<br />
<strong>income</strong>. Expenses incurred by him while acting as<br />
an unpaid leader of the group at the request of the<br />
other tourists are not deductible from his gross<br />
<strong>income</strong> as business expenses. §§1.61–2, 1.162–2,<br />
1.262-1. (Secs. 61, 162, 262; ’86 Code.)<br />
Rev. Rul. 64-154, 1964-1 (Part 1) C.B. 72.<br />
274.147 Federal employee; compensation for<br />
injury. An explanation is presented of the treatment<br />
of amounts received by a federal employee<br />
for sick leave that were later repaid so that the<br />
recipient could be placed in leave without pay status<br />
and receive benefits under the Federal<br />
Employees Compensation Act for that period.<br />
§§1.61-1, 1.104-1, 1.165-1, 1.451-1, 1.461-1,<br />
1.1341-1. (Secs. 61, 104, 165, 451, 461, 1341; ’86<br />
Code.)<br />
Rev. Rul. 79-322, 1979-2 C.B. 76.<br />
274.148 Federal Housing Administration<br />
refund. Distributions received by an original, successor,<br />
or assignee mortgagor from the F.H.A. are<br />
gross <strong>income</strong> to the mortgagor to the extent that<br />
the aggregate amount of such distributions<br />
exceeds the total premium or premiums paid on<br />
the F.H.A. mortgage insurance. However, where<br />
the taxpayer was entitled to deduct the premiums<br />
paid as a business expense, the entire distribution<br />
received is required to be included in gross<br />
<strong>income</strong>. Rev. Rul. 58–380 amplifying Rev. Rul.<br />
56-302. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 58-380, 1958-2 C.B. 14.<br />
274.149 Fee waived by state inheritance tax<br />
appraiser. Where apart of the fee imposed by statute<br />
for the services of a state inheritance tax<br />
appraiser is waived by agreement, the amount so<br />
waived is not includible in his gross <strong>income</strong>.<br />
§1.61-2. (Sec. 61. ’86 Code.)<br />
Rev. Rul. 66-157, 1966-1 C.B. 20.<br />
274.150 Fees; Legal Aid attorneys. Statutory<br />
legal fees received by salaried Legal Aid attorneys<br />
for representing indigent defendants in the criminal<br />
courts are not includible in the gross <strong>income</strong> of<br />
the attorneys when their employment contract<br />
requires them to turn the fees over to their<br />
employer, The Legal Aid Society. §1.61–2. (Sec.<br />
61, ’86 Code.)<br />
Rev. Rul. 65-282, 1965-2 C.B. 21.<br />
274.151 Fees; physician required to assign to<br />
hospital foundation. Physician-members of a<br />
nonprofit research and educational foundation<br />
formed by a hospital’s medical staff, all of whom<br />
are required to be members of the foundation, are<br />
not required to include in their gross <strong>income</strong>s fees<br />
from certain patients, known as teaching cases,<br />
that they are required to assign to the foundation.<br />
§1.61-2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 76-479, 1976-2 C.B. 20.<br />
274.152 Fees; received by law school’s faculty<br />
members and students. A university’s law school<br />
attorney-faculty members and students are not<br />
required to include in their gross <strong>income</strong> amounts<br />
received and turned over to the university for their<br />
court appointed representation of indigent defendants<br />
while participating in the university’s clinical<br />
program that is part of its regular teaching curriculum.<br />
§1.61–2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 74-581, 1974-2 C.B. 25.<br />
274.153 Fees; received by salaried faculty<br />
physician of medical school. Faculty physicians<br />
of a medical school who provide medical services<br />
to indigent patients at a hospital are not required to<br />
include in their gross <strong>income</strong> fees collected and<br />
remitted to the university in accordance with university<br />
policy and agreement. §1.61–2. (Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 69-274, 1969-1 C.B. 36.<br />
274.154 Fees; received for hospital; salaried<br />
physicians. The amount of the checks received by<br />
a physician from patients he has treated in the hospital<br />
by which he is employed full time, which<br />
checks he is required to endorse over to the hospital,<br />
is not includible in his gross <strong>income</strong>. §1.61–2.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 58-220, 1958-1 C.B. 26.<br />
274.155 Fees; remitted to hospital; staff physicians.<br />
Staff physicians of a hospital must include<br />
in their gross <strong>income</strong> fees received from insurance<br />
for treatment of patients admitted to the hospital<br />
without a physician’s recommendation even<br />
though they voluntarily turn the fees over to the<br />
hospital. However, they are entitled to a charitable<br />
contribution deduction for the amounts turned<br />
over to the hospital. Amplified to provide that<br />
medicare fees collected by a charitable organization<br />
are includable in the gross <strong>income</strong> of the physician<br />
performing the services for which the fees<br />
were paid; such fees are not deductible by the individual<br />
physician as business expenses, but are<br />
deductible as charitable contributions. Rev. Rul.<br />
66-377 distinguished. §§1.61-2, 1.162-1,<br />
1.170-1. (Secs. 61, 162, 170; ’86 Code.)<br />
Rev. Rul. 69–275, 1969–1 C.B. 36; Rev. Rul.<br />
70-161, 1970-1 C.B. 15.<br />
274.156 Fees; remitted to medical school; faculty<br />
member. Fees received by a medical school<br />
faculty member from his private professional<br />
practice are includable in his gross <strong>income</strong> even<br />
though, under the terms of his contract of employment<br />
with the school, all or a part of such fees must<br />
be turned over to the school. Those fees actually<br />
turned over to the school may be deducted as ordinary<br />
and necessary business expenses. Distinguished<br />
by Rev. Rul. 69–275. O.D. 1009 superseded.<br />
§1.61–2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 66-377, 1966-2 C.B. 21.<br />
274.157 Floor stock refund; retail tire dealer.<br />
The reimbursement should be treated as a reduction<br />
of the cost of the tires to which it relates if the<br />
tires are in ending inventory. To the extent the cost<br />
of the tires is not in ending inventory, the reimbursement<br />
should be treated as an item of gross<br />
<strong>income</strong>. §§1.61–1, 1.61–14, 1.451–1, 1.471–3.<br />
(Secs. 61, 451, 471, 472, 4071, 6512; ’86 Code.)<br />
Rev. Rul. 85–30, 1985–1 C.B. 20.<br />
274.158 Foreign earned <strong>income</strong>; revocation<br />
of elections. A qualified individual’s claiming of<br />
a foreign tax credit with respect to foreign earned<br />
<strong>income</strong> eligible for exclusion under section 911 of<br />
the Code and that the taxpayer has elected to<br />
exclude is inconsistent with the previously made<br />
election or elections and generally will result in<br />
the revocation of one or both elections. §1.911–7.<br />
(Sec. 911, ’86 Code.)<br />
Rev. Rul. 90-77, 1990-2 C.B. 183.<br />
274.159 Foreign <strong>income</strong>; employees of<br />
Armed Forces exchanges, etc. Compensation<br />
received by U.S. citizens performing personal services<br />
abroad for post exchanges, officers’ messes,<br />
motion picture services, and similar organizations<br />
operated by the U.S. Army, Navy, or Air Force, is<br />
derived from sources within the U.S. and is includible<br />
in gross <strong>income</strong>. §§39.1161, 39.251(a)-1.<br />
(Secs. 116, 251(a), ’39 Code; Secs. 911, 931, ’86<br />
Code.)<br />
Rev. Rul. 54-612, 1954-2 C.B. 169.<br />
274.160 Fringe benefits; SIFL; aircraft valuation<br />
formula. For purposes of section<br />
1.61–2T(g) of the temporary regulations, relating<br />
to the role for valuing noncommercial flights on<br />
<strong>Gross</strong> <strong>income</strong><br />
employer-provided aircraft, the Standard Industry<br />
Fare Level (SIFL) cents-per-mile rates and the terminal<br />
charges in effect on June 30, 1988, and for<br />
prior periods are set forth. Rev. Rul. 88-40 superseded.<br />
§1.61–2T. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 88–71, 1988-2 C.B. 29.<br />
274.161 Fringe benefits; SIFL; aircraft valuation<br />
formula. For purposes of section<br />
1.61–21(g) of the regulations, relating to the rule<br />
for valuing noncommercial flights on employerprovided<br />
aircraft, the Standard Industry Fare<br />
Level (SIFL) cents-per-mile rates and the terminal<br />
charges in effect for 1989 are listed. Rev. Rul.<br />
88-71 modified. §1.61-21. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 90-4, 1990-1 C.B. 13.<br />
274.162 Fringe benefits; SIFL; aircraft valuation<br />
formula. For purposes of section<br />
1.61–21(g) of the regulations, relating to the rule<br />
for valuing noncommercial flights on employerprovided<br />
aircraft, the Standard Industry Fare<br />
Level (SIFL) cents-per-mile rates and the terminal<br />
charge in effect for flights taken during the first six<br />
months of 1990 are listed. Rev. Rul. 90-4 modified.<br />
§1.61–21. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 90-43, 1990-1 C.B. 13.<br />
274.163 Fringe benefits; SIFL; aircraft valuation<br />
formula. For purposes of section<br />
1.61–21(g) of the regulations, relating to the rule<br />
for valuing noncommercial flights on employerprovided<br />
aircraft, the Standard Industry Fare<br />
Level (SIFL) cents-per-mile rates and the terminal<br />
charges in effect for 1990 are listed. Rev. Rul.<br />
90-43 modified. §1.61-21. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 90-104, 1990–2 C.B. 33.<br />
274.164 Fringe benefits; SIFL; aircraft valuation<br />
formula. For purposes of reg. 1.61–21(g),<br />
relating to the rule for valuing noncommercial<br />
flights on employer-provided aircraft, the Standard<br />
Industry Fare Level (SIFL) cents-per-mile<br />
rates and the terminal charges in effect for 1991<br />
are set forth. Rev. Rul. 90–104 modified.<br />
§1.61-21. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 91-64, 1991–2 C.B. 18.<br />
274.165 Fringe benefits; SIFL; aircraft valuation<br />
formula, 1992. For purposes of reg.<br />
1.61–21(g), relating to the rule for valuing noncommercial<br />
flights on employer-provided aircraft,<br />
the Standard Industry Fare Level (SIFL)<br />
cents-per-mile rates and the terminal charges in<br />
effect for 1992 are set forth. Rev. Rul. 91–64 modified.<br />
§1.61-21. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 92–35, 1992-1 C.B. 16.<br />
274.166 Fringe benefits; SIFL; aircraft valuation<br />
formula. For purposes of reg. 1.61–21(g),<br />
relating to the rule for valuing noncommercial<br />
flights on employer-provided aircraft, the Standard<br />
Industry Fare Level (SIFL) cents-per-mile<br />
rates and the terminal charges in effect for 1992<br />
are set forth. Rev. Rul. 92–35 modified. §1.61–21.<br />
(Sec. 61, ’86 Code,).<br />
Rev Rul. 92-83, 1992-2 C.B. 36.<br />
274.167 Fringe benefits; SIFL; aircraft valuation<br />
formula; 1993. For purposes of section<br />
1.61–21(g) of the regs., relating to the rule for valuing<br />
non-commercial flights on employer-provided<br />
aircraft, the Standard Industry Fare Level<br />
(SIFL), cents-per-mile rates and terminal charges<br />
in effect for 1993 are set forth. Rev. Rul. 92–83<br />
modified. §1.61–21. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 93-35, 1993–1 C.B. 12.<br />
274.168 Fringe benefits; SIFL; aircraft valuation<br />
formula; 1993. For purposes of section<br />
1.61–21(g) of the regs., relating to the rule for valuing<br />
non-commercial flights on employer-provided<br />
aircraft, the Standard Industry Fare Level<br />
(SIFL), cents-per-mile rates and terminal charges<br />
in effect for 1993 are set forth. Rev. Rul. 93–35<br />
modified. §1.61–21. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 93–65, 1993–2 C.B. 12.
<strong>Gross</strong> <strong>income</strong><br />
274.169 Gift of manuscript and gratuitous<br />
services. A taxpayer who conveys all his right,<br />
title and interest in a manuscript containing his<br />
memoirs to a foundation and gratuitously assists in<br />
preparing the manuscript for publication does not<br />
realize <strong>income</strong> from the foundation’s use or disposition<br />
of the memoirs or from the services rendered<br />
by him. §1.61-2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 71-33, 1971-1 C.B. 30.<br />
274.170 Gift of manuscript and gratuitous<br />
services. A taxpayer’s gift to a private foundation<br />
of a manuscript containing taxpayer’s memoirs<br />
together with gratuitous assistance in its preparation<br />
for publication by the foundation of which<br />
taxpayer and taxpayer’s spouse were sole trustees<br />
followed by the appointment of an additional<br />
trustee, not a disqualified person, to have sole<br />
authority with respect to the manuscript and its<br />
publication, does not result in gross <strong>income</strong> to the<br />
taxpayer. §1.61-2. (Sec.161, ’86 Code.)<br />
Rev. Rul. 76-20,1976-1 C.B. 22.<br />
274.171 GOSI; benefit cancellation payments.<br />
Guidance is provided for taxpayers to<br />
determine the taxability of benefit cancellation<br />
payments received from the Saudi Arabian social<br />
security system. §§1.61–1, 1.72–1. (Secs. 61, 72,<br />
’86 Code.)<br />
Rev. Rul. 89-104, 1989-2 C.B. 4.<br />
274.172 Grants; administrator of research<br />
program. The entire amount of a grant made to an<br />
individual as principal investigator and administrator<br />
of a research program, which he expended<br />
as required by the grantor to cover the costs connected<br />
with the investigations, and from which he<br />
received no salary or other economic benefit, is<br />
not includible in his gross <strong>income</strong>. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 59-92, 1959–1 C.B. 11.<br />
274.173 Group life insurance; excess premiums;<br />
retroactive rate credits; trust <strong>income</strong>.<br />
A trust, created to provide group life insurance to<br />
association members, received funds from members<br />
for premium payments and trust expenses and<br />
from retroactive rate increases refunded by the<br />
insurer. The trust was authorized to pay all premiums,<br />
expenses, and refunds to the insurees at<br />
the trustee’s discretion. To absorb any rate<br />
increases, the trustee funded a reserve with portions<br />
of the rate credits. Held, neither the amounts<br />
paid in by the members nor the rate credit refunds<br />
are taxable to the trust. (Sec. 61, ’86 Code.)<br />
New York State Association of Real Estate<br />
Boards Group Insurance Fund, 54 T.C. 1325, Nonacq.,<br />
1974–2 C.B. 5.<br />
274.174 Health and accident insurance premiums;<br />
paid by employer; retired employee.<br />
Amounts paid by a company under a health and<br />
accident plan as its share of the cost of providing<br />
hospital, medical and surgical insurance coverage<br />
for the retired employees, as well as its active<br />
employees, are excludable from the retired<br />
employees’ gross <strong>income</strong>. §1.106-1. (Sec. 106,<br />
’86 Code.)<br />
Rev. Rul. 62–199, 1962–2 C.B. 38.<br />
274.175 Health and accident insurance premiums;<br />
paid by employer; retired employee.<br />
Payments for a retired employee’s continued participation<br />
in the employer’s union-negotiated hospital,<br />
surgical, and medical group insurance plan,<br />
which provides that upon retirement the employee<br />
may receive a cash payment for accumulated sick<br />
leave or have the payment applied to the cost of<br />
insurance, are includable in the employee’s gross<br />
<strong>income</strong> and are deductible as medical expenses.<br />
Similar payments made under a plan with no<br />
option to receive a cash payment are excludable<br />
from gross <strong>income</strong> and not deductible. §§1.61-1,<br />
1.106-1, 1.213-1, 1.451-1. (Secs. 61, 106, 213,<br />
451; ’86 Code.)<br />
Rev. Rul. 75-539, 1975-2 C.B. 45.<br />
274.176 Health and welfare payments made<br />
to employees. Amounts employees received<br />
directly from a government contractor, in satisfaction<br />
of the Service Contract Act requirement that<br />
health and welfare benefits or cash in lieu thereof<br />
be provided on a parity with those benefits prevailing<br />
in the locality, are includable in their gross<br />
<strong>income</strong>. Rev. Rul. 61-146 distinguished.<br />
§1.106-1. (Secs. 106, 3121, 3306, 3401; ’86<br />
Code.)<br />
Rev. Rul. 75-241, 1975-1 C.B. 316.<br />
274.177 Homeowners association; special<br />
assessment. A special assessment collected by an<br />
incorporated homeowners’ association from its<br />
members and set aside in a special bank account<br />
for paving a community parking area constitutes<br />
a contribution to the capital of the nonexempt<br />
association. §§1.61-1 , 1.118–1. (Secs. 61, 118;<br />
’86 Code.)<br />
Rev. Rul. 74-563, 1974-2 C.B. 38.<br />
274.178 Homestead and tenants’ property<br />
tax rebate; New Jersey. The New Jersey homestead<br />
tax rebate paid to a qualifying taxpayer is<br />
includible in gross <strong>income</strong> only to the extent it<br />
exceeds the property tax actually paid whether or<br />
not the taxpayer itemizes deductions. A taxpayer<br />
itemizing deductions must reduce the deduction<br />
for property tax paid by the amount of the rebate.<br />
The New Jersey tenants’ property tax rebate is a<br />
refund of nondeductible rent and is not includable<br />
in gross <strong>income</strong>. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 78–194, 1978-1 C.B. 24.<br />
274.179 Honorarium; payable to elected federal<br />
official; transferred to charitable organization.<br />
The amount of an honorarium payable to<br />
an elected federal official, but transferred at the<br />
official’s request to an educational organization<br />
selected by the payer from a list of five charitable<br />
organizations provided by the official, is includible<br />
in gross <strong>income</strong> under section 61, even though<br />
treated as not being accepted by the official for<br />
purposes of 2 U.S.C. 441i. However, the amount<br />
is deductible as a charitable contribution subject to<br />
the limitations of section 170. §§1.61-2,<br />
1.170A-1. (Secs. 61, 170; ’86 Code.)<br />
Rev. Rul. 79-121, 1979-1 C.B. 61.<br />
274.180 Hospital and medical insurance premiums<br />
reimbursed by employer. Amounts paid<br />
by an employer to his employees in reimbursement<br />
for his share of premiums actually paid by<br />
the employees to an insurer for hospital and medical<br />
insurance constitutes contributions by the<br />
employer to accident or health plans for his<br />
employees and are excludable from the<br />
employees’ gross <strong>income</strong>. Rev. Rul. 57–33 distinguished.<br />
Distinguished by Rev. Rul. 75-241.<br />
§1.106-1. (Secs. 61, 106; ’86 Code.)<br />
Rev. Rul. 61-146, 1961–2 C.B. 25.<br />
274.181 Income from investment of damage<br />
award. Income realized from the investment of a<br />
lump sum payment, representing the discounted<br />
present value of a damage award for personal injuries,<br />
is not excludable from gross <strong>income</strong>.<br />
§§1.61-1, 1.104-1. (Secs. 61, 104; ’86 Code.)<br />
Rev. Rul. 65-29, 1965-1 C.B. 59.<br />
274.182 Income from Puerto Rico; residence<br />
changed to U.S. A bona fide resident of Puerto<br />
Rico who changes his residence to the U.S. may<br />
exclude from gross <strong>income</strong>, for the taxable year in<br />
which his residence is changed, any <strong>income</strong><br />
derived from sources within Puerto Rico attributable<br />
to his period of residence in Puerto Rico.<br />
§1.933-1. (Sec. 933, ’86 Code.)<br />
Rev. Rul. 68-7, 1968–1 C.B. 345.<br />
274.183 Income from spend thrift trust; beneficiary.<br />
An individual who makes a clear and irrevocable<br />
disclaimer, effective under Pennsylvania<br />
law, of her right to <strong>income</strong> which she is entitled to<br />
receive from a simple Pennsylvania spendthrift<br />
trust, is not required to include in gross <strong>income</strong> the<br />
<strong>income</strong> accruing to the trust subsequent to her disclaimer.<br />
§1.652(a)-1. (Sec. 652, ’86 Code.)<br />
Rev. Rul. 64-62, 1964-1 (Part 1) C.B. 221.<br />
274.184 Inheritance; relinquishment of right.<br />
The entire amount received by a taxpayer from the<br />
sale of his interest in an expected inheritance from<br />
a person who was living and had not made a will<br />
at the time of the sale is includable in gross <strong>income</strong>.<br />
I.T. 1466 superseded. §1.61-1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 70-60, 1970-1 C.B. 11.<br />
274.185 Insurance premiums; additional<br />
group-term life; employer’s portion. The<br />
employer’s portion of premiums paid for additional<br />
insurance in excess of the maximum coverage<br />
of $50,000 under a group-term life insurance<br />
plan is includible in the insured employee’s gross<br />
<strong>income</strong> notwithstanding the employee’s irrevocable<br />
assignment of his rights under the policy.<br />
§§1.61-2, 1.79-1. (Secs. 61, 79; ’86 Code.)<br />
Rev. Rul. 73-174, 1973-1 C.B. 43.<br />
274.186 Insurance premiums; advances or<br />
prepayments. Increments in value of advance or<br />
prepaid premiums or premium deposit funds<br />
which are applied to the payment of life insurance<br />
and annuity premium or made available for withdrawal<br />
are reportable as <strong>income</strong> when earned.<br />
Increments so treated are to be reported on<br />
information returns by the insurance company and<br />
are to be included in determining the aggregate<br />
premium or consideration paid by the policyholder<br />
for the contract. This ruling applies beginning<br />
with increments credited or made available<br />
for withdrawal on the first premium date falling<br />
after July 31, 1965. I.T. 3513 and Rev. Rul. 65–24<br />
revoked. Amplified to illustrate how and when to<br />
report these increments. §§1.61–1, 1.6049-1.<br />
(Secs. 61, 6049; ’86 Code.)<br />
Rev. Rul. 65-199, 1965-2 C.B. 20; Rev. Rul.<br />
66-120, 1966-1 C.B. 14.<br />
274.187 Insurance premiums; discounts and<br />
rebates. A general insurance agent who discounted<br />
or rebated premiums to his customers in<br />
violation of state law and retained a correspondingly<br />
lesser amount as his commission, remitting<br />
the full net premium to the insurance company,<br />
properly reported as gross <strong>income</strong> the reduced<br />
commission retained. (Sec. 61, ’86 Code.)<br />
Allen Schiffman, 47 T.C. 537, Nonacq., 1977-1<br />
C.B. 2.<br />
274.188 Insurance premiums; group health;<br />
retired lives reserve transferred to trust. The<br />
“retired lives reserve” maintained by an insurance<br />
company under an accrual-basis corporation’s<br />
group insurance program for both active and<br />
retired employees and attributable to premiums<br />
previously deducted, transferred at the corporation’s<br />
request to an exempt trust to provide insurance<br />
coverage for retired employees, is includible<br />
in the corporation’s gross <strong>income</strong>. Further, the corporation’s<br />
annual contributions to the trust after<br />
the transfer are deductible in the taxable year paid<br />
or incurred only to the extent that they are actuarially<br />
determined and made on a level basis. Modified<br />
by Rev. Rul. 77-92. §§1.61-1, 1.162-10.<br />
(Secs. 61, 162; ’86 Code.)<br />
Rev. Rul. 73–599, 1973–2 C.B. 40.<br />
274.189 Insurance premiums; group hospitalization<br />
and life; commission salesmen. Group<br />
term life and hospitalization insurance premiums<br />
paid on behalf of commission salesmen are taxable<br />
to salesmen who are not employees, but are<br />
exempt to those who are employees; premiums on
group permanent life insurance are taxable to all<br />
salesmen. (Secs. 61, 106, 162; ’86 Code.)<br />
Rev. Rul. 56-400, 1956-2 C.B. 116.<br />
274.190 Insurance premiums; group life;<br />
retired lives reserve transferred to second<br />
insurer. A corporation that transfers a “retired<br />
lives reserve” from the insurance company maintaining<br />
its group insurance program to another<br />
insurance company in accordance with an insurance<br />
contract, which provides an option to make<br />
such transfer or to have the reserve returned to it,<br />
must include in its gross <strong>income</strong> the portion of the<br />
reserve accumulated out of premiums paid or<br />
incurred in taxable years ended on or before June<br />
17, 1969, for which it received deductions, plus<br />
the interest attributable to those years. The portion<br />
of the reserve accumulated in taxable years after<br />
that date, for which premiums were not deducted,<br />
is not includable except for the interest. Rev. Rul.<br />
73-599 modified. §1.61-1, 1.162-10. (Secs. 61,<br />
162; ’86 Code.)<br />
Rev. Rul. 77-92, 1977–1 C.B. 41.<br />
274.191 Insurance premiums; paid by bank;<br />
indemnification for officers. Premiums paid by<br />
a bank for group liability insurance policies, one<br />
indemnifying it for corporate liability resulting<br />
from wrongful acts committed, or alleged to have<br />
been committed, by its directors and officers<br />
within the scope of their employment, and one<br />
reimbursing such officers for their expenses arising<br />
from such acts, are deductible as ordinary and<br />
necessary business expenses. No <strong>income</strong> results to<br />
the officers and directors from such premiums.<br />
§§1.61-1, 1.162-1. (Secs. 61, 162; ’86 Code.)<br />
Rev. Rul. 69-491, 1969–2 C.B. 22.<br />
274.192 Insurance premiums; paid to<br />
employees. Amounts paid directly to employees,<br />
pursuant to a union contract of employment, to be<br />
used exclusively for the purchase of individual<br />
hospitalization and surgical insurance coverage,<br />
constitute “wages”, and are includable in the gross<br />
<strong>income</strong> of the employees. I.T. 3738 distinguished.<br />
Distinguished by Rev. Rul. 61-146. §1.61-1.<br />
(Secs. 61, 3121, 3306, 3401; ’86 Code.)<br />
Rev. Rul. 57–33, 1957–1 C.B. 303.<br />
274.193 Insurance premiums; split-dollar<br />
life. The tax consequences of “split-dollar” life<br />
insurance arrangements are explained for situations<br />
in which the owner of the insurance policy is<br />
an individual other than the employee or former<br />
employee whose life is insured. Rev. Ruls.<br />
64-328, 66-110, and 67-154 amplified. §1.61-1.<br />
(Secs. 61, 2501, 2511; ’86 Code.)<br />
Rev. Rul. 78-420, 1978–2 C.B. 67.<br />
274.194 Insurance proceeds; change in<br />
method of receipt; surviving spouse. A surviving<br />
spouse who elects to leave life insurance proceeds,<br />
payable by reason of the death of her<br />
spouse, with the insurer and receive only interest<br />
payments thereon which are includible in her<br />
gross <strong>income</strong>, is not precluded from obtaining the<br />
benefit of the exclusions provided by section<br />
101(d) if she elects at a later date to receive future<br />
payments under another mode of settlement which<br />
would have qualified for such exclusions had such<br />
an election been made in the first instance.<br />
§1.61-1, 1.101-1. (Secs. 61, 101; ’86 Code.)<br />
Rev. Rul. 65–284, 1965-2 C.B. 28.<br />
274.195 Insurance proceeds; missing in<br />
action. The recipient beneficiary may exclude<br />
from gross <strong>income</strong> the proceeds of a life insurance<br />
policy upon which the insured was a Missing in<br />
Action member of the U.S. uniformed services for<br />
whom no official finding of death has been made<br />
by the Department of Defense. Rev. Rul. 76-468<br />
clarified. §§1.61–1, 1.101–1, 1.451–2. (Secs. 61,<br />
101, 451; ’86 Code.)<br />
Rev. Rul. 78–372, 1978-2 C.B. 93.<br />
274.196 Insurance proceeds; policy transferred<br />
subject to indebtedness. Taxpayer transferred<br />
to his wife a life insurance policy subject to<br />
indebtedness. The wife paid the indebtedness in<br />
the following year and paid all premiums subsequent<br />
to the transfer. Held, theprocecds paid to the<br />
wife at the taxpayer’s death are excludable under<br />
section 101. Section 101(a)(2), limiting the exclusion<br />
for transferees to the value of the consideration<br />
and the premiums paid, is not applicable<br />
because the wife acquired the policy in part for a<br />
valuable consideration and in part by gift. Section<br />
101(a)(2)(A) makes the limitation inapplicable to<br />
the transferee whose basis is determined in whole<br />
or in part, by reference to the transferor’s basis.<br />
§1.101-1. (Sec. 101, ’86 Code.)<br />
Rev. Rul. 69-187, 1969–1 C.B. 45.<br />
274.197 Interest; deficiency; paid by another.<br />
The interest on an overassessment is includable in<br />
full in the gross <strong>income</strong> of the taxpayer, even<br />
though a portion thereof is used to pay the deficiency<br />
interest of another person. The interest on<br />
the deficiency is deductible only by the person<br />
whose liability such payment represents, irrespective<br />
of whether made on his behalf as a loan or as<br />
a gift to him. (Secs. 61, 163; ’86 Code.)<br />
Rev. Rul. 57-481, 1957–2 C.B. 48.<br />
274.198 Interest; insured loans; Agricultural<br />
Credit Insurance Fund. Interest on insured loans<br />
sold out of the Agricultural Credit Insurance Fund<br />
after December 31, 1970, is includible in gross<br />
<strong>income</strong>. Rev. Rul. 58-452 modified. §1.103–1.<br />
(Sec. 103, ’86 Code.)<br />
Rev. Rul. 71-594, 1971-2 C.B. 91.<br />
274.199 Interest on bonds; bridge commission.<br />
The interest on bonds to be issued by a bridge<br />
commission created by Congress to construct a<br />
bridge between two neighboring States is not<br />
excludable from the gross <strong>income</strong> of the recipient.<br />
§1.103-1. (Sec. 103, ’86 Code.)<br />
Rev. Rul. 68-41, 1968-1 C.B. 47.<br />
274.200 Interest on certain loans used to<br />
acquire employer securities. A corporation’s<br />
actions as an underwriter in the sale of notes evidencing<br />
a securities acquisition loan will not<br />
adversely affect the status, under section 133, of<br />
interest received or accrued on such notes. A qualified<br />
lender will be entitled to the partial interest<br />
exclusion of section 133 without regard to whether<br />
each previous holder of the note was a qualified<br />
lender. §1.133-1T. (Sec. 133, ’86 Code.)<br />
Rev. Rul. 89-76, 1989-1 C.B. 24.<br />
274.201 Interest on refunds; Canadian Special<br />
Refundable Tax. The Special Refundable<br />
Tax on certain corporations and trusts imposed by<br />
Canada is neither allowable as a foreign tax credit<br />
nor deductible in computing taxable <strong>income</strong>.<br />
Refunds of the tax are not includible in gross<br />
<strong>income</strong>, but interest received thereon must be<br />
included. §§1.61–1, 1.164-1, 1.901–1. (Secs. 61,<br />
164, 901; ’86 Code.)<br />
Rev. Rul. 67-187, 1967–1 C.B. 185.<br />
274.202 Job training allowances. Weekly<br />
allowances in excess of allowances provided<br />
under the Manpower Development Training Act,<br />
received by construction union members from a<br />
tax-exempt trust fund established under a collective<br />
bargaining agreement financed by contractor<br />
contributions to provide training in construction<br />
skills, are not excludable from the gross <strong>income</strong>s<br />
of the recipients as scholarships or fellowship<br />
grants. §§1.61-2, 1.117-4. (Secs. 61, 117; ’86<br />
Code.)<br />
Rev. Rul. 77-177, 1977–1 C.B. 34.<br />
<strong>Gross</strong> <strong>income</strong><br />
274.203 “Key man” life insurance proceeds;<br />
note repaid. A subchapter S corporation received<br />
proceeds of an insurance policy it owned on a business<br />
keyman who died in a plane crash. The policy<br />
was settled in a lawsuit with the decedent’s corporation<br />
and estate contesting rights to the claim.<br />
The decedent’s corporation and the stock held<br />
therein by the estate were excused from further<br />
liability to the subchapters corporation on the balance<br />
of a note co-signed by the decedent. Held, the<br />
subchapter S corporation had an insurable interest<br />
in the keyman and received excludable insurance<br />
proceeds, not <strong>income</strong> from a lawsuit settlement or<br />
<strong>income</strong> from the discounted note collection, as the<br />
decedent’s corporation had no “interest in the<br />
policy” to assign as consideration for cancellation<br />
of its indebtedness. (Acq. in result as to the “interest<br />
in the policy”; Acq. to the other issues.) (Secs.<br />
61, 101; ’86 Code.)<br />
M. Lucile Harrison, 59 T.C. 578, Acq., 1973-2<br />
C.B. 2.<br />
274.204 Lease security deposit; repayment<br />
obligation released. The entire amount realized<br />
by a lessor from the release of his obligation to<br />
repay a security deposit as consideration for cancellation<br />
of the lease is includable in his gross<br />
<strong>income</strong> in the year of the release. The Service will<br />
not follow the decisions in Warren Service Corp.<br />
and Bradford Hotel Operating Co. §1.61–8. (Sec.<br />
61, ’86 Code.)<br />
Rev. Rul. 68-19, 1968–1 C.B. 42.<br />
274.205 Leave-sharing plan; paid by<br />
employer. Amounts paid by an employer pursuant<br />
to a leave-sharing plan are includable in the gross<br />
<strong>income</strong> of the recipient as compensation for services<br />
provided by the recipient to the employer<br />
and are wages for employment tax purposes.<br />
§1.61-2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 90-29, 1990-1 C.B. 11.<br />
274.206 Legal expenses and interest;<br />
awarded with back pay and interest. Legal fees,<br />
interest, and back pay awarded by a court in connection<br />
with a claim against an individual’s<br />
employer are includable in gross <strong>income</strong>. Likewise,<br />
back pay paid to union members out of a<br />
court-approved settlement between a union and a<br />
company involving a breach of a collective bargaining<br />
agreement is includable in the member’s<br />
gross <strong>income</strong>. The portion of the total settlement<br />
that is used by the union to pay legal fees incurred<br />
in enforcing the agreement is not includable in the<br />
members’ gross <strong>income</strong> and is not deductible by<br />
them as a business expense. §§1.61–1, 1.162–1.<br />
(Secs. 61, 162, 3121, 3306, 3401; ’86 Code.)<br />
Rev. Rul. 80-364, 1980-2 C.B. 294.<br />
274.207 Legal expenses of official paid by<br />
organization. A committee composed of officers<br />
of an organization paid the personal legal<br />
expenses of an official of the organization. The<br />
committee’s professed aim was to aid the organization<br />
in general through exoneration of the taxpayer;<br />
the unused funds were turned over to the<br />
organization. Under the circumstances, the payments<br />
for legal expenses constitute gross <strong>income</strong><br />
to the official rather than non-taxable gifts.<br />
§§1.61-1, 1.102-1. (Secs. 61, 102; ’86 Code.)<br />
Rev. Rul. 60-14, 1960-1 C.B. 16.<br />
274.208 Lump-sum payment; accrued leave;<br />
Federal employees. Lump-sum payments<br />
received by a Federal Government employee for<br />
accumulated and current accrued annual or vacation<br />
leave upon separation from government service,<br />
irrespective of whether such individual<br />
resigns or retires and receives a disability annuity<br />
are not payments for personal injuries or sickness<br />
under a wage continuation plan excludable from<br />
gross <strong>income</strong>. Rev. Rul. 35–85 distinguished.<br />
(Sec. 105, ’86 Code.)<br />
Rev. Rul. 58–178, 1958–1 C.B. 51.<br />
274.209 Lump-sum payment; mineral rights;<br />
royalty interest retained. A lump-sum payment<br />
received by the owner of land purportedly for fee<br />
simple title to all minerals in and under the land,<br />
but in conjunction with which he retained a royalty<br />
interest in any minerals produced from the land, is<br />
ordinary <strong>income</strong> and not proceeds from the sale of
<strong>Gross</strong> <strong>income</strong><br />
a capital asset. G.C.M. 27322 superseded.<br />
§§1.61-1, 1.1231-1. (Secs. 61, 1231; ’86 Code.)<br />
Rev. Rul. 69–352, 1969–1 C.B. 34.<br />
274.210 Lump-sum payment; mineral rights;<br />
royalty interest retained. The lump sum payment<br />
received for a 65 percent interest in the minerals in<br />
place is not subject to a depletion allowance under<br />
section 611. The payment is for the sale of a capital<br />
asset defined in section 1221 and entitled to capital<br />
gain treatment. §§1.611-1, 1.1221-1. (Secs. 611,<br />
1221; ’86 Code.)<br />
Rev. Rul. 82-221, 1982-2 C.B. 113.<br />
274.211 Maintenance of residence by estate.<br />
Amounts spent by trustees under the terms of a testamentary<br />
trust to maintain a residence for a beneficiary<br />
of the testator are not <strong>income</strong> to the beneficiary.<br />
(Sec. 219(b)(2), Revenue Acts of 1924 and<br />
1926; Sec.612(b), Revenue Act of 1928; Sec. 662,<br />
’86 Code.)<br />
Henry B. Plant, 30 B.T.A. 133, Acq., 1976-1<br />
C.B. 1.<br />
274.212 Meal allowances furnished state<br />
troopers. Cash meal allowance payments<br />
received by state troopers for their use in obtaining<br />
mid-shift meals are additional compensation to<br />
the troopers and are not excludable under section<br />
119. (Secs. 61, 119; ’86 Code.)<br />
Kowalski, 434 U.S. 77, Ct. D. 1987, 1978-1<br />
C.B. 15.<br />
274.213 Meal and subsistence allowances;<br />
state police officers. Procedures are set forth for<br />
state police officers to follow in making the election<br />
provided by section 3 of Pub. L. 95-427, relating<br />
to their statutory subsistence allowances or<br />
subsistence allowances negotiated in accordance<br />
with state law. §1.119–1. (Secs. 601.105, 601.602,<br />
S.P.R.; Sec. 119, ’86 Code.)<br />
Rev. Proc. 79–13, 1979–1 C.B. 493; Rev. Proc.<br />
81-26, 1981-2 C.B. 547.<br />
274.214 Medicare benefits. Basic medicare<br />
benefits under part A of title XVIII of the Social<br />
Security Act are not includible in gross <strong>income</strong> or<br />
the limitation on retirement <strong>income</strong> credit but are<br />
includable in support computation as the contribution<br />
of the person for whom it was paid. Supplementary<br />
medicare benefits under part B are not<br />
includable in gross <strong>income</strong>, support computation,<br />
or in the limitation on retirement <strong>income</strong> credit.<br />
§§1.37-4, 1.61-1, 1.152-1. (Secs. 37, 61, 152; ’86<br />
Code.)<br />
Rev. Rul. 70-341, 1970–2 C.B. 31.<br />
274.215 Member of Congress; salary<br />
returned to Treasury. The salary of a member of<br />
Congress is gross <strong>income</strong>; however, any portion<br />
which he returns to the U.S. Treasury is deductible<br />
as a charitable contribution. (Secs. 61, 170; ’86<br />
Code.)<br />
Rev. Rul. 56-126, 1956-1 C.B. 56.<br />
274.216 Members of Congress; allowances;<br />
expenses in discharge of official duties. The tax<br />
treatment of allowances and reimbursements<br />
made under the Regulations and Accounting Procedures<br />
for Allowances and Expenses of Committees,<br />
Members and Employees of the United<br />
States House of Representatives for use in the discharge<br />
of official and representational duties is set<br />
forth. §§1.61-1, 1.162–17, 1.274–5. (Secs. 61,<br />
162, 274; ’86 Code.)<br />
Rev. Rul. 77-323, 1977-2 C.B. 18.<br />
274.217 Membership dries (premiums); shipowners<br />
mutual association. The return of<br />
excess dues (premiums) by a fishing vessel owners’<br />
association to its members, from a fund<br />
created to reimburse them for sums which they<br />
become liable to pay in respect of personal injuries<br />
growing out of the use of the fishing vessels, is not<br />
an inurement of earnings to the members and,<br />
therefore, the dues paid to the association by members<br />
need not be included in it gross <strong>income</strong>. (Sec.<br />
526, ’86 Code.)<br />
Rev. Rul. 70-566, 1970- C.B. 128.<br />
274.218 Membership fees; refundable less<br />
delinquent dues. A swimming school operator<br />
collects membership fees from members in order<br />
to build a new pool. If any member defaults in the<br />
payment of his dues, such amount is deducted<br />
from his membership fee. The membership fee,<br />
minus any deductions, is to be refunded to each<br />
member within five years after the pool is put into<br />
use. The membership fee arrangement is considered<br />
to be a loan since the owner had an obligation<br />
to refund. However, any amount deducted from<br />
the fee for delinquent dues is gross <strong>income</strong> derived<br />
from business. Distinguished by Rev. Rul.<br />
66-347. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 58–17, 1958-1 C.B. 11.<br />
274.219 Ministers; taxes paid by church.<br />
Amounts paid by a church toward its minister’s<br />
personal tax obligations are includible in his gross<br />
<strong>income</strong> for <strong>income</strong> and self-employment tax purposes;<br />
further, voluntary plans for withholding<br />
<strong>income</strong> tax from a minister’s salary cannot be<br />
approved by the Revenue Service. §§1.61–1,<br />
1.1401-1. (Secs. 61, 1401; ’86 Code.)<br />
Rev. Rul. 68-507, 1968-2 C.B. 485.<br />
274.220 Missionaries; contributions for support.<br />
Voluntary contributions made directly to and<br />
for the support of employee-missionaries performing<br />
services to further the purposes and<br />
objectives of an exempt mission are deemed paid<br />
on behalf of the mission and in consideration for<br />
services rendered by the missionaries and, as such,<br />
are includible in the gross <strong>income</strong> of the missionaries.<br />
§§1.61–2, 1.102–1. (Secs. 61, 102; ’86<br />
Code.)<br />
Rev. Rul. 68–67, 1968–1 C.B. 38.<br />
274.221 Money judgment; exchange for<br />
stock. Minority shareholders successfully sued<br />
the corporation and its majority shareholders then<br />
formed a corporation, surrendering their minority<br />
stock for stock in the new corporation, and entered<br />
an amended decree on settlement substituting as<br />
plantiff the new corporation which surrendered<br />
the minority stock for property and a money judgment.<br />
Held, the cash constituted a return of capital,<br />
not taxable <strong>income</strong>. (Sec. 22(a), ’39 Code; Sec. 61,<br />
’86 Code.)<br />
Nevada Oil Co., 22 T.C. 630, Acq., 19542 C.B.<br />
5.<br />
274.222 Mortgage discount and price differential<br />
payments to FNMA. The basis of mortgages<br />
acquired by the Federal National Mortgage<br />
Association (FNMA) through the Government<br />
National Mortgage Association (GNMA) is the<br />
amount paid by FNMA less any payment received<br />
from GNMA in recovery of the “market discount”<br />
or “price differential” sustained by<br />
FNMA in acquiring the mortgage. Such payments<br />
to FNMA are not includable in its gross <strong>income</strong><br />
and reduce the basis of the mortgages to which<br />
they relate as of receipt of the “price differential”<br />
payment or, if earlier, disposition of the mortgage<br />
giving rise” to the “market discount” payment.<br />
§§1.61-1, 1.1012-1. (Secs. 61, 1012; ’86 Code.)<br />
Rev. Rul. 73-559, 1973-2 C.B. 299.<br />
274.223 Motor vehicles invoice price; dealers’<br />
holdback charge. A holdback charge<br />
included in the manufacturer’s invoice price of<br />
motor vehicles to dealers is not includable in the<br />
manufacturer’s gross <strong>income</strong>; the dealer may not<br />
include it in cost of goods sold or claim it as a<br />
deduction. §§1.61-1, 1.61-3, 1.162-1. (Secs. 61,<br />
162; ’86 Code.)<br />
Rev. Rul. 72-326, 1972-2 C.B. 30.<br />
274.224 NLRB award. A NLRB award for pay<br />
lost due to an illegal discharge caused by a labor<br />
organization is includable in the recipient’s gross<br />
<strong>income</strong> even though such award does not constitute<br />
wages for employment tax purposes. Rev.<br />
Rul. 57–55 relating to the treatment of such award<br />
as wages for employment tax purposes is amplified.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 75-64, 1975-1 C.B. 16.<br />
274.225 Nonoccupational disability benefits;<br />
Hawaii. Benefits received by an unemployed<br />
individual under the Temporary Disability Insurance<br />
Law of Hawaii, as a result of temporary disability<br />
due to nonoccupational sickness or accident,<br />
are in the nature of unemployment<br />
compensation and excludable from the recipient’s<br />
gross <strong>income</strong> and benefits received by an<br />
employee under provisions of the Law are<br />
amounts paid pursuant to a wage continuation<br />
plan. §§1.104-1, 1.105-1. (Secs. 104, 105; ’86<br />
Code.)<br />
Rev. Rul. 75-479, 1975-2 C.B. 44.<br />
274.226 Nonresident alien married to U.S.<br />
citizen. An election to file a joint return under section<br />
6013(g) is not a waiver of the privileges provided<br />
by section 893(a) of the Code and section<br />
247(b) of the Immigration and Nationality Act that<br />
affects the tax exempt status of the <strong>income</strong> of a<br />
nonresident alien married to a U.S. citizen.<br />
§§1.893-1, 301.6013-1. (Secs. 893, 6013; ’86<br />
Code.)<br />
Rev. Rul. 79-246, 1979-2 C.B. 392.<br />
274.227 Nutrition Program for the Elderly;<br />
employees. Cash remuneration paid to employees<br />
under the Nutrition Program for the Elderly is<br />
includible in gross <strong>income</strong>. Food benefits received<br />
by employees under the program are not includible<br />
in gross <strong>income</strong>. §1.61–1. (Secs. 61, 3121,<br />
3401; ’86 Code.)<br />
Rev. Rul. 79-342, 1979-2 C.B. 28.<br />
274.228 Passive activity losses and credits;<br />
Alaska Permanent Fund Dividends. Alaska Permanent<br />
Fund Dividends do not constitute either<br />
investment <strong>income</strong> under section 163(d)(4)(B) of<br />
the Code or passive activity gross <strong>income</strong> under<br />
section 1.469–2T(c) of the temporary regulations.<br />
Rev. Rul. 85-39 amplified. §§1.316-1, 1.469-2T.<br />
(Secs. 163, 316, 469; ’86 Code.)<br />
Rev. Rul. 90-56, 1990-2 C.B. 102.<br />
274.229 Payment of employee’s FICA tax.<br />
Amounts paid by a state under an agreement with<br />
H.E.W. or by a domestic corporation under an<br />
agreement with the Service extending social security<br />
coverage to state employees or to employees<br />
of a foreign subsidiary of the domestic corporation,<br />
which are equivalent to the FICA tax that<br />
would have been imposed on the employees under<br />
section 3101, are includible in the employees’<br />
gross <strong>income</strong> and are wages subject to <strong>income</strong> tax<br />
withholding. §1.61–1. (Secs. 61, 3121, 3402; ’86<br />
Code.)<br />
Rev. Rul. 79-49, 1979-1 C.B. 57.<br />
274.230 Payments by Crime Victims Compensation<br />
Board of New York. Awards made by<br />
the Crime Victims Compensation Board of the<br />
State of New York to victims of crime or to their<br />
surviving spouses or dependents are not includable<br />
in the gross <strong>income</strong> of the recipients. Medical<br />
expenses incurred by a recipient that are compensated<br />
for by such award are not deductible; further,<br />
an award for medical expenses previously<br />
deducted must be included in <strong>income</strong> in the taxable<br />
year of receipt to the extent that the expenses<br />
resulted in a tax benefit in the prior taxable year.<br />
§§1.61-1, 1.213-1. (Secs. 61, 213; ’86 Code.)<br />
Rev. Rul. 74-74, 1974-1 C.B. 18.<br />
274.231 Payments for lost time; railroad<br />
employee. Payment made to an employee by a<br />
railroad company for lost time following his dismissal<br />
without cause is includible in the<br />
employee’s gross <strong>income</strong> in the taxable year<br />
received and is wages subject to <strong>income</strong> tax withholding.<br />
Further, the amount paid is compensation
<strong>Gross</strong> <strong>income</strong><br />
subject to taxes imposed by the Railroad Retirement<br />
Tax Act. O.D. 512 superseded. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 70-404, 1970-2 C.B. 5.<br />
274.232 Payments to dependents of former<br />
employees in Armed Forces. Payments made to<br />
dependents of a corporation’s former employees<br />
who are in the Armed Forces represent taxable<br />
<strong>income</strong> constructively received by the former<br />
employees. Payments aggregating $600 or more<br />
made during a calendar year must be reported on<br />
information returns by the corporation in the<br />
names of the former employees, and such amounts<br />
are deductible by the corporation. I.T. 3602 superseded.<br />
§§1.61-1, 1.161-1, 1.6041-1. (Secs. 6l,<br />
161, 6041; ’86 Code.)<br />
Rev. Rul. 69-104, 1969-1 C.B. 33.<br />
274.233 Payments to foster parents. Factual<br />
situations illustrate the tax treatment of amounts<br />
received and amounts expended by individuals<br />
providing foster care to children. I.T. 4068 superseded.<br />
§§1.61–1, 1.62–1, 1.151–2, 1.162–1,<br />
1.170-2, 1.1401-1, 1.6041–1. (Secs. 61, 62, 151,<br />
162, 170, 280A, 1401, 3121, 3306, 3401, 6041;<br />
’86 Code.)<br />
Rev. Rul. 77-280, 1977-2 C.B. 14.<br />
274.234 Payments to probationers; city<br />
work-training programs. Stipends paid by a city<br />
to unemployed or underemployed probationers<br />
who are participants in a project established for the<br />
purpose of reducing their recidivism to crime and<br />
aiding them in acquiring training and skills to<br />
enhance their opportunities for gainful employment<br />
are not includible in gross <strong>income</strong>. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 72-340, 1972-2 C.B. 31.<br />
274.235 Payments to reduce cost of winter<br />
energy consumption; Ohio. Payments made<br />
under the laws of the State of Ohio directly or indirectly<br />
to qualified individuals to reduce their cost<br />
of winter energy consumption are not includible in<br />
gross <strong>income</strong>. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 78–170, 1978-1 C.B. 24.<br />
274.236 Payments under Alaska dividend<br />
program. “Dividend payments” made by the<br />
State of Alaska pursuant to Alaska Statutes section<br />
43.23 are includible in gross <strong>income</strong>. §§1.61-1,<br />
1.102–1. (Secs. 61, 102; ’86 Code.)<br />
Rev. Rul. 85–39, 1985-1 C.B. 21.<br />
274.237 Payments under Alaska Longevity<br />
Bonus Act. Monthly benefit payments received<br />
under the Alaska Longevity Bonus Act by persons<br />
65 years of age and over who have maintained a<br />
continuous domocile in Alaska for 25 years, paid<br />
by the State regardless of financial status, health,<br />
educational background, or employment status,<br />
are includible in the gross <strong>income</strong> of the recipients.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 76-131, 1976-1 C.B. 16.<br />
274.238 Payments under Area Redevelopment<br />
Act; Manpower Development and Training<br />
Act. Benefit payments received by individuals<br />
undergoing training or retraining under the Area<br />
Redevelopment Act or the Manpower Development<br />
and Training Act of 1962 are not includible<br />
in the recipient’s gross <strong>income</strong>. Distinguished by<br />
Rev. Rul. 74-413. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 63–136, 1963–2 C.B. 19.<br />
274.239 Payments under Comprehensive<br />
Employment and Training Act. Payments<br />
received by a trainee, in a program under titles I<br />
and II of the Comprehensive Employment and<br />
Training Act, for services performed during onthe-job<br />
training for a private construction company<br />
or for work experience in a city clinic are<br />
includable in gross <strong>income</strong>. However, allowances<br />
received for participation in a program, or to<br />
enable the trainee to participate, and not for the<br />
performance of services are excludable from gross<br />
<strong>income</strong>. §1.61–1. (Secs. 61, 3121, 3306, 3401; ’86<br />
Code.)<br />
Rev. Rul. 75-246, 1975-1 C.B. 24.<br />
274.240 Payments under Disaster Relief Act<br />
of 1974. A grant received under section 408 of the<br />
Disaster Relief Act of 1974 is in the interest of the<br />
general welfare and not includible in the recipient’s<br />
gross <strong>income</strong> under section 61. Casualty<br />
losses and medical expenses incurred by a recipient<br />
to the extent compensated for by a grant<br />
received under the Act are not deductible under<br />
sections 165 and 213. §§1.61–1, 1.165–1,<br />
1.213-1. (Secs. 61, 165, 213; ’86 Code.)<br />
Rev. Rul. 76-144, 1976-1 C.B. 17.<br />
274.241 Payments under Domestic Volunteer<br />
Service Act. Payments for supportive services or<br />
reimbursements of out-of-pocket expenses made<br />
to volunteers serving in programs pursuant to titles<br />
II and III of the Domestic Volunteer Service Act of<br />
1973 are not includible in gross <strong>income</strong>. Amplified<br />
by Rev. Rul. 78–80. §1.61-1. (Secs. 61, 3121,<br />
3401; ’86 Code.)<br />
Rev. Rul. 74-322, 1974-2 C.B. 17.<br />
274.242 Payments under Domestic Volunteer<br />
Service Act; Foster Grandparent Program.<br />
Supplemental stipends paid by sponsoring state<br />
agencies to volunteers in the Foster Grandparent<br />
Program in addition to the monthly stipend paid<br />
from Federal funds for the volunteers’ services,<br />
both of which are authorized pursuant to title II of<br />
the Domestic Volunteer Service Act of 1973, are<br />
not includible in the recipients’ gross <strong>income</strong>. Rev.<br />
Rul. 74-322 amplified. §1.61-1. (Secs. 61, 3121,<br />
3401; ’86 Code.)<br />
Rev. Rul. 78-80, 1978-1 C.B. 22.<br />
274.243 Payments under forestry incentives<br />
program. The excludable portion of cost-sharing<br />
payments received under the Forestry Incentives<br />
Program (F.I.P.) is excludable from gross <strong>income</strong>,<br />
and the total costs of reforestation less the excludable<br />
portion are to be capitalized as a cost of timber.<br />
Under the election not to have section 126<br />
apply to the F.I.P. payment, the entire payment is<br />
includable in gross <strong>income</strong>, and the total costs of<br />
reforestation (not reduced by any portion of the<br />
F.I.P. payment) are to be capitalized as a cost of<br />
timber. Rev. Rul. 766 modified and superseded.<br />
§§1.61-1, 16A.126-1, 16A.126-2, 1.194-1,<br />
1.611-3. (Secs. 61, 126, 194, 611; ’86 Code.)<br />
Rev. Rul. 84-67, 1984-1 C.B. 28.<br />
274.244 Payments under National Historic<br />
Preservation Act of 1966. Payments received<br />
prior to December 12, 1980, under the National<br />
Historic preservation Act of 1966, are includable<br />
in gross <strong>income</strong>. Rev. Rul. 80-330 obsoleted<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 82-195, 1982-2 C.B. 34.<br />
274.245 Payments under National Housing<br />
Act. Mortgage assistance payments that are in<br />
substance interest subsidies paid under section<br />
235 of the National Housing Act for the benefit of<br />
cash basis calendar year taxpayers are in the nature<br />
of general welfare and not includible in their gross<br />
<strong>income</strong>. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 75-271, 1975-2 C.B. 23.<br />
274.246 Payments under National Housing<br />
Act. Interest reduction payments made under section<br />
236 of the National Housing Act to a mortgagee<br />
on behalf of a limited-profit corporation<br />
formed to acquire and lease apartments in a lower<br />
<strong>income</strong> rental housing project are includible in the<br />
corporation’s gross <strong>income</strong> and the corporation is<br />
entitled to deduct the full amount of interest paid<br />
under the mortgage. §§1.61–1, 1.163–1. (Secs. 61,<br />
163; ’86 Code.)<br />
Rev. Rul. 76-75, 1976-1 C.B. 14.<br />
274.247 Payments under State welfare<br />
agency adoption program. Maryland State<br />
Department of Social Services payments to adoptive<br />
parents who use the payments for support and<br />
maintenance of their adoptive child are not includible<br />
in <strong>income</strong> but must be considered in determining<br />
who furnished the child’s principal support for<br />
purposes of claiming the dependency exemption.<br />
§§1.61-1, 1.152-1. (Secs. 61, 152; ’86 Code.)<br />
Rev. Rul. 74-153, 1974-1 C.B. 20.<br />
274.248 Payments under State welfare<br />
agency work relief program. Payments to welfare<br />
recipients by a State welfare agency, under its<br />
work relief program, equal to the number of hours<br />
actually worked times the applicable hourly rate<br />
are compensation for services rendered. Such payments<br />
are includible in gross <strong>income</strong> and are<br />
wages subject to <strong>income</strong> tax withholding even<br />
though the recipient would not receive a smaller<br />
amount if he were unable to work or work were not<br />
available. Cash or payments in kind, such as food<br />
or other items, not directly attributable to services<br />
performed, are not includable in gross <strong>income</strong> or<br />
subject to withholding. Modified by Rev. Rul.<br />
71-425. §1.61-2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 67–144, 1967–1 C.B. 12.<br />
274.249 Payments under State welfare<br />
agency work training program. Payments made<br />
by a State welfare agency to participants in worktraining<br />
programs, such as a program under title V<br />
of the Economic Oportunity Act of 1964, that are<br />
equal to and in lieu of welfare payments the participant<br />
would otherwise receive are neither includible<br />
in gross <strong>income</strong> nor considered wages for<br />
FICA or <strong>income</strong> tax withholding purposes. If such<br />
payments exceed the amount that would have been<br />
received without working the entire amount will<br />
be considered as taxable gross <strong>income</strong> and wages,<br />
except to the extent that it can be shown that the<br />
amount received exceeds the fair market value of<br />
the services. Rev. Rul. 67–144 modified to the<br />
extent it holds that payments received under the<br />
facts therein are includible in gross <strong>income</strong>.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 71-425, 1971–2 C.B. 76.<br />
274.250 Payments under State work program<br />
funded under Manpower Development<br />
and Training Act. Payments to participants in a<br />
State program, established to provide short-term<br />
employment in disaster relief activities for unemployed<br />
individuals and funded under the Manpower<br />
Development and Training Act of 1962, are<br />
compensation for services rendered includible in<br />
the participants’ gross <strong>income</strong>. Rev. Rul. 63–136<br />
distinguished. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 74-413, 1974–2 C.B. 333.<br />
274.251 Payments under State youth opportunity<br />
program. Summer employees of a railroad<br />
company under a State youth opportunity program<br />
who as a condition of their employment are<br />
required to consent that a portion of their remuneration<br />
be withheld and paid to the State are not<br />
required to include these amounts withheld in their<br />
gross <strong>income</strong>. Such amounts are not wages for<br />
purposes of <strong>income</strong> tax withholding or compensation<br />
for purposes of RRTA. §1.61–2. (Secs. 61,<br />
3231, 3401; ’86 Code.)<br />
Rev. Rul. 74-50, 1974-1 C.B. 22.<br />
274.252 Payments under supplemental lease;<br />
expenditures for new machinery. Monthly payments<br />
received by a lessor under a supplemental<br />
lease agreement, in addition to specified rent, until<br />
they total one-half of the sum expended for the<br />
purchase and installation of machinery and equipment,<br />
constitute rental <strong>income</strong>. I.T. 2229 superseded.<br />
§1.61–8. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 70-146, 1970–1 C.B. 18.<br />
274.253 Payments under work-study program;<br />
Economic Opportunity Act. Payments<br />
made by a college to student-employees who participate<br />
in a work-study program established
<strong>Gross</strong> <strong>income</strong><br />
under title I-C of the Economic Opportunity Act<br />
of 1964, and to individuals who are employed full<br />
time by the college during the summer vacation<br />
period are compensation for services which are<br />
includable in gross <strong>income</strong> and subject to <strong>income</strong><br />
tax withholding. §1.61–2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 66-285, 1966-2 C.B. 455.<br />
274.254 Payments under work-training program;<br />
Economic Opportunity Act. Payments<br />
made to enrollees in work-training program established<br />
under title I-B of the Economic Opportunity<br />
Act of 1964 are compensation for services which<br />
are includible in the gross <strong>income</strong> of the enrollees<br />
and are subject to the withholding of <strong>income</strong> tax.<br />
Clarified to indicate that this rule is applicable<br />
irrespective of who employs a participant in a<br />
work-training program. §1.61–1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 65–139, 1965–1 C.B. 31; Rev. Rul.<br />
66-240, 1966-2 C.B. 19.<br />
274.255 Penalties deducted from schoolteachers’<br />
salaries after illegal strike. The penalties<br />
imposed by state law and deducted from the<br />
county schoolteachers’ salaries after their illegal<br />
strike are includible in the teachers’ gross <strong>income</strong><br />
and are not deductible as business expenses.<br />
§§1.61-1, 1.162-21. (Secs. 61, 162, 3401; ’86<br />
Code.)<br />
Rev. Rul. 76-130, 1976-1 C.B. 16.<br />
274.256 Pension; Canadian Government;<br />
resident alien. Pension payments received from<br />
the Canadian Government under the Old Age<br />
Security Act of Canada by Canadian citizens<br />
residing in the U.S. are includible in the gross<br />
<strong>income</strong> of the recipients. §1.61–11. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 62-179, 1962-2 C.B. 20.<br />
274.257 Pension; contributions withheld;<br />
forfeitable. Amounts withheld from an<br />
employee’s pay and contributed to a nonqualified<br />
employees’ pension trust are not currently includible<br />
in the employee’s gross <strong>income</strong>, where participation<br />
in the trust is compulsory and the contributions<br />
are forfeitable upon termination of services<br />
prior to normal retirement age or death. If upon<br />
completion of a stated period of service such contributions<br />
are no longer subject to a substantial risk<br />
of forfeiture, at that time the accumulated contributions<br />
are includable in gross <strong>income</strong> to the<br />
extent provided in sections 83 and 402(b). Section<br />
83 is applicable to contributions made after<br />
August 1, 1969. Rev. Rul. 56-473 clarified.<br />
§§1.61-2, 1.402(b)-1. (Secs. 61, 83, 402; ’86<br />
Code.)<br />
Rev. Rul. 72-94, 1972-1 C.B. 23.<br />
274.258 Pension; firefighters. Duty disability<br />
payments paid under a municipal statute to disabled<br />
firefighters prior to their reaching normal<br />
retirement age are excludable from gross <strong>income</strong>.<br />
If the disabled firefighter dies prior to normal<br />
retirement age, the benefits paid under the statute<br />
to the surviving spouse are also excludable.<br />
§§1.61-2, 1.104-1. (Secs. 61, 104; ’86 Code.)<br />
Rev. Rul. 80-14, 1980-1 C.B. 33.<br />
274.259 Pension; former citizen of Austria.<br />
Payments received by a U.S. resident from the<br />
Federal Republic of Austria as a widow’s pension<br />
under the provisions of Austria’s General Social<br />
Insurance Law are in the nature of reimbursement<br />
for deprivation of civil or personal rights and do<br />
not constitute taxable <strong>income</strong> to the recipient.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 69–212, 1969–1 C.B. 34.<br />
274.260 Pension; rights settlement. A lumpsum<br />
payment received in settlement of a lawsuit<br />
claiming benefits under a nonqualified, noncontributory<br />
pension plan is includible in the recipient’s<br />
gross <strong>income</strong> as ordinary <strong>income</strong> in the year<br />
received. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 76-171, 1976-1 C.B. 18.<br />
274.261 Pension; volunteer firefighter’s<br />
widow. A pension required to be paid by a municipal<br />
ordinance to the widow of a volunteer firefighter<br />
killed in the line of duty is in the nature of<br />
and in lieu of workmen’s compensation and is<br />
excludable from the widow’s gross <strong>income</strong>.<br />
§1.104-1. (Sec. 104, ’86 Code.)<br />
Rev. Rul. 72-291, 1972-1 C.B. 36.<br />
274.262 Per diem allowance; executive training<br />
program participant; home test. An<br />
employee who participated in a 12-month executive<br />
training program at various offices throughout<br />
the country pending reassignment in a new location<br />
was away from home and could exclude from<br />
gross <strong>income</strong> a per diem allowance paid by the<br />
employer. §§1.162–1, 1.274-5. (Secs. 162, 274,<br />
3401; ’86 Code.)<br />
Rev. Rul. 80-212, 1980-2 C.B. 58.<br />
274.263 Performers; gratuitous services for<br />
political organization. No amount is includible in<br />
a performer’s gross <strong>income</strong> as a result of professional<br />
services rendered gratuitously in entertainment<br />
programs promoted by a political fund-raising<br />
organization. §1.61-2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 68–503, 1968-2 C.B. 44.<br />
274.264 Personal injuries; settlement. In<br />
settlement of claims against his former employer<br />
for breach of contract and personal injury caused<br />
by adverse publicity accompanying the termination<br />
of his employment, taxpayer received<br />
$105,0000f which $45,000 was allocated to compensation<br />
for personal injury. Held, taxability of a<br />
settlement payment depends on the nature of the<br />
claim settled, not on the claim’s validity and the<br />
$45,000 is excludable from gross <strong>income</strong> under<br />
section 104(a)(2) of the Code. (Secs. 61, 104; ’86<br />
Code.)<br />
Dudley G. Seay, 58 T.C. 32, Acq., 1972-2 C.B.<br />
3.<br />
274.265 Police officer; assigned light duty.<br />
Payments made by a municipality to a disabled<br />
police officer who has returned to work, but is<br />
assigned light duty because the injury keeps the<br />
officer from performing regular police duties, are<br />
not excludable from gross <strong>income</strong>. §§1.61–2,<br />
1.104-1. (Secs. 61, 1041 ’86 Code.)<br />
Rev. Rul. 80-137, 1980-1 C.B. 36.<br />
274.266 Police officer; outside employment.<br />
Compensation received by a police officer from<br />
employment in private industry in the performance<br />
of his duties as an employee of the police<br />
department, and remitted by him to the Police Pension<br />
Fund, is not includable in his gross <strong>income</strong>.<br />
§1.61-2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 58-515, 1958-2 C.B. 28.<br />
274.267 Political contributions; service<br />
promised contributor. Payments to a political<br />
campaign specified by a candidate or officeholder<br />
in exchange for his promise, not of a traditional<br />
and legitimate political nature, to perform a service<br />
for the contributor do not qualify as excludible<br />
political expense contributions and must be<br />
included in the gross <strong>income</strong> of the political candidate<br />
or officeholder. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 75-103, 1975-1 C.B. 17.<br />
274.268 Political officeholder; surplus campaign<br />
funds transferred to office account. Surplus<br />
campaign funds transferred to an officeholder’s<br />
office account are includable in gross <strong>income</strong><br />
for the year the funds are transferred. Amounts<br />
disbursed from the office account for ordinary and<br />
necessary expenses of serving as an officeholder<br />
are deductible provided the expenses otherwise<br />
qualify and are not reimbursable. §§1.61-1,<br />
1.162-1. (Secs. 61, 162, 527; ’86 Code.)<br />
Rev. Rul. 80-331, 1980-2 C.B. 29.<br />
274.269 Post differentials and quarters<br />
allowances; university staff member overseas.<br />
Post differentials and quarters allowances paid by<br />
an agency of the U.S. Government to staff members<br />
of a state university participating in a teacher<br />
training program in a foreign country are includible<br />
in gross <strong>income</strong>. §§1.61–1, 1.912–1. (Secs.<br />
61, 912; ’86 Code.)<br />
Rev. Rul. 66-279, 1966-2 C.B. 282.<br />
274.270 Premium on mortgage; property<br />
sold in bankruptcy. The taxpayer secured non-interest<br />
bearing notes with a first mortgage on real<br />
property. The borrower, after partially reducing<br />
the principal, defaulted and was forced into involuntary<br />
bankruptcy where the property was sold<br />
subject to the mortgage. Held, the principal balance<br />
was not received and is not includable in the<br />
taxpayer’s <strong>income</strong>. (Sec. 61, ’86 Code.)<br />
Edna Morris, 59 T.C. 21, Acq., 1973–1 C.B. 3.<br />
274.271 “Principal representative” of U.S.<br />
Government serving in foreign country. The<br />
value of lodging furnished to a U.S. Government<br />
employee who is a “principal representative” of<br />
the U.S. serving in a foreign country is excludable<br />
from the representative’s gross <strong>income</strong>. However,<br />
amounts deducted from the salary of the principal<br />
representative to pay for usual household<br />
expenses that must be borne personally by the representative<br />
are not excludable from gross <strong>income</strong>.<br />
Rev. Rul. 84-86 modified and superseded.<br />
§1.119-1. (Secs. 61, 119, 262, 912; ’86 Code.)<br />
Rev. Rul. 90-64, 1990-2 C.B. 35.<br />
274.272 Public Health and National Health<br />
Service Corps Scholarship Training Program.<br />
Tuition payments and monthly stipends received<br />
during calendar years 1973, 1974, and 1975 by<br />
participants in the Public Health and National<br />
Health Service Corps Scholarship Training Program<br />
are excludable from the recipient’s gross<br />
<strong>income</strong> as scholarships. However, in the absence<br />
of further legislation, all amounts received after<br />
1975 will be includible. §§1.61–2, 1.117-4. (Secs.<br />
61, 117; ’86 Code.)<br />
Rev. Rul. 76-183, 1976-1 C.B. 43.<br />
274.273 Public utility subsidy; renewable<br />
energy source property. A taxpayer who purchases<br />
renewable energy source property and<br />
receives a subsidy from a public utility that is acting<br />
under the provisions of the Energy Security<br />
Act is entitled to the residential energy credit<br />
based on the full expenditure if the funds for the<br />
subsidy come entirely from the public utility’s revenues<br />
or are borrowed at market rates. Also, the<br />
subsidy is not includible in the taxpayer’s gross<br />
<strong>income</strong>. §§1.44C-3, 1.61–1. (Secs. 44C, 61; ’86<br />
Code.)<br />
Rev. Rul. 83-145, 1983-2 C.B. 14.<br />
274.274 Public utility; unclaimed refunds.<br />
Unclaimed refund amounts resulting from a tentative<br />
rate increase collected under bond that a public<br />
utility, in compliance with a State public service<br />
commission order, spends in its rural<br />
construction program, are not contributions to<br />
capital. Since no consent to basis adjustment prescribed<br />
by regulations under section 1017 was<br />
filed, the utility must report gross <strong>income</strong> in the<br />
year the amounts became refundable. It is entitled<br />
to a basis in any assets acquired with the<br />
unclaimed refunds. §§1.61-1, 1.108(a)-1,<br />
1.111-1, 1.118-1, 1.362-1. (Secs. 61, 108, 111,<br />
118, 362; ’86 Code.)<br />
Rev. Rul. 75–300, 1975–2 C.B. 23.<br />
274.275 Qualified accelerated death benefits.<br />
The effective dates, including transition dates, of<br />
regulations under sections 101, 7701 and 7702A<br />
(FI-25-92, Qualified Accelerated Death Benefits)
will not be earlier than the date of publication of<br />
final regulations in the Federal Register. A conformity<br />
period with respect to any new rules is anticipated.<br />
Notice 93-37, 1993-2 C.B. 331.<br />
274.276 Raffled home; sale to charitable<br />
organization. The tax consequences of the sale of<br />
a personal residence through a raffle conducted by<br />
a charitable organization are discussed. §§1.61–1,<br />
1.165-1, 1.170A-1, 1.1001-1. (Secs. 61, 165,<br />
170A, 1001; ’86 Code.)<br />
Rev. Rul. 83-130, 1983-2 C.B.<br />
274.277 Rate reductions and nonrefundable<br />
credits. Rate reductions or nonrefundable credits<br />
received by a customer of an electric utility company<br />
who agrees to participate in energy conservation<br />
programs are not includible in the customer’s<br />
gross <strong>income</strong> under section 61 of the Code.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 91-36, 1991-2 C.B. 17.<br />
274.278 Recompense for tax consultant’s<br />
error. An amount received from a tax consultant<br />
as recompense for excess taxes paid as the result<br />
of an error committed by the consultant is not<br />
includable in gross <strong>income</strong>. However, amounts<br />
received as a return of the previously deducted<br />
consultant’s fee and interest on the fee and the over<br />
payment are includible. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 57-4, 1957–1 C.B. 23; Edward H.<br />
Clark, 40 B.T.A. 333, Acq., 1957-1 C.B. 4.<br />
274.279 Recovery; windfall profit tax withheld.<br />
A creditor refund of windfall profit tax that<br />
was used as a tax deduction in a previous year must<br />
be included as <strong>income</strong> in the current year to the<br />
extent a tax benefit was received as a result of the<br />
deduction. The amount of the credit or refund is<br />
considered <strong>income</strong> for purposes of the self-employment<br />
tax under section 1402(a) if the oil producer<br />
has a working interest in an oil lease.<br />
§§1.61-1, 1.111-1, 1.164-1, 1.1402(a)-1. (Secs.<br />
61, 111, 164, 280D, 1402, 4986, 6429; ’86 Code.)<br />
Rev. Rul. 83-102, 1983-2 C.B. 238.<br />
274.280 Recovery from contractor for failure<br />
to perform under construction contract. The<br />
payment by a contractor of a sum of money to a<br />
buyer in exchange for a release of the buyer’s<br />
claims against the contractor for failure to fulfill<br />
the contract for construction of a plant constitutes<br />
a return of capital rather than gross in come to the<br />
buyer. The cost basis of the plant is adjusted downward<br />
to reflect the payment. §§1.61–1, 1.1012–1,<br />
1.1016-1. (Secs. 61, 1012, 1016; ’86 Code.)<br />
Rev. Rul. 81-277, 1981-2 C.B. 14.<br />
274.281 Reduced salary; reemployed civil<br />
service annuitant. The salary received by a reemployed<br />
civil service annuitant after an amount<br />
equal to the annuity allocable to the actual<br />
employment period was deducted as prescribed by<br />
law is includible in gross <strong>income</strong> and is wages for<br />
purposes of <strong>income</strong> tax withholding. §1.61-2<br />
(Secs. 61, 3401; ’86 Code.)<br />
Rev. Rul. 79–1, 1979–1 C.B. 60.<br />
274.282 Rehabilitation grants; community<br />
development program. Home rehabilitation<br />
grants received by low-<strong>income</strong> homeowners<br />
residing in a defined area of a city under the city’s<br />
community development program funded under<br />
the Housing and Community Development Act of<br />
1974 are in the nature of general welfare and are<br />
not includable in their gross <strong>income</strong>. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 76-395, 1976-2 C.B. 16.<br />
274.283 Reimbursed convention expenses<br />
and lost salary; labor union members. Amounts<br />
paid by an international labor union to reimburse<br />
delegates from local chapters for expenses of traveling<br />
away from home to attend the annual convention<br />
are not includible in gross <strong>income</strong>, and no<br />
deduction is allowable for the reimbursed<br />
expenses even though reimbursement is received<br />
in a later year. Amounts received by the delegates<br />
as reimbursement for lost salary are includible in<br />
gross <strong>income</strong>. Rev. Rul. 78-209 modified and<br />
superseded. §§1.61–1, 1.162–2. (Secs. 61, 162,<br />
3121, 3306, 3401; ’86 Code.)<br />
Rev. Rul. 80-348, 1980-2 C.B. 31.<br />
274.284 Reimbursed expenses; entertainment;<br />
military attache. Reimbursements<br />
received by military attaches of the U.S. Department<br />
of Defense for expenses of official entertainment<br />
under an arrangement that requires adequate<br />
accounting to the employer need not be included<br />
in gross <strong>income</strong> to the extent the reimbursements<br />
do not exceed the expenses, and no deduction is<br />
allowable for the corresponding expense to the<br />
extent that reimbursed funds are not reported in<br />
gross <strong>income</strong>; expenses exceeding the reimbursement<br />
must be substantiated in order to be claimed<br />
as an itemized deduction. §§1.61–1, 1.162–17,<br />
1.274-5. (Secs. 61, 162, 274; ’86 Code.)<br />
Rev. Rul. 77-351, 1977-2 C.B. 23.<br />
274.285 Reimbursed expenses; missionaries;<br />
church missionary fund. Payments made to a<br />
missionary from a church fund as reimbursement<br />
for travel and living expenses incurred in the services<br />
of his church are not includible in the missionary’s<br />
gross <strong>income</strong>. Contributions to the<br />
church fund by the parent of the missionary are<br />
deductible as charitable contributions if the organization<br />
has full control of the donated funds and<br />
discretion as to their use. The parent may claim the<br />
dependency exemption where the son’s gross<br />
<strong>income</strong> is less than $600 (excluding the reimbursed<br />
expenses) and amounts furnished directly<br />
by the parent to his son constitute more than onehalf<br />
of his total support for the calendar year.<br />
§§1.61-1, 1.151-2, 1.170-1. (Secs. 61, 151, 170;<br />
’86 Code.)<br />
Rev. Rul. 62-113, 1962-2 C.B. 10.<br />
274.286 Reimbursed expenses; political<br />
fund-raising event; state government<br />
employee. Reimbursement made by a political<br />
organization to an appointed state government<br />
employee for travel expenses incurred in attending<br />
and addressing a political fund-raising event is<br />
not includible in the individual’s gross <strong>income</strong> to<br />
the extent such reimbursement does not exceed<br />
actual expenses. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 80-99, 1980-1 C.B. 10.<br />
274.287 Reimbursed living expenses; hospital<br />
research project. Where as a requirement of<br />
a children’s hospital research project the taxpayer<br />
and his wife agreed to live away from their residence,<br />
the reimbursements received for the motel<br />
bill and other necessary costs incurred by them are<br />
not includable in their gross <strong>income</strong>. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 67-407, 1967-2 C.B. 59.<br />
274.288 Reimbursement for cost of pension<br />
plan. Where, pursuant to contract, a shipowner<br />
reimbursed a stevedore contractor for the costs of<br />
a union negotiated qualified pension plan for<br />
employees of the contractor, the amounts paid<br />
constitute a part of the cost of the services rendered,<br />
and are deductible as business expenses by<br />
the shipowner. The contractor must include in<br />
gross <strong>income</strong> amounts received as reimbursement<br />
for contributions paid by him, and is entitled to a<br />
deduction with respect to the amounts actually<br />
paid. §1.404(a)-1. (Secs. 61, 162, 404; ’86 Code.)<br />
Rev. Rul 57-104, 1957-1 C.B. 166.<br />
274.289 Reimbursement for lost wages. A<br />
payment received by an employee from the<br />
Department of the Air Force as reimbursement for<br />
wages lost incident to his suspension from<br />
employment with a privately owned aircraft company<br />
as a security risk (but now cleared) is gross<br />
<strong>Gross</strong> <strong>income</strong><br />
<strong>income</strong> to such employee. §1.61–1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 58-140, 1958–1 C.B. 15.<br />
274.290 Reimbursement for moving<br />
expenses; U.S. citizens employed abroad by<br />
domestic employer. Examples discuss the treatment<br />
of reimbursed moving expenses of a U.S. citizen<br />
who performs services abroad for his domestic<br />
employer, and whose foreign earnings qualify<br />
for exclusion from gross <strong>income</strong> under section<br />
911(a), and explain the extent to which his moving<br />
expenses are deductible and the extent to which<br />
the reimbursement is includable in his gross<br />
<strong>income</strong> and subject to tax withholding. The examples<br />
cover moving to the foreign country and moving<br />
back to the U.S. (1) to work for the same<br />
employer, (2) to work for a different employer, and<br />
(3) to retire. Amplified by Rev. Rul. 76-162.<br />
§§1.82-1, 1.217-1, 1.911-2. (Secs. 82, 217, 911,<br />
3401; ’86 Code.)<br />
Rev. Rul. 75–84, 1975–1 C.B. 236.<br />
274.291 Reimbursement to utility rate study<br />
participant. A cash payment received by a participant<br />
in an electricity rate study to reimburse the<br />
participant for the excess costs of electricity under<br />
an alternative rate structure is not includible in<br />
gross <strong>income</strong>. §1.61-1. (Sec. 61, ’86 Code)<br />
Rev. Rul. 77–145, 1977–1 C.B. 15.<br />
274.292 Religious order member; retirement<br />
<strong>income</strong>; vow of poverty. Retirement <strong>income</strong><br />
received by a member of a religious order who is<br />
under a vow of poverty, and who remits such<br />
<strong>income</strong> to the order, is not includible in the member’s<br />
gross <strong>income</strong> where the member is receiving<br />
the retirement <strong>income</strong> as an agent of the order<br />
§§1.61-2, 1.72-2. (Secs. 61, 72; ’86 Code.)<br />
Rev. Rul. 83-126, 1983–2 C.B. 24.<br />
274.293 Religious order member; trust<br />
<strong>income</strong> assigned to order. Trust <strong>income</strong>, the<br />
assignment of which is prohibited by the trust<br />
instrument and state law, is includable in the gross<br />
<strong>income</strong> of a trust <strong>income</strong> beneficiary who joined<br />
a religious order, took a vow of poverty, and, pursuant<br />
to the vow, turned over all payments from<br />
the trust to the order. The amount turned over to the<br />
order is deductible as a charitable contribution.<br />
§§1.61-1, 1.170A-1. (Secs. 61, 170; ’86 Code.)<br />
Rev. Rul. 77-436, 1977–2 C.B. 25.<br />
274.294 Religious order member; vow of poverty.<br />
Compensation received by a member of a<br />
religious order under vows of poverty and obedience,<br />
for services performed as a school teacher in<br />
a secular private school that is exempt from<br />
<strong>income</strong> tax under section 501(c)(3), is includable<br />
in the member’s gross <strong>income</strong> and subject to<br />
<strong>income</strong> tax withholding. Rev. Rul. 68–123 clarified<br />
and distinguished. §1.61-2. (Secs. 61, 3401;<br />
’86 Code.)<br />
Rev. Rul. 83-127, 1983-2 C.B. 25.<br />
274.295 Relinquishment of contract rights.<br />
The amount a taxpayer received for early termination<br />
of a heating service supplier’s contract and to<br />
cover the costs of converting from a central to an<br />
individual heating system was not from the sale of<br />
a capital asset and is includable in taxpayer’s gross<br />
<strong>income</strong> as ordinary <strong>income</strong>. §§1.61–1, 1.1221–1.<br />
(Secs. 61, 1221; ’86 Code.)<br />
Rev. Rul. 75-527, 1975-2 C.B. 30.<br />
274.296 Relocation assistance benefits.<br />
Relocation assistance benefits required to be paid<br />
to tenants by landlords under a municipal ordinance<br />
are includable in the gross <strong>income</strong> of the tenants.<br />
§1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 82-106, 1982-1 C.B. 16.<br />
274.297 Relocation payments; Housing and<br />
Community Development Act. Relocation payments<br />
received by individuals under section<br />
105(a)(11) of Title I of the Housing and Community<br />
Development Act of 1974 are in the nature of
<strong>Gross</strong> <strong>income</strong><br />
general welfare and are not includable in gross<br />
<strong>income</strong>. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 76-373, 1976-2 C.B. 16.<br />
274.298 Relocation payments; urban renewal<br />
project. Relocation payments received by individuals<br />
and families for their reasonable and necessary<br />
moving expenses and for any actual direct<br />
losses of property resulting from their displacement<br />
from their personal residences by an urban<br />
renewal project are not includible in the gross<br />
<strong>income</strong> of the recipients to the extent that such<br />
payments are expended for the purpose for which<br />
they are provided. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 60-279, 1960-2 C.B. 11.<br />
274.299 Rental value; governor’s official residence.<br />
The fair rental value of the official residence<br />
furnished a governor by the State is excludible<br />
from the governor’s gross <strong>income</strong>. §§1.61–1,<br />
1.119-1. (Secs. 61, 119; ’86 Code.)<br />
Rev. Rul. 75-540, 1975-2 C.B. 53.<br />
274.300 Rental value; offset by advances<br />
made by corporate officer. A corporation leased<br />
a house to its president, a stockholder and director,<br />
who made no rental payments but advanced funds<br />
to the corporation prior to its bankruptcy. The<br />
trustee in bankruptcy set-off the advanced funds<br />
against the unpaid rent leaving a net liability for<br />
unpaid rent. Held, only the net unpaid rent spread<br />
ratably over the period of occupancy, represented<br />
<strong>income</strong> to the president. (Sec. 61, ’86 Code.)<br />
Samuel Towers, 24 T.C. 199, Acq. in result,<br />
1970-2 C.B. xxi.<br />
274.301 Rental value of dwelling furnished<br />
tenant farmer. A tenant farmer is not required to<br />
include any amount in <strong>income</strong> as a result of his<br />
occupancy of a dwelling furnished by the landowner<br />
under the usual tenant farmer arrangement.<br />
§1.61-2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 70-72, 1970-1 C.B. 15.<br />
274.302 Replacement housing payments.<br />
Replacement housing payments received by individuals<br />
under the Housing and Urban Development<br />
Act of 1968 are not includable in gross<br />
<strong>income</strong>. Payments received under that Act, or similar<br />
tax-exempt payments received under the Uniform<br />
Relocation Assistance and Real Property<br />
Acquisitions Policies Act of 1970, used to acquire<br />
a new residence are includable in its basis.<br />
§1.61-1, 1.1012-1. (Secs. 61, 1012; ’86 Code.)<br />
Rev. Rul. 74-205, 1974-1 C.B. 20.<br />
274.303 Representation expenses; Foreign<br />
Service employees. Where Foreign Service officers<br />
and employees incur representation expenses<br />
in one calendar year for which they are wholly or<br />
partially reimbursed in the next year, the reimbursement<br />
is excludable from gross <strong>income</strong>. Itemized<br />
deductions may be claimed for such expenses<br />
in excess of reimbursements if the Secretary of<br />
State certifies that the expenses were incurred for<br />
the benefit of the U.S. and would be reimbursable<br />
if the State Department had sufficient funds. Distinguished<br />
by Rev. Rul. 65–125. (Sec. 912, ’86<br />
Code.)<br />
Rev. Rul. 57-364, 1957-2 C.B. 458.<br />
274.304 Retained portion of earnings paid to<br />
sick co-worker under union plan. Sick benefits<br />
received by a union member from his employer<br />
that has no sick pay plan for employees but pays<br />
such benefits, in accordance with union rules,<br />
from a percentage of earnings withheld from his<br />
fellow workers is excludable from his gross<br />
<strong>income</strong> as amounts received under an employees’<br />
accident and health plan. However, the amounts<br />
withheld from contributing employees are not<br />
excludable from their gross <strong>income</strong> and are not<br />
deductible as medical insurance under section<br />
213. §§1.61–1, 1.104-1, 1.105-4, 1.213-1. (Secs.<br />
61, 104, 105, 213; ’86 Code.)<br />
Rev. Rul. 73-347, 1973-2 C.B. 25.<br />
274.305 Retired volunteer firefighters.<br />
Monthly payments awarded by a county legislature<br />
to retired volunteer firefighters, or to their surviving<br />
spouses, based on length of active service<br />
to county volunteer fire companies are not excludible<br />
from the recipients’ gross <strong>income</strong>s as gifts.<br />
§§1.61-2, 1.102-1. (Secs. 61, 102; ’86 Code.)<br />
Rev. Rul. 76-516, 1976-2 C.B. 24.<br />
274.306 Retirement and death benefit;<br />
policemen’s association. Retirement and death<br />
benefits received from a retirement fund established<br />
and maintained for its members by a policemen’s<br />
benevolent and protective association are<br />
not governed by the provisions of section 402.<br />
Although the fund consists of gifts from the public,<br />
proceeds from benefit dances, and earnings<br />
thereon, amounts distributed from the fund are not<br />
considered gifts in the hands of the distributees but<br />
are includible in gross <strong>income</strong>. §§1.61-1,<br />
1.102-1, 1.402(a)-1. (Secs. 61, 102, 402; ’86<br />
Code.)<br />
Rev. Rul. 68-161, 1968-1 C.B. 173.<br />
274.307 Returnable containers. Taxpayer was<br />
required by a governmental agency to demand<br />
deposits on milk bottles delivered to wholesalers.<br />
He kept a record of deposits in a liability account<br />
and debited refunds as they were made. Held, the<br />
deposits were not sales, and taxpayer cannot be<br />
required to report the deposits as <strong>income</strong> and<br />
deduct the refunds. (Sec. 22(a), ’39 Code; Sec. 61,<br />
’86 Code.)<br />
Farmers Creamery Co. of Fredericksburg, Va.,<br />
14 T.C. 879, Acq., 1954-1 C.B. 4.<br />
274.308 Salary, maintenance and cure payments;<br />
disabled seamen. Regular salary payments<br />
made to seamen who become disabled by<br />
sickness or injury in the service of their ships<br />
constitute wage continuation payments excludable<br />
from gross <strong>income</strong> and constitute wages for<br />
employment tax purposes. Maintenance and cure<br />
payments, including cash subsistence payments<br />
while an out-patient, do not constitute compensation<br />
for services, are not taxable <strong>income</strong>, and do<br />
not constitute wages. I.T. 3977 amplified.<br />
§§1.61-1, 1.105-4. (Secs. 61, 105; ’86 Code.)<br />
Rev. Rul. 60-219, 1960-1 C.B. 383.<br />
274.309 Scholarship programs for military<br />
personnel. Payments received by military personnel<br />
as participants in the Armed Forces Health<br />
Professions Scholarships Program, the Medical,<br />
Dental, and Veterinary Education Program for Air<br />
Force Officers, or the Navy Medical and Osteopathic<br />
Scholarship Program, for educational<br />
expenses are excludible from gross <strong>income</strong> as<br />
scholarships for years 1973 through 1975, and<br />
similarly, for years 1976 through 1979, by those<br />
participating in the programs in 1976; however,<br />
regular pay and allowances received while on<br />
active duty are includable in gross <strong>income</strong>, unless<br />
otherwise excluded by law. §§ 1.61–2, 1.117-4.<br />
(Secs. 61, 117; ’86 Code.)<br />
Rev. Rul. 76-99, 1976–1 C.B. 40; Rev. Rul.<br />
76-517, 1976-2 C.B. 38; Rev. Rul. 76-518,<br />
1976-2 C.B. 39; Rev. Rul. 76-519, 1976-2 C.B.<br />
39 Rev. Rul. 77-438, 1977-2 C.B. 49.<br />
274.310 Section 130; designated and qualified<br />
settlement funds. If certain specified<br />
requirements are satisfied, a designated or qualified<br />
settlement fund will be considered “a party to<br />
the suit or agreement” for purposes of section 130.<br />
§1.468B-1. (Sec. 601.105, S.P.R.; Secs. 130,<br />
468B, ’86 Code.)<br />
Rev. Proc. 93-34, 1993-2 C.B. 470.<br />
274.311 Securities exchange; initiation fees.<br />
Initiation fees, paid only once and in addition to<br />
the annual dues, received by a securities exchange<br />
from each new member for the use of the<br />
exchange’s services and facilities constitute gross<br />
<strong>income</strong> and not contributions to capital. The initiation<br />
fees are to be capitalized by the payers as part<br />
of the cost basis of their memberships. G.C.M.<br />
4015 revoked and Rev. Rul. 72–132 distinguished.<br />
§§1.61-1, 1.118-1, 1.162-1, 1.263(a)-1. (Secs.<br />
61, 118, 162, 263; ’86 Code.)<br />
Rev. Rul. 77-354, 1977-2 C.B. 50.<br />
274.312 Social security and tier 1 railroad<br />
retirement benefits. A series of questions and<br />
answers is set forth regarding the taxability of<br />
social security benefits (including tier 1 railroad<br />
retirement benefits). §1.165-1. (Secs. 86, 165,<br />
6050F; ’86 Code.)<br />
Rev. Rul. 84-173, 1984-2 C.B. 16.<br />
274.313 Social security benefits paid by foreign<br />
governments. Any similarity between the<br />
social security benefits provided by the U.S. and<br />
those provided by a foreign nation is not a valid<br />
basis for excluding from gross <strong>income</strong> of the<br />
recipient the benefits paid by a foreign nation.<br />
Taxpayers are entitled to recover their cost, if any,<br />
under section 72 and may also be eligible for<br />
retirement <strong>income</strong> credit. Rev. Rul. 56-135<br />
revoked. §§1.61–11, 1.72–1, 301.7805–1. (Secs.<br />
61, 72, 7805; ’86 Code.)<br />
Rev. Rul. 66-34, 1966-1 C.B. 22.<br />
274.314 Social security benefits paid by<br />
United Kingdom. Social security benefits paid by<br />
the United Kingdom to a resident of the U.S. are<br />
includible in gross <strong>income</strong>. Recipients, however,<br />
may be entitled to recover their costs, if any, under<br />
section 72 and may be eligible for retirement<br />
<strong>income</strong> credit. §§1.37–1, 1.61–11, 1.72–1. (Secs.<br />
37, 61, 72; ’86 Code.)<br />
Rev. Rul. 76-121, 1976-1 C.B. 24.<br />
274.315 Social security benefits paid to individuals.<br />
Insurance benefit payments made to individuals<br />
under section 202 of Title 11 of the Social<br />
Security Act are not includible in the gross <strong>income</strong><br />
of the recipients. I.T. 3447 superseded. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 70-217, 1970-1 C.B. 12.<br />
274.316 Solar hot water system. A taxpayer<br />
installed an approved solar hot water system, the<br />
cost of which qualified as a renewable energy<br />
source expenditure, and received a grant under a<br />
state residential “Solar Hot Water Initiative Program.”<br />
The grant is includable in gross <strong>income</strong>,<br />
the taxpayer qualifies for the energy credit provided<br />
by section 44C, and the taxpayer’s basis in<br />
the residence is increased by the cost of the system<br />
reduced by the credit allowed. §§1.61–1,<br />
1.1016-2. (Secs. 44C, 61, 1016; ’86 Code.)<br />
Rev. Rul. 79-356, 1979-2 C.B. 28.<br />
274.317 State <strong>income</strong> tax rebates; Iowa. The<br />
treatment of rebates of Iowa State individual<br />
<strong>income</strong> taxes, under House File 693, 68th General<br />
Assembly, approved May 22, 1979, is discussed.<br />
§1.61-1. (Secs. 61, 111; ’86 Code.)<br />
Rev. Rul. 79-315, 1979-2 C.B. 27.<br />
274.318 State <strong>income</strong> taxes refunded. Examples<br />
illustrate the application of the zero bracket<br />
amount in computing the amount of a state <strong>income</strong><br />
tax refund that is excludable from gross <strong>income</strong><br />
under the tax benefit rule of section 111. With<br />
respect to refunds received in taxable years beginning<br />
after 1977 that are attributable to amounts<br />
deducted in taxable years beginning after 1976,<br />
Rev. Rul. 56-477 is obsoleted. §1.61-1. (Secs. 61,<br />
111; ’86 Code.)<br />
Rev. Rul. 79-15, 1979–1 C.B. 80.<br />
274.319 State service corpsmen. Treatment of<br />
payments made to individuals performing services<br />
for a state service corps organized under<br />
state law to meet the critical human needs of state<br />
residents, reimbursed expenses received by individuals<br />
who serve as part-time volunteers, and stipends<br />
received by “job service corpsmen”<br />
recruited from school drop outs and the unemployed<br />
to receive training in their efforts to obtain<br />
marketable skills. §1.61–1. (Secs. 61, 3401; ’86<br />
Code.)<br />
Rev. Rul. 68-133, 1968-1 C.B. 36.
274.320 State tax refund; formerly exempt<br />
corporation. A domestic savings and loan<br />
association did not realize taxable <strong>income</strong> from a<br />
rebate of State property taxes it had paid in and for<br />
years when it was exempt from Federal tax. (Sec.<br />
111, ’86 Code.)<br />
Home Savings and Loan Co., 39 T.C. 368, Acq.<br />
in result, 1963–2 C.B. 4.<br />
274.321 Stock; testamentary disposition.<br />
Intending to bequeath the majority of his stock in<br />
a closely held corporation to his sons, the decedent<br />
placed the stock in escrow to be delivered to them<br />
at his death. The value of the stock was included<br />
in his estate. Held, the transfer was a testamentary<br />
disposition, not a sale, and the value of the stock<br />
was excludable from the sons’ <strong>income</strong> in the year<br />
of receipt. (Sec. 22(a), ’39 Code; Sec. 61, ’86<br />
Code.)<br />
Thomas W. Tebb, 27 T.C. 671, Acq., 1957-1<br />
C.B. 5.<br />
274.322 Stock as payment of accrued salary.<br />
The stockholder-employees of a corporation must<br />
include in gross <strong>income</strong> the fair market value of<br />
their corporation’s stock issued them, with such<br />
issuance not affecting their proportionate holdings,<br />
in payment of accrued salaries. The decision<br />
in Daggitt not followed. §§1.61–2, 1.305–1.<br />
(Secs. 61, 305; ’86 Code.)<br />
Rev. Rul. 67-402, 1967-2 C.B. 135; Deloss E.<br />
Daggitt, 23 T.C. 31, Nonacq., 1967-2 C.B. 4.<br />
274.323 Stock for shareholders’ merger vote;<br />
non pro rata exchange. Tax consequences of a<br />
transaction in which the contribution by a majority<br />
shareholder of a portion of his stock to a corporation<br />
prior to its merger into another corporation in<br />
consideration of the minority shareholders voting<br />
for the merger. The transaction is treated as though<br />
the shareholders received in a tax-free reorganization<br />
the number of shares in the acquiring corporaton<br />
to which each would have been entitled upon<br />
the merger without regard to the prior contribution,<br />
and as though the majority shareholder transferred<br />
a portion of his shares to the minority shareholders<br />
after the merger. §§1.61-1, 1.354-1,<br />
1.1001-1. (Secs. 61, 354, 1001; ’86 Code.)<br />
Rev. Rul. 73-233, 1973-1 C.B. 179.<br />
274.324 Stock sold to enable transfer of ship<br />
to foreign registry. If a corporation sells Class B<br />
stock to another corporation to qualify the purchaser<br />
as a related corporation under the “tradeout-and-build”<br />
program of the U.S. Maritime<br />
Administration, thus permitting it to transfer an<br />
American ship to a foreign registry, the proceeds<br />
from the sale which exceed the stock’s nominal<br />
redemption price are ordinary <strong>income</strong> since, in<br />
substance, they are derived from the transfer of a<br />
privilege or right which is not a capital asset.<br />
§§1.61-1, 1.1221-1. (Secs. 61, 1221; ’86 Code.)<br />
Rev. Rul. 61-18, 1961-1 C.B. 5.<br />
274.325 Stock transferred to corporate<br />
employees. The voluntary transfer of shares of<br />
stock by the majority stockholder of a corporation<br />
to the employees is not a gift where the stockholder<br />
stood to benefit economically by increased<br />
employee initiative and the number of shares<br />
transferred to each employee was dependent on<br />
years of service. Accordingly, the value of the<br />
shares received by each employee is includable in<br />
his gross <strong>income</strong>. §§1.61–1, 1.102–1. (Secs. 61,<br />
102; ’86 Code.)<br />
Rev. Rul. 69-140, 1969-1 C.B. 46.<br />
274.326 Stock transferred to corporate<br />
employees by controlling shareholders. The tax<br />
consequences are set forth for a transfer of a corporation’s<br />
stock by the corporation’s two shareholders<br />
to three employees in consideration for past<br />
services. §§1.61–2, 1.83–1, 1.1012–1. (Secs. 61,<br />
83, 1012, 2511, 2512; ’86 Code.)<br />
Rev. Rul. 80-196, 1980-2 C.B. 32.<br />
274.327 Stock transferred to corporate<br />
employees by parent’s majority stockholder. A<br />
corporation’s majority stockholder recognizes no<br />
gain or loss on a transfer of stock of the corporation<br />
to an employee of the corporation’s subsidiary,<br />
but must allocate the basis in the transferred<br />
stock to the shares retained. The fair market value<br />
of the stock at the time of transfer is includable in<br />
the employee’s gross <strong>income</strong> and is subject to<br />
<strong>income</strong> tax withholding. The subsidiary may<br />
deduct the amount includible in the employee’s<br />
<strong>income</strong>, but does not recognize gain or loss on the<br />
transfer. Rev. Ruls. 69–368 and 69–369 obsoleted<br />
with respect to transfers occurring after June 30,<br />
1969. Amplified by Rev. Rul. 81-45. §§1.83-6,<br />
1.162-7. (Secs. 83, 162, 3402; ’86 Code.)<br />
Rev. Rul. 80-76, 1980-1 C.B. 15.<br />
274.328 Strike benefits. Benefits paid by a<br />
union to members who are on strike are includible<br />
in gross <strong>income</strong> in the year of receipt and the union<br />
should file an information return if payments<br />
aggregating $600 or more are made to a member<br />
in one calendar year. Such benefits are not subject<br />
to employment taxes. S.S.T. 247 superseded.<br />
§§1.61-1, 1.6041-1. (Secs. 61, 6041; ’86 Code.)<br />
Rev. Rul. 68-424, 1968-2 C.B. 419.<br />
274.329 Strike benefits. Strike benefits in the<br />
form of food, clothing, and rent vouchers given by<br />
a labor union to members and nonmembers,<br />
depending on their individual need, the unavailability<br />
of unemployment compensation or local<br />
public assistance, and with no condition attached<br />
thereto, are gifts to the recipient excludable from<br />
gross <strong>income</strong>. §§1.61-1, 1.102-1. (Secs. 61, 102;<br />
’86 Code.)<br />
Kaiser, 363 U.S. 299, Ct. D. 1851, 1960–2 C.B.<br />
33.<br />
274.330 Strike benefits; lockout benefits. In<br />
cases presenting facts substantially like those in<br />
Kaiser, strike benefit payments and lockout benefit<br />
payments made by labor unions will be<br />
regarded as gifts excludable from gross <strong>income</strong>.<br />
The fact that benefits are paid only to union members<br />
will not, in and of itself, be considered determinative<br />
of whether the benefits are gifts or<br />
<strong>income</strong>. Rev. Rul. 57–1 (clarifying I.T. 1293 and<br />
distinguishing Rev. Rul. 131) and Rev. Rul.<br />
58-139 are modified to the extent that they hold<br />
that strike benefit payments and lockout benefit<br />
payments, respectively, are includible in the gross<br />
<strong>income</strong> of the recipient irrespective of the circumstances<br />
under which such payments are made.<br />
Rev. Rul. 61–16 superseded. §§1.61-1, 1.102-1.<br />
(Secs. 61, 102; ’86 Code.)<br />
Rev. Rul. 61-136, 1961-2 C.B. 20.<br />
274.331 Student loan interest subsidy payments.<br />
Student loan interest subsidy payments<br />
made by the Commissioner of Education to lenders<br />
for the interest they agree not to collect from<br />
borrowers under the Higher Education Act of<br />
1965 are scholarships excludable from the borrowers’<br />
gross <strong>income</strong>, not deductible under section<br />
163, and not reportable on Form 1099, U.S.<br />
Information Return. §§1.61-1, 1.117-3, 1.163-1.<br />
(Secs. 61, 117, 163; ’86 Code.)<br />
Rev. Rul. 75-537, 1975-2 C.B. 32.<br />
274.332 Subscription fees and contributions;<br />
congressman’s newsletters. Subscription fees or<br />
solicited contributions received by a congressman<br />
to be used solely to defray the cost of newsletters,<br />
reports, and questionnaires sent to constituents are<br />
includable in his gross <strong>income</strong>. Expenses of publishing<br />
and distributing such material are deductible<br />
as business expenses incurred as an employee.<br />
I.T. 4095 superseded. §1.61-1, 1.62-1, 1.102-1,<br />
1.162-1. (Secs. 61, 62, 102, 162; ’86 Code.)<br />
Rev. Rul. 73-356, 1973-2 C.B. 31.<br />
274.333 Subsistence allowance; National<br />
Guard personnel. The value of quarters and subsistence,<br />
or an allowance received in commutation<br />
<strong>Gross</strong> <strong>income</strong><br />
thereof, furnished by the National Guard to officers<br />
and enlisted personnel while on active duty is<br />
not includable in the gross <strong>income</strong> of the recipients.<br />
§1.61–2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 60-65, 1960-1 C.B. 21.<br />
274.334 Subsistence allowances; ROTC students.<br />
Amounts received as subsistence allowances<br />
by students participating in advanced<br />
ROTC training are not includable in the gross<br />
<strong>income</strong> of the recipients. §1.61–2. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 66-3, 1966–1 C.B. 19.<br />
274.335 Subsistence and quarters allowances;<br />
Public Health Service officers overseas.<br />
Subsistence and quarters allowance received by<br />
officers of the Public Health Service detailed overseas<br />
with the Agency for International Development<br />
are excludable from gross <strong>income</strong>. Further,<br />
the value of quarters in lieu of any portion of such<br />
allowance is excludable. However, no portion of<br />
the basic compensation received by such officers<br />
is excludable. §§1.61–2, 1.912–1. (Secs. 61, 912;<br />
’86 Code.)<br />
Rev. Rul. 63-106, 1963-1 C.B. 12.<br />
274.336 Survivors’ benefits; Public Safety<br />
Officers’ Benefits Act of 1976. The discharge of<br />
the liability for repayment by the recipient of an<br />
interim benefit paid under the Public Safety Officers’<br />
Benefits Act of 1976 in the event no final<br />
benefit is paid is in the nature of general welfare<br />
and does not result in <strong>income</strong> to the recipient.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 78-46, 1978–1 C.B. 22.<br />
274.337 Tax benefit rule; deduction improperly<br />
taken; statute of limitations. While contesting<br />
its liability for unpaid state sales taxes, an<br />
accrual basis corporation improperly deducted<br />
them in a year before the state court ruled in the<br />
corporation’s favor. Held, application of the tax<br />
benefit role is inappropriate when a deduction has<br />
been improperly claimed and allowed in a year<br />
closed by the statute of limitations, except where<br />
a plea of estoppel has been sustained. (Sec. 22(b),<br />
’39 Code; Sec. 111, ’86 Code.)<br />
Streckfus Streamers, Inc., 19 T.C. 1, Acq.,<br />
1953-1 C.B. 6.<br />
274.338 Tax benefit rule; state personal property<br />
tax on stock refunded from escrow. A corporation<br />
does not recognize <strong>income</strong> with respect<br />
to amounts repaid to its shareholders for taxes for<br />
which they are liable but that were paid by the corporation.<br />
§§1.164-7, 1.336-1. (Secs. 164, 336;<br />
’86 Code.)<br />
Hillsboro National Bank, 460 U.S.--, Ct. D.<br />
2015, 1983-1 C.B. 50.<br />
274.339 Tropical differential; Panama. The<br />
overseas tropical differential paid under 35 C.F.R.<br />
251.31 and 251.33 (1982) by an agency of the U.S.<br />
government to its civilian employees living and<br />
working in the Republic of Panama is not excludable<br />
from gross <strong>income</strong> under section 1232(b) of<br />
the Tax Reform Act of 1986. (Sec. 912, ’86 Code.)<br />
Rev. Rul. 89-131, 1989-2 C.B. 133.<br />
274.340 Trust <strong>income</strong>; payment of grantor’s<br />
life insurance premiums. A grantor proposes to<br />
create an irrevocable trust A for the benefit of her<br />
three children. She also proposed to create a<br />
second trust B with corpus consisting of policies<br />
of insurance on her life which she had taken out,<br />
having the trustee as beneficiary of the policies.<br />
Each child will have one-third interest in the corpus<br />
and <strong>income</strong> from both trusts. The grantor represented<br />
that each beneficiary of trust A will consent<br />
in writing (revocable at will) to have his share<br />
of the <strong>income</strong> from trust A applied toward payment<br />
of the premiums on the life insurance policies<br />
in trust B. Held, the grantor will be considered<br />
the owner of the amount of trust <strong>income</strong> which is<br />
used to pay the premiums on the policies of insurance<br />
on her life. Such amount will be includible in
<strong>Gross</strong> <strong>income</strong><br />
her gross <strong>income</strong>. §1.677(a)-1. (Sec. 677, ’86<br />
Code.)<br />
Rev. Rul. 66-313, 1966–2 C.B. 245.<br />
274.341 Tuition postponement plan; deferred<br />
payments. Several questions are answered as to<br />
the tax consequences arising out of a tuition postponement<br />
plan established by a university.<br />
§§1.61-1, 1.163-1, 1.262-1. (Secs. 61, 163, 262;<br />
’86 Code.)<br />
Rev. Rul. 72-2, 1972-1 C.B. 19.<br />
274.342 Unearned subscription liability<br />
assumed. A separately stated amount paid by the<br />
seller of a newspaper to the purchaser who<br />
assumed liability for the unearned subscriptions is<br />
includible in the purchaser’s gross <strong>income</strong>. Rev.<br />
Rul. 68-112 amplified. §1.61-1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 71-450, 1971–2 C.B. 78.<br />
274.343 Unemployed workers; trade readjustment<br />
allowances; Trade Act of 1974. Trade<br />
readjustment allowances, provided by sections<br />
231 and 232 of the Trade Act of 1974, received by<br />
adversely affected workers who have become<br />
unemployed due to the effect of increased imports<br />
are in the nature of general welfare and are not<br />
includible in the workers’ gross <strong>income</strong>. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 76-229, 1976-1 C.B. 19.<br />
274.344 Unemployment benefits; Redwood<br />
National Park Expansion Act. Benefits received<br />
as “terminal pay” under the Redwood National<br />
Park Expansion Act are not includable in gross<br />
<strong>income</strong>. (Sec. 85, ’86 Code.)<br />
Rev. Rul. 80-23, 1980-1 C.B. 17.<br />
274.345 Unemployment compensation. Benefits<br />
and allowances paid to individuals under the<br />
Trade Readjustment Allowance Program, the Airline<br />
Deregulation Benefits and Allowances Program,<br />
and the Disaster Unemployment Assistance<br />
Program are unemployment compensation within<br />
the meaning of section 85(c) for purposes of determining<br />
whether any part of such payments is<br />
includable in gross <strong>income</strong>. (Sec. 85, ’86 Code.)<br />
Rev. Rul. 79–299, 1979–2 C.B. 32.<br />
274.346 Unincorporated trading exchange;<br />
membership fees; revenues. The amounts paid to<br />
an unincorporated trading exchange acting in an<br />
organized capacity for the purchase of membership<br />
certificates should be treated as contributions<br />
to the capital of a corporation. Interest on hank<br />
deposits and bonds, membership dues, fines for<br />
violations of rules, and transfer fees are includable<br />
in the exchange’s gross <strong>income</strong>. I.T.s 1280 and<br />
1387 supersesed. “Distinguished by Rev. Rul.<br />
77-354. §§1.61-1, 1.118-1. (Secs. 61, 118; ’86<br />
Code.)<br />
Rev. Rul. 72–132, 1972–1 C.B. 21.<br />
274.347 Unpaid interest forgiven; accrual<br />
method taxpayer. Treatment is provided for<br />
unpaid interest forgiven after being deducted in a<br />
prior year by an accrual method taxpayer. Applicable<br />
to corporations and individuals; however,<br />
where the taxpayer is an individual, section 108(a)<br />
applies only in connection with business property.<br />
Rev. Rul. 67-200 clarified. §§1.61-12,<br />
1.108(a)-1, 1.111-1, 1.1017-1. (Secs. 61, 108,<br />
111, 1017; ’86 Code.)<br />
Rev. Rul. 67–200, 1967–1 C.B. 15; Rev. Rul.<br />
70-406, 1970-2 C.B. 16.<br />
274.348 U.S. silver certificates; gain on sales<br />
and redemption. Gains derived by a taxpayer, not<br />
a dealer, from the sale of U.S. silver certificates,<br />
properly classified as capital assets, at a premium<br />
or redeeming them for bullion and granules sold<br />
later at a profit are includible in gross <strong>income</strong>;<br />
gains derived on these transactions are taxable as<br />
capital gains. §§1.61–6, 1.1221–1. (Secs. 61,<br />
1221; ’86 Code.)<br />
Rev. Rul. 68-634, 1968-2 C.B. 46.<br />
274.349 Utility company; connection fees. A<br />
connection fee, which includes a construction<br />
charge for the installation of a service line and<br />
water meter, that anew subdivision lot owner must<br />
pay to a public utility to obtain water service is<br />
includable in a public utility’s gross <strong>income</strong> for<br />
transactions after January 1976. Clarified with<br />
respect to nonretroactivity. Rev. Ruls. 58–555<br />
revoked and 66–353 modified. §§1.61–1,<br />
1.118-1, 301.7805-1. (Secs. 61, 118, 7805; ’86<br />
Code.)<br />
Rev. Rul. 75–557, 1975–2 C.B. 33; Rev. Rul.<br />
76-61, 1976-1 C.B. 12.<br />
274.350 V.A. rehabilitation program.<br />
Amounts received by patients and members in<br />
Veterans Administration’s hospitals and domiciliaries<br />
for service performed under the Administration’s<br />
therapeutic and rehabilitative program are<br />
includible in gross <strong>income</strong> even though, under<br />
Pub. L. 87–574, 38 U.S.C. 618, these individuals<br />
are not Federal employees. §1.61–2. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 65–18, 1965-1 C.B. 32.<br />
274.351 Vacation trip; contest prize. Where<br />
an individual refuses to accept an all-expense paid<br />
vacation trip which he won as a prize in a contest,<br />
the fair market value of the trip is not includible in<br />
his gross <strong>income</strong>. §1.74-1. (Sec. 74, ’86 Code.)<br />
Rev. Rul. 57-374, 1957-2 C.B. 69.<br />
274.352 Value of lease above cost; drawing to<br />
select lessee. An amount equal to the difference,<br />
if any, between the fair market value and the cost<br />
of a lease obtained by a taxpayer by means of a<br />
drawing conducted by the Bureau of Land Management<br />
of the Department of the Interior is not a<br />
prize nor includible in the taxpayer’s gross <strong>income</strong><br />
when he obtains the lease. §§1.61–1, 1.74–1.<br />
(Secs. 61, 74; ’86 Code.)<br />
Rev. Rul. 67-135, 1967-1 C.B. 20.<br />
274.353 Vessel reconstruction; financing<br />
arrangement between unrelated corporations.<br />
A ship sale and leaseback arrangement between<br />
unrelated corporations to finance the reconstruction<br />
of a vessel with the beneficial ownership<br />
remaining in the seller and legal title held by the<br />
purchaser as security for the lenders constitutes a<br />
financial arrangement for the ship’s reconstruction<br />
and the seller remains the owner for Federal<br />
<strong>income</strong> tax purposes. The purchaser must include<br />
in gross <strong>income</strong> lease payments received under a<br />
charterparty contract established in connection<br />
with the financial arrangements exclusive of loan<br />
payments and expenses paid on his behalf by the<br />
seller. §§1.38–1, 1.61–1, 1.162–1, 1.163–1,<br />
1.164-1, 1.167(a)-1. (Secs. 38, 61, 162, 163, 164,<br />
167; ’86 Code.)<br />
Rev. Rul. 72-543, 1972-2 C.B. 87.<br />
274.354 Veterans; State bonuses. So-called<br />
“bonuses” paid by a State to or on behalf of its<br />
qualified veterans of the Spanish-American War,<br />
the Philippine Insurrection, World Wars I and II,<br />
and the Korean and Vietnam conflicts are gifts<br />
and, therefore, are excludable from the gross<br />
<strong>income</strong> of the recipients. Rev. Rul. 56-610 superseded.<br />
§§1.61–2, 1.102–1. (Secs. 61, 102; ’86<br />
Code.)<br />
Rev. Rul. 68–158, 1968-1 C.B. 47.<br />
274.355 Veterans benefits. Payments of benefits<br />
under any law administered by the Veterans’<br />
Administration are excludable from the recipient’s<br />
gross <strong>income</strong>. Mim. 4411 superseded.<br />
§1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 72-605, 1972-2 C.B. 35.<br />
274.356 Wages; crew of Government-operated<br />
vessel in foreign waters. A citizen employed<br />
on a vessel owned or operated by the U.S. in foreign<br />
waters is paid wages by a private shipping<br />
line as agent of the U.S. from funds specifically<br />
provided by the U.S. Such compensation is not<br />
excludable from gross <strong>income</strong>, even though the<br />
employee may meet the requirements of physical<br />
presence in a foreign country for the period to<br />
which such wages are attributable. §1.911–1.<br />
(Sec. 911, ’86 Code.)<br />
Rev. Rul. 58-4, 1958-1 C.B. 268.<br />
274.357 Water company; water lines received<br />
for stock. A water company issued shares of its<br />
stock to a developer in exchange for extending the<br />
company’s lines to a subdivision owned by the<br />
developer. The stock pays no dividends and<br />
attaches irrevocably to the lots in the subdivision.<br />
The water company did not receive the lines in<br />
exchange for stock and must include their fair<br />
market value in <strong>income</strong>. The developer must add<br />
a portion of the value of the water lines to the basis<br />
of each lot and realizes no gain or loss on receipt<br />
or transfer of the stock. §1.1032–1. (Sec. 1032, ’86<br />
Code.)<br />
Rev. Rul. 81-83, 1981-1 C.B. 434.<br />
274.358 Withdrawal from “stock accounts”;<br />
building and loan association. Section 593(f)<br />
does not apply to a withdrawal from the “stock<br />
accounts” of a State chartered domestic building<br />
and loan association that does not reduce the<br />
accounts below the minimum paid-in capital<br />
required by State law. It is a withdrawal of deposits<br />
and not a distribution of the association’s stock;<br />
therefore, neither the association nor the recipient<br />
realize gross <strong>income</strong> from this transaction.<br />
§§1.61-1,1.301-1,1.593-10. (Secs. 61, 301, 593;<br />
’86 Code.)<br />
Rev. Rul. 70-122, 1970–1 C.B. 143.<br />
274.359 Work-training programs; removed<br />
air traffic controllers. Payments made by the<br />
Department of Transportation to or on behalf of<br />
individuals, removed from their positions as air<br />
traffic controllers, for expenses incurred, in their<br />
training for other employment are not scholarships,<br />
fellowship grants, or governmental welfare<br />
type payments and are includible in the individual’s<br />
gross <strong>income</strong>. §1.61–1. (Secs. 61, 3401; ’86<br />
Code.)<br />
Rev. Rul. 75-32, 1975–1 C.B. 14.<br />
To whom<br />
276.1 Assignment of dividends from stock<br />
held in trust. A brother and sister, conveying no<br />
incidents of ownership, delivered their stock to<br />
“trustees” who were to pay all dividends therefrom<br />
to their mother. Held, the “trust” was merely<br />
custodial and the dividends received by the<br />
mother were not taxable to her. (Sec. 671, ’86<br />
Code.)<br />
Margaret G. Dunham, 35 T.C. 705, Acq.,<br />
1961-2 C.B. 4.<br />
276.2 Assignment of radio station license.<br />
Taxpayer retained the F.C.C. license but transferred<br />
all the assets of a radio station to a corporation<br />
for all of its stock. The taxpayer and corporation<br />
later decided to sell the station and received<br />
F.C.C. permission for the simultaneous assignment<br />
of the license to the corporation and reassignment<br />
to the third party purchaser. Held, gain<br />
on the sale was taxable to the corporation, not the<br />
taxpayer. (Sec. 61, ’86 Code.)<br />
Howard R. Ward, 48 T.C. 803, Acq., 1968-1<br />
C.B. 2.<br />
276.3 Bargain purchase of stock by agents of<br />
corporation. Two individuals who acted as<br />
agents, or representatives of certain corporations<br />
existing or to be formed were not liable in their<br />
individual capacity for <strong>income</strong> arising from the<br />
bargain purchase of stock of one corporation by a<br />
second corporation. (Sec. 22(a), ’39 Code; Sec.<br />
61, ’86 Code.)<br />
Consolidated Premium Iron Ores Ltd., 28 T.C.<br />
127, Nonacq., 1958-2 C.B. 9.
276.4 Beneficiary-executor; estate terminated<br />
by approval of bond; District of Columbia.<br />
Court approval of a special bond filed in the<br />
District of Columbia by an executor, who is the<br />
sole beneficiary of the decedents estate, constitutes<br />
a final distribution of assets and termination<br />
of the estate. Thus in the year of termination the<br />
beneficiary must include in his gross <strong>income</strong> the<br />
estate’s <strong>income</strong> for its taxable year ending with or<br />
within his taxable year. However, if the executor<br />
is not the sole beneficiary, the estate is not terminated<br />
until final distribution of the assets to the<br />
other beneficiaries. I.T. 2925 and I.T. 3356 superseded.<br />
§§1.662(a)–1, 1.641(b)-3. (Secs. 641, 662;<br />
’86 Code.)<br />
Rev. Rul. 73-397, 1973-2 C.B. 211.<br />
276.5 Brokerage commissions to stockholder.<br />
For many years a corporation purchased supplies<br />
through a broker earning commissions from its<br />
suppliers. The broker died and the suppliers, at the<br />
suggestion of the corporation president, appointed<br />
a corporation stockholders their broker. Later the<br />
broker represented other suppliers for commission.<br />
Held, commissions received by the stockholder-broker<br />
were not <strong>income</strong> to the corporation.<br />
(Sec. 61, ’86 Code.)<br />
Alabama-Georgia Syrup Co., 36 T.C. 747, Acq.,<br />
1962-1 C.B. 3.<br />
276.6 Charity-payee; quiz show proceeds.<br />
Money won by an executive director of an exempt<br />
organization engaged to appear as a contestant on<br />
a quiz show, which is paid to the organization, is<br />
gross <strong>income</strong> to the director and not the organization.<br />
§1.61–2. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 58-235, 1958-1 C.B. 26.<br />
276.7 Company owned by taxpayer’s children.<br />
Each of the taxpayer’s four children had<br />
equal interest in a partnership, later incorporated,<br />
which received <strong>income</strong> from appraisal fees, insurance<br />
commissions, and abstract and title policy<br />
commissions. The <strong>income</strong> was from business generated<br />
by the operations of a corporation of which<br />
the taxpayer was an officer able to direct the placement<br />
of such business. Held, the <strong>income</strong> received<br />
by the children was neither taxable to the taxpayer<br />
nor to the corporation of which he was an officer.<br />
(Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)<br />
Robert P. Crowley, 34 T.C. 333, Acq., 1961-1<br />
C.B. 4.<br />
276.8 Compensation to “owners”; subordinated<br />
accounts; brokerage firm. Compensation<br />
paid by a brokerage firm to “owners,” with<br />
respect to cash and securities subject to a “Subordination<br />
Agreement,” is ordinary <strong>income</strong> to the<br />
owners and is deductible by the firm as business<br />
expenses. §§1.61–1, 1.162–1. (Secs. 61, 162; ’86<br />
Code.)<br />
Rev. Rul. 69-455, 1969-2 C.B. 9.<br />
276.9 Congressional educational intern program.<br />
Funds solicited by a U.S. Congressman for<br />
his intern program, designed to provide education<br />
and training in governmental functions and legislative<br />
processes to selected individuals who spend<br />
a part of their time in the Congressman’s office<br />
performing the same services as his compensated<br />
staff, are not excludable gifts, but are includable in<br />
his gross <strong>income</strong> for the year received, and he may<br />
deduct the amounts he pays to the interns under<br />
section 162. The funds received by the interns are<br />
not excludable scholarships or fellowship grants,<br />
but must be included in their gross <strong>income</strong> as compensation<br />
received for services performed.<br />
§§1.61-1, 1.102-1, 1.117–2, 1.162–1. (Secs. 61,<br />
102, 117, 162; ’86 Code.)<br />
Rev. Rul. 75-146, 1975-1 C.B. 23.<br />
276.10 Conspiracy proceeds. Taxpayer and his<br />
co-conspirator entered into a scheme whereby a<br />
fair price was paid for certain horses that were consigned<br />
and cataloged for sale at auction where<br />
they cross-bid to an excessive price which the coconspirator<br />
paid on behalf of his employer. Taxpayer<br />
received the entire proceeds and disbursed<br />
a share to his co-conspirator. Held, the disbursed<br />
share was not includable in taxpayer’s <strong>income</strong>.<br />
(Sec. 61, ’86 Code.)<br />
Arnold G. Pessin, 44 T.C. 590. Acq., 1966-1<br />
C.B. 3.<br />
276.11 Contest award won by parent made<br />
payable to child. Where a taxpayer submits a winning<br />
entry in a contest, the terms of which provide<br />
that the prize is payable to his child, the amount of<br />
such prize is includable in the taxpayer’s gross<br />
<strong>income</strong>. §1.74–1. (Sec. 74, ’86 Code.)<br />
Rev. Rul. 58-127, 1958-1 C.B. 42.<br />
276.12 Contract for benefit of third party. A<br />
taxpayer who stipulated in a sales contract that the<br />
amount representing his gain from the sale of his<br />
property be paid to a third party must include the<br />
gain in his gross <strong>income</strong>; a cash-method taxpayer<br />
who contracted to perform services under an<br />
arrangement whereby the remuneration for his<br />
services would be paid to a third party must<br />
include the compensation in his gross <strong>income</strong>.<br />
Mim. 3040 superseded. §§1.61–2, 1.61-6. (Sec.<br />
61, ’86 Code.)<br />
Rev. Rul. 74-32, 1974-1 C.B. 22.<br />
276.13 Corporation business assets leased to<br />
partnership; stockholder-partners. Shareholders<br />
solved their corporation’s problem of inadequate<br />
working capital in relation to credit requirements<br />
by forming a partnership which leased the<br />
corporation’s assets and operated its business, thus<br />
making the partners’ personal assets reachable by<br />
creditors. Held, the transaction was not for the purpose<br />
of tax avoidance, and the profits of the partnership<br />
cannot be attributed to the corporation.<br />
(Sec. 45, ’39 Code; Sec. 482, ’86 Code.)<br />
Meldrum & Fewsmith Inc., 20 T.C. 790, Acq.,<br />
1954-2 C.B. 5.<br />
276.14 Custodial account earnings; investment<br />
annuity policy. A policyholder of an investment<br />
annuity contract issued by a life insurance<br />
company must include in gross <strong>income</strong> interest<br />
and dividends or other <strong>income</strong> received by the custodian<br />
of the investment account created in conjunction<br />
with the contract and over which the policyholder<br />
has investment control. An investment<br />
account created under contracts entered into after<br />
March 9, 1977, will not be treated as a segregated<br />
asset account of the insurance company under section<br />
801(g)(1); investment accounts created under<br />
contracts entered into before March 10, 1977, will<br />
be treated as segregated asset accounts subject to<br />
certain conditions. §§1.61–1, 1.72–2, 1.801–8,<br />
1.809-4, 301.7805-1. (Secs. 61, 72, 801, 809,<br />
7805; ’86 Code)<br />
Rev. Rul. 77-85, 1977-1 C.B. 12.<br />
276.15 Dividends; minors’ savings accounts.<br />
Dividends received from a savings and loan<br />
account which legally belongs to a minor are taxable<br />
to him even though the account is in the name<br />
of the parents as trustees. §1.61–1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 58-65, 1958-1 C.B. 13.<br />
276.16 Dividends assigned prior to payment<br />
date; life <strong>income</strong> beneficiary. Dividends on stock<br />
owned by an estate and payable to a life <strong>income</strong><br />
beneficiary who assigned her interest in the estate<br />
after the declaration of the dividends but before<br />
their payment date are includible in her gross<br />
<strong>income</strong>. I.T. 4007 superseded. §1.61–9. (Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 74-562, 1974-2 C.B. 28.<br />
<strong>Gross</strong> <strong>income</strong><br />
276.17 Dividends paid to transferor of stock.<br />
Taxpayer purchased stock from his sister for less<br />
than fair market value with the proviso that he pay<br />
her all dividends issued on the stock for her lifetime.<br />
Held, taxpayer received such dividends as<br />
either a fiduciary for, or an agent of, his sister and<br />
was not required to include them in his <strong>income</strong>.<br />
(Sec. 61, ’86 Code.)<br />
Willard S. Heminway, 44 T.C. 96, Acq., 1966-1<br />
C.B. 2.<br />
276.18 Dividends received; other than record<br />
owner of stock. The record owner of stock will be<br />
assumed to be the actual owner of (liable for the<br />
tax on) dividends distributed to another person,<br />
unless he files a Form 1087 showing that someone<br />
else is the actual owner. §§1.61–9, 1.6042-1.<br />
(Secs. 61, 6042; ’86 Code.)<br />
Rev. Rul. 62-201, 1962-2 C.B. 298.<br />
276.19 Earnings; wrap-around contracts.<br />
Life insurance companies will not be considered<br />
the owners of mutual fund shares that are held by<br />
the companies in connection with “wrap-around<br />
annuity” contracts sold to policyholders. The policyholder<br />
is the owner and any earnings and gains<br />
from the shares are included in the gross <strong>income</strong><br />
of the policyholder. However, the insurance company<br />
is considered to be the owner of mutual fund<br />
shares in a situation in which the investments in<br />
the mutual fund shares are controlled by the insurance<br />
company and the mutual fund shares are only<br />
available through the purchase of an annuity from<br />
the insurance company. Rev. Rul. 76-281 amplified.<br />
Clarified by Rev. Rul. 82-55. §§1.61-1,<br />
1.72-1, 1.403(a)-1, 1.403(b)-1, 1.408-3,<br />
1.801-8, 301.7805-1. (Secs. 61, 72, 403, 408,<br />
801, 7805; ’86 Code.)<br />
Rev. Rul. 81–225, 1981–2 C.B. 12.<br />
276.20 Earnings; wraparound contracts.<br />
Certain provisions of Rev. Rul. 81–225, relating to<br />
the circumstances in which the policyholders of<br />
certain annuity contracts (“wraparound annuities”)<br />
will be treated for federal <strong>income</strong> tax purposes<br />
as the owners of the mutual fund shares held<br />
by the insurance company in connection with<br />
those annuities, are clarified. §§1.61–1, 1.72–1,<br />
1.403(a)–1, 1.403(b)–1, 1.408–3, 1.801–8. (Secs.<br />
61, 72, 403, 408, 801; ’86 Code.)<br />
Rev. Rul. 82-55, 1982-1 C.B. 12.<br />
276.21 Family partnership. A sole corporate<br />
stockholder and two trusts for the stockholder’s<br />
minor children were partners, organized to sell<br />
articles imported by the corporation. Held, the<br />
partnership was a valid business, separate and distinct<br />
from the corporation. (Secs. 61, 704; ’86<br />
Code.)<br />
Sanford H. Hartman, 43 T.C. 105, Acq., 1965-2<br />
C.B. 5.<br />
276.22 Gift of endowment or annuity contract.<br />
Taxpayer sold an unencumbered life insurance<br />
policy to a charitable organization for an<br />
amount equal to his basis therein donating his<br />
remaining interest to charity. At the same time, he<br />
made a gift of an unencumbered annuity contract<br />
to his son. In the following year, both contracts<br />
matured and were surrendered by the donees.<br />
Held, the donor receives taxable <strong>income</strong> at the<br />
time the insurance company pays the donees, a gift<br />
of such contract to a charitable organization is a<br />
charitable gift in the year the contract is transferred,<br />
and a gift of the contract to his son is subject<br />
to gift tax for the year of its transfer. §§1.61–1,<br />
1.170-1. (Secs. 61, 170; ’86 Code.)<br />
Rev. Rul. 69-102, 1969-1 C.B. 32.<br />
276.23 Hotel business. Individuals purchased<br />
all the taxpayer’s stock and formed a new corporation<br />
which assumed physical possession and managed<br />
the hotel, holding itself out as owner and<br />
operator and reporting the <strong>income</strong> from its operations.<br />
The taxpayer was not dissolved, its assets<br />
were not transferred to the new corporation, and,<br />
upon default in the stock purchase agreement, the<br />
taxpayer resumed physical possession and active<br />
management of the hotel 3 years later. Held, the<br />
<strong>income</strong> belonged to the new corporation, not the
<strong>Gross</strong> <strong>income</strong><br />
taxpayer. (Sec. 22(a), ’39 Code; Sec. 61, ’86<br />
Code.)<br />
Bartell Hotel Co., 32 T.C. 311 , Acq., 1959-2<br />
C.B. 3.<br />
276.24 Insurance commission; corporation v.<br />
stockholders. An insurance business, composed<br />
of two equal partners, was incorporated to provide<br />
business continuity, effect long range investment<br />
plans, and avoid personal liability of the partners<br />
who were the officers and sole shareholders of the<br />
corporation. The operation of the business after<br />
transfer remained substantially the same, and the<br />
earnings were controlled by the corporation. Held,<br />
the corporation was formed for a valid and substantial<br />
business purpose, and the insurance commissions<br />
earned were taxable to the corporation,<br />
rather than the shareholders. (Sec. 61, ’86 Code.)<br />
American Savings Bank, 56 T.C. 828, Acq.,<br />
1972-1 C.B. 1.<br />
276.25 Insurance commission; received by<br />
president of auto dealership. The president of<br />
the taxpayer-automobile dealer, a family-held corporation,<br />
was a licensed insurance agent who<br />
solicited and sold insurance on cars sold by the<br />
taxpayer and other dealers. Taxpayer was not<br />
authorized to act as an agent for any insurance<br />
company. Held, insurance commissions received<br />
by the taxpayer’s president did not constitute<br />
<strong>income</strong> to the taxpayer. (Sec. 22(a), ’39 Code; Sec.<br />
61, ’86 Code.)<br />
Moke Epstein, Inc., 29 T.C. 1005, Acq., 1958-2<br />
C.B. 6.<br />
276.26 Interest; wrap-around annuity contracts.<br />
Under an agreement between a life insurance<br />
company and a federally insured savings and<br />
loan association, depositors in the savings and<br />
loan association purchase group single premium<br />
retirement annuity contracts from the insurer, and<br />
the insurer invests the proceeds, less certain<br />
expenses, in separate accounts with the savings<br />
and loan association until the annuity starting<br />
dates. The policyholders, and not the insurer, are<br />
the owners of the accounts for federal <strong>income</strong> tax<br />
purposes prior to the annuity starting dates, and the<br />
interest earned on the accounts is includable in the<br />
policyholders’ gross <strong>income</strong>s. §§1.61-1, 1.72-1.<br />
(Secs. 61, 72; ’86 Code.)<br />
Rev. Rul. 80-274, 1980-2 C.B. 27.<br />
276.27 Interest on bonds transferred to trust.<br />
Interest accrued on bonds prior to their transfer to<br />
a trust is includible in the gross <strong>income</strong> of a cash<br />
basis donor for the taxable year during which such<br />
interest is actually or constructively received by<br />
the trust. However, amounts received representing<br />
interest accruing after the transfer are includable in<br />
the trust’s gross <strong>income</strong>. I.T.s 3011 and 3097<br />
superseded. §§1.61–1, 1.102–1. (Secs. 61, 102;<br />
’86 Code.)<br />
Rev. Rul. 72-312, 1972-1 C.B. 22.<br />
276.28 Japanese dollar bonds; back-interest<br />
coupons; gift. A gift to a family member of backinterest<br />
coupons on certain Japanese prewar dollar<br />
bonds constitutes an assignment of future <strong>income</strong><br />
and amounts subsequently received by the donee<br />
from the sale or redemption thereof are tax able to<br />
the donor as ordinary <strong>income</strong> in the year the<br />
<strong>income</strong> is received. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 58–275, 1958-1 C.B. 22.<br />
276.29 Joint venture; family participation.<br />
Three of the taxpayer’s relatives agreed to assume<br />
an interest in the taxpayer’s third of a joint venture.<br />
The taxpayer was not paid for the shares but an<br />
amount representing what should have been paid<br />
was deducted from each relative’s sales proceeds.<br />
Held, the relatives acquired an ownership interest<br />
and gain from sales were properly divided among<br />
the four parties. (Sec. 22(a), ’39 Code; Sec. 61, ’86<br />
Code.)<br />
Morris W. Zack, 25 T.C. 676, Acq., 1957-2 C.B.<br />
7.<br />
276.30 Joint venture v. sale; orthodontia<br />
practice. Taxpayer agreed to take over his<br />
employer’s orthodontia practice in an adjacent<br />
city. The first year, the employer received all<br />
collections, paid expenses, and remitted 40 percent<br />
of receipts to taxpayer; the second year, the<br />
taxpayer remitted 40 percent to the employer,<br />
whose interest ceased at the end of the period.<br />
Held, this was a sale, with all the net <strong>income</strong> taxable<br />
to the taxpayer. (Sec. 61, ’86 Code.)<br />
Herbert M. LaRue, 37 T.C. 39, Acq., 1962-2<br />
C.B. 5.<br />
276.31 Life estate. Where children, holding fee<br />
simple <strong>income</strong> producing real property together<br />
with their mother, convey it to the mother for life,<br />
retaining the remainder in themselves, the <strong>income</strong><br />
from the property thereafter is taxable to the<br />
mother. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 56-221, 1956-1 C.B. 58.<br />
276.32 Liquidation; distributions; taxability.<br />
A cash-method corporation, owning motion picture<br />
and television rights that were distributed<br />
under contracts with payments based upon the distributor’s<br />
net proceeds during specified accounting<br />
periods, liquidated during an account period,<br />
and distributed its assets to the shareholders who<br />
received the contract payments, none of which<br />
were included in the final corporate return. Held,<br />
the payments were based on net proceeds subject<br />
to significant contingencies before the close of the<br />
relevant accounting periods; therefore, the corporation<br />
had no “fixed and determinable right” to<br />
the <strong>income</strong> and was not subject to a pro rata inclusion<br />
of the <strong>income</strong>. (Sec. 446, ’86 Code.)<br />
Judith Schneider, 65 T.C. 18, Acq., 1976-2 C.B.<br />
2.<br />
276.33 Management corporation; ownerprincipal<br />
corporations. Where the aggregate<br />
<strong>income</strong> derived from the operation of newspapers<br />
by a newspaper publishing corporation, as purported<br />
agent, and by its two corporate owners and<br />
purported principals, is partly attributable to each<br />
of the three corporations, the amount of the<br />
<strong>income</strong> attributable to each such corporation will<br />
redetermined on the basis of the particular factual<br />
situation of each taxable year. §1.61–1. (Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 59-247, 1959-2 C.B. 14.<br />
276.34 Mutual fund; annuity contracts. An<br />
insurance company has funded its annuity contracts<br />
through a variable annuity fund. The assets<br />
of the fund are invested in three mutual funds the<br />
shares of which are not sold to the general public.<br />
The policyholders may direct their annuity purchase<br />
payments to be invested in shares of any or<br />
all of the three mutual funds. The insurer, and not<br />
the policyholder, is the owner of the mutual fund<br />
shares for federal <strong>income</strong> tax purposes. §§1.61–1,<br />
1.72-1, 1.403(a)-1, 1.403(b)-1, 1.408-3,<br />
1.801-8. (Secs. 61; 72, 403, 406, 801; ’86 Code.)<br />
Rev. Rul. 82-54, 1982-1 C.B. 11.<br />
276.35 Nominal agency operated for corporation.<br />
Income and expenses from business transacted<br />
by a corporation through a nominal agency<br />
of one of its officers, acting as purported sole proprietor,<br />
are those of the corporation to be properly<br />
reported in its returns. §39.22(a)-1. (Sec. 22(a),<br />
’39 Code; Sec. 61, ’86 Code.)<br />
Rev. Rul. 55-234, 1955-1 C.B. 217.<br />
276.36 Owner of <strong>income</strong>; management corporation;<br />
rulings. Whether the amounts received<br />
by a corporation which was organized by 2 newspaper<br />
publishers to operate their respective plants,<br />
make payments and collections, etc., are taxable to<br />
it as a separate entity, or are taxable to the owners<br />
as principles, is a question of fact which cannot be<br />
ruled upon until after the corporation’s return is<br />
filed. §39.22(a)-1. (Sec. 22(a), ’39 Code; Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 54-596, 1954-2 C.B. 51.<br />
276.37 Partner’s profits shared with wife as<br />
compensation for services. A wife received no<br />
salary for rendering full time managerial services<br />
to the partnership in which the husband owned an<br />
interest, and they agreed that she was entitled to 25<br />
percent of his profit. Held, the allocation of profit<br />
was not an assignment of the husband’s <strong>income</strong><br />
but was earned by the wife in a joint venture with<br />
her husband. (Sec. 22(a), ’39 Code; Sec. 61, ’86<br />
Code.)<br />
Harry Klein, 18 T.C. 804, Acq., 1953-1 C.B. 5.<br />
276.38 Partnership; property contributed;<br />
basis. Taxpayer engaged in a partnership to<br />
develop real property into residential lots for sale<br />
and agreed to share the profits equally. Taxpayer<br />
contributed land which was carried on the partnership’s<br />
books at an amount greater than his basis.<br />
Profits from sales were based upon the partnership’s<br />
recorded value. Held, the taxpayer’s basis<br />
must be used as the partnership’s basis but only<br />
half the profits from the sales were taxable to each<br />
partner. (Sec. 182, ’39 Code; Sec. 702, ’86 Code.)<br />
Lewis L. Culley, 29 T.C. 1076, Acq., 1958-2<br />
C.B. 4.<br />
276.39 Partnership contract assigned to partner-owners.<br />
An accrual-method partnership performed<br />
services under a contract providing a<br />
lump-sum payment on termination by the contracting<br />
corporation. The contracting corporation<br />
was acquired by another corporation and the partnership<br />
assigned the contract to its cash-method<br />
partners who agreed to termination of the contract<br />
for 10 unconditional annual installment payments.<br />
The continuing partnership must accrue the total<br />
of the unconditional minimum installments, and<br />
each partner must report his share of that amount,<br />
in the contract termination year. §1.61–1. (Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 75-113, 1975-1 C.B. 19.<br />
276.40 Partnership transferred to corporation.<br />
Pursuant to a shareholders’ dispute, attorneys<br />
were employed to determine ownership of<br />
<strong>income</strong> from two partnerships conducted by the<br />
majority shareholders who agreed on December<br />
31, 1946 to transfer the partnerships to the corporation<br />
“as of January 1, 1946.” Held, the 1946<br />
partnership <strong>income</strong> was taxable to the corporation,<br />
not to the partner-shareholders. (Sec. 22(a), ’39<br />
Code; Sec. 61, ’86 Code.)<br />
Charles K. Bishop, 25 T.C. 969, Acq., 1956-1<br />
C.B. 3.<br />
276.41 Patent rights; assigned to wife. A husband<br />
paid Federal gift taxes on an absolute assignment<br />
to his wife of his right to receive royalties<br />
under a patent sales contract. Held, the transaction<br />
was a transfer of ownership, not an assignment of<br />
<strong>income</strong>, and the husband was not taxable on the<br />
<strong>income</strong> received by the wife. (Sec. 22(a), ’39<br />
Code; Sec. 61, ’86 Code.)<br />
Franklin A. Reece, 24 T.C. 187, Acq., 1960-2<br />
C.B. 6.<br />
276.42 Proceeds from preexisting claim;<br />
assets of dissolved corporation. Three years after<br />
all of a theater corporation’s assets were distributed<br />
to its stockholders, the stockholder-transferees<br />
filed suit against certain motion picture distributors<br />
for damages incurred by the corporation.<br />
Held, payments in settlement of the suit were taxable<br />
to the stockholder-transferees, not to the dissolved<br />
corporation. (Sec. 6901, ’86 Code.)<br />
James Poro, 39 T.C. 641, Acq., 1963-2 C.B. 5.<br />
276.43 Property gift to minor; Model Custodian<br />
Act of Colorado. Income from a property<br />
gift to a minor which has been transferred under<br />
the model custodian act of Colorado is includible<br />
in the gross <strong>income</strong> of the person obligated to support<br />
or maintain the donee to the extent of his legal<br />
obligations under local law; any <strong>income</strong> derived<br />
from the gift which exceeds the obligations of the<br />
supporter is taxable to the minor. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 56-484, 1956-2 C.B. 23.
276.44 Property gift to minor; Uniform Gifts<br />
to Minors Act. Income derived from property<br />
transferred to a minor under a statute patterned<br />
after the Model Gifts of Securities to Minors Act<br />
or the Uniform Gifts to Minors Act which is used<br />
in the discharge or satisfaction, in whole or in part,<br />
of a legal obligation of any person to support or<br />
maintain a minor is taxable to such person to the<br />
extent so used, but is otherwise taxable to the<br />
minor. Amplified by Rev. Rul. 70-348, with<br />
respect to the estate tax issue. §1.61–1. (Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 59–357, 1959-2 C.B. 212.<br />
276.45 Property transferred to wholly owned<br />
corporation. Taxpayer established and capitalized<br />
at $1,000 each two wholly owned corporations.<br />
He transferred to each substantial inherited<br />
property, including royalty interests in oil and gas<br />
discovered on the land, for which he took an interest<br />
bearing note, but received neither interest nor<br />
principal payments. The corporations maintained<br />
separate books of account and borrowed and<br />
repaid substantial amounts from banks. They did<br />
not make any loans to taxpayer or pay any of his<br />
personal expenses. Held, the corporations were<br />
formed for legitimate business purposes; the transfers<br />
of property effected to supply necessary capital<br />
and <strong>income</strong> earned by the corporations was taxable<br />
to them, not the taxpayer. (Sec. 22(a), ’39<br />
Code; Sec. 61, ’86 Code.)<br />
John Junker Spencer, 19 T.C. 727, Acq., 1953-1<br />
C.B. 6.<br />
276.46 Recognition of controlled business<br />
enterprises; allocation of <strong>income</strong>. The court disregarded<br />
the “arm’s length” test now specified in<br />
reg. 1.482-1(a) and held that transactions between<br />
related parties were “fair and reasonable.” (Secs.<br />
22(a), 45, ’39 Code; Secs. 61, 482, ’86 Code.)<br />
Seminole Flavor Co., 4 T.C. 1215; Grenada<br />
Industries, Inc., 17 T.C. 231; Polack’s Frutal<br />
Works, Inc., 21 T.C. 953; Friedlander Corp., 25<br />
T.C. 70, Nonacqs., 1972-1 C.B. 2, 3.<br />
276.47 Related companies; commonly controlled.<br />
Two corporations and two partnerships<br />
were owned or controlled directly or indirectly by<br />
the same interests. The Commissioner contended<br />
the partnerships were shams and allocated their<br />
<strong>income</strong> and deductions to the corporations. Held,<br />
each partnership was organized and operated as a<br />
separate business entity to perform activities functionally<br />
distinguished from the activities engaged<br />
in or retained by the controlling corporations and<br />
is taxed separately. (Secs. 22(a), 45, ’39 Code;<br />
Secs. 61, 482, ’86 Code.)<br />
National Hosiery Mills Inc. (Grenada Industries,<br />
Inc.), 17 T.C. 231, Acq., 1952–2 C.B. 2,<br />
1972-1 C.B. 2.<br />
276.48 Related companies; partnership<br />
formed to provide services for corporation.<br />
Taxpayer’s controlling stockholder formed a partnership<br />
to provide technical and management services<br />
to taxpayer and other similarly controlled<br />
enterprises. The partnership’s billings were made<br />
at arm’s length on the basis of time, expenses and<br />
results. Held, the partnership was not a sham, it<br />
was formed for valid business reasons, and the<br />
Commissioner’s allocation of part of its <strong>income</strong> to<br />
the taxpayer was unreasonable. (Secs. 22(a), 45,<br />
’39 Code; Secs. 61, 482, ’86 Code.)<br />
Seminole Rock and Sand Co., 19 T.C. 259, Acq.,<br />
1953-1 C.B. 6.<br />
276.49 Rent; lease transferred in trust. Under<br />
a trust instrument executed by a husband and wife<br />
for the benefit of their minor children, the husband<br />
and wife, as fee owners and lessors, transferred a<br />
lease as the corpus of the trust, limited the powers<br />
of the trustee, and provided for the return of the<br />
lease after a stated period. The assignment of the<br />
lease is an assignment of <strong>income</strong>, and rent payable<br />
under the lease is <strong>income</strong> to the grantors. §1.61–1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 58-337, 1958-2 C.B. 13.<br />
276.50 Royalty <strong>income</strong> transferred in trust;<br />
oil and gas lease. Royalty <strong>income</strong> attributable to<br />
an undivided one-half of one-eighth nonparticipating<br />
royalty interest in an oil and gas lease,<br />
transferred to an irrevocable trust by a husband<br />
and wife for the benefit of their minor children, is<br />
includible in the trust’s gross <strong>income</strong>. However,<br />
any of the trust <strong>income</strong> used for the support or<br />
maintenance of the minors is included in the grantor’s<br />
gross <strong>income</strong>. §§1.61–1, 1.671–1. (Secs. 61,<br />
671; ’86 Code.)<br />
Rev. Rul. 71-130, 1971-1 C.B. 28.<br />
276.51 Securities exchange; death benefits<br />
fund for members. A security exchange established<br />
a fund for the sole purpose of paying death<br />
benefits to beneficiaries of its deceased members.<br />
The fund was separately maintained and managed<br />
by certain exchange officers and members acting<br />
as trustees. Its sources of revenue included transfers<br />
from the exchange, member fees and assessments,<br />
and investment <strong>income</strong>. Held, the<br />
exchange and fund were separate tax entities; neither<br />
the fund’s <strong>income</strong> nor its payments to beneficiaries<br />
were attributable to the exchange. (Sec.<br />
161, ’39 Code; Sec. 641, ’86 Code.)<br />
Philadelphia-Baltimore Stock Exchange, 19<br />
T.C. 355, Acq., 1953-2 C.B. 5.<br />
276.52 Stock purchased after record date for<br />
dividend payment; corporate shareholder. A<br />
corporation that receives dividends on stock of a<br />
domestic corporation purchased after the record<br />
date for the dividend payment is not entitled to the<br />
dividends received deduction under section 243.<br />
§§1.61-9, 1.243-1. (Secs. 61, 243; ’86 Code.)<br />
Rev. Rul. 82-11, 1982-1 C.B. 51.<br />
276.53 Stock sold and held in trust to secure<br />
purchase price. Amounts received by a taxpayer<br />
representing dividends paid on stock which he<br />
sold and holds in trust to secure payment of a note<br />
given by the vendee for the purchase price, which<br />
dividends are applied against payment of interest<br />
and principal on the note until it is fully paid, are<br />
not taxable to the vendor, but to the vendee. I.T.<br />
1958 revoked. §39.115(a)-1. (Sec. 115(a), ’39<br />
Code; Sec. 316, ’86 Code.)<br />
Rev. Rul. 56-153, 1956-1 C.B. 166.<br />
276.54 Trust; termination of employment;<br />
consulting services. Funds, placed into an irrevocable<br />
trust for a cash basis former officer as a<br />
condition of his resignation, were to be distributed<br />
in 5 equal annual installments to him or his survivors<br />
conditioned upon his service as a consultant<br />
and his promise not to perform similar services in<br />
competition. Held, the <strong>income</strong> was taxable when<br />
received, not when placed in trust; the former officer’s<br />
rights to, or interest in, the trust was conditional<br />
or forfeitable, rendering section 402 inapplicable.<br />
(Sec. 61, ’86 Code.)<br />
James Max Harrison, 62 T.C. 524, Acq., 1974-2<br />
C.B. 2.<br />
276.55 Trust <strong>income</strong>. A widow was to receive<br />
a determinable amount from trust <strong>income</strong> or principal<br />
each year. If trust <strong>income</strong> exceeded such<br />
amount, she received a third of the excess with the<br />
balance added to the principal of the trust if she<br />
failed to designate its distribution to other qualified<br />
recipients. Held, the excess <strong>income</strong> added to<br />
the trust is not taxable to her. (Secs. 22(a), 166,<br />
167, ’39 Code; Secs. 61, 676, 677, ’86 Code.)<br />
Nicholas A. Stavroudis, 27 T.C. 583, Acq.,<br />
1957-1 C.B. 5.<br />
276.56 Trust <strong>income</strong>; undistributable capital<br />
gains. The taxpayer was the settler, life beneficiary,<br />
and co-trustee of an irrevocable trust over<br />
which she retained a limited power to invade the<br />
corpus; a right to alter the shares of a designated<br />
<strong>Gross</strong> <strong>income</strong><br />
class of remaindermen; and a contingent right to<br />
dispose of the trust corpus by will if she survived<br />
certain beneficiaries. The trust realized capital<br />
gains which were not distributable to the taxpayer.<br />
Held, the rights and powers retained by the taxpayer<br />
did not justify the inclusion of the non-distributable<br />
capital gains in her taxable <strong>income</strong>.<br />
(Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)<br />
Hiram Solomon, 27 T.C. 426, Acq., 1957-1<br />
C.B. 5.<br />
276.57 Value of override agreement. Taxpayer’s<br />
solely owned insurance company transferred<br />
some assets and all of its liabilities to another<br />
insurance company through an involved reinsurance<br />
agreement. An override agreement whereby<br />
the purchasing corporation agreed to pay the transferor<br />
a percentage of its gross premiums was<br />
executed without taxpayer’s knowledge, and payments<br />
were to commence after the lawyer negotiating<br />
the transaction had acquired all of the stock<br />
of the corporation. Held, the value of the override<br />
agreement was not part of the consideration paid<br />
for the sale of the business. (Sec. 61, ’86 Code.)<br />
E. Brooks Glass, Jr., 55 T.C. 543, Acq., 1972-1<br />
C.B. 2.<br />
When included<br />
278.1 Accrual basis builder; retainages. An<br />
accrual basis taxpayer, under contract with the<br />
Federal Government, manufactured and delivered<br />
housing units begun in one year and completed the<br />
following year. The contract provided for payments<br />
to be made on the basis of periodic certified<br />
estimates with 10 percent of the amount due<br />
retained until final acceptance by the Government.<br />
The contract was 86.7 percent completed in the<br />
first year. Held, during the first year the taxpayer<br />
properly accrued 86.7 percent of the contract price<br />
less the 10 percent retainage, the right to which did<br />
not accrue until completion of the contract. (Secs.<br />
41, 42(a), ’39 Code; Secs. 446, 451, ’86 Code.)<br />
Charles F. Dally, 20 T.C. 894, Acq., 1954-1<br />
C.B. 4.<br />
278.2 Accrual of compensation subject to<br />
negotiation. An accrual method taxpayer performed<br />
services and accrued related costs during<br />
the year for the U.S. Government under contracts<br />
providing that the amount of compensation would<br />
be negotiated after delivery. The following year<br />
the compensation was determined and paid. Held,<br />
the compensation was properly accrued in the year<br />
that its amount was negotiated. (Sec. 42(a), ’39<br />
Code; Sec. 451, ’86 Code.)<br />
Globe Corp., 20 T.C. 299, Acq., 1953-2 C.B. 4.<br />
278.3 Accumulated cash surplus; distributions;<br />
court order. A distribution of accumulated<br />
cash surplus ordered by a lower court and subsequently<br />
affirmed by a higher court and received by<br />
the stockholders in the year of the higher court’s<br />
decision is includable in the stockholders’ gross<br />
<strong>income</strong> in the year the order was affirmed. A.R.R.<br />
124 superseded. §1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 70-109, 1970-1 C.B. 115.<br />
278.4 Advance credit; unpaid warranty<br />
work. Credits received from a manufacturer for<br />
warranty work done by an accrual method dealer<br />
pursuant to the manufacturers warranty claim<br />
advance program are not includible in the dealer’s<br />
gross <strong>income</strong> for a taxable year in which the<br />
amount of the credits do not exceed the dealer’s<br />
unpaid accrued warranty claims. Such amounts<br />
represent a reduction of the dealer’s accounts<br />
receivable due from the manufacturer. §§1.446-1,<br />
1.451-1. (Secs. 446, 451; ’86 Code.)<br />
Rev. Rul. 72-595, 1972-2 C.B. 232.<br />
278.5 Advance payments; automobile club<br />
dues. An accrual basis taxpayer reported as gross<br />
<strong>income</strong> only that portion of the total prepaid<br />
annual membership dues actually received or collected<br />
in the calendar year, which ratably corresponded<br />
with the number of membership months,
<strong>Gross</strong> <strong>income</strong><br />
covered by those dues, occurring in the same taxable<br />
calendar year. The balance was reserved for<br />
monthly accrual over the remaining membership<br />
period in the following year as deferred or<br />
unearned <strong>income</strong>. Held, the dues must be included<br />
as <strong>income</strong> in the calendar year of their receipt.<br />
§§39.41-1, 1.446-1, 1.451-1. (Sec. 41, ’39 Code;<br />
Secs. 446, 451, ’86 Code.)<br />
American Automobile Association, 367 U.S.<br />
687, Ct. D. 1865, 1961-2 C.B. 245.<br />
278.6 Advance payments; Cropland Adjustment<br />
Program. A lump-sum payment received in<br />
advance of performance under the Cropland<br />
Adjustment Program by a taxpayer (producer)<br />
who reports <strong>income</strong> under the cash method is<br />
includible in gross <strong>income</strong> in the taxable year in<br />
which the payment is received or made available,<br />
whichever is earlier; where the taxpayer (producer)<br />
uses the accrual method, the payment is<br />
includible in the earlier of the taxable year in<br />
which it is received or in which he has a right to<br />
receive it. Modified to the extent inconsistent with<br />
section 3 of Rev. Proc. 71–21, relating to the permissible<br />
methods of treating advance payments<br />
for services to be performed in the future by<br />
accrual basis taxpayers. Rev. Rul. 70-445 superseded.<br />
§§1.446-1, 1.451–1. (Secs. 446, 451; ’86<br />
Code.)<br />
Rev. Rul. 68-44, 1968–1 C.B. 191; Rev. Rul.<br />
71-299, 1971-2 C.B. 218.<br />
278.7 Advance payments; distributors’ prepurchase<br />
of unspecified goods. Advance payments<br />
received by an accrual basis manufacturer<br />
for unspecified products to be ordered later by new<br />
distributors are substantial advance payments<br />
deferrable from <strong>income</strong> until the second year after<br />
the date of receipt. No reduction is allowed for cost<br />
of goods sold until the goods are shipped.<br />
§1.451-5. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 72-208, 1972-1 C.B. 129.<br />
278.8 Advance payments; dormitory accommodations.<br />
An accrual basis corporation operating<br />
a college dormitory requires students to make<br />
payments in advance of the school year for room<br />
and board not later than July 15. Such payments<br />
are received by a bank, under an escrow agreement,<br />
and released to the corporation on September<br />
5. The advance payments are includible in the<br />
corporation’s gross <strong>income</strong> on July 15, the date<br />
they became due and payable, or at the time actually<br />
received by either the bank or the corporation,<br />
whichever is earlier. Modified to the extent inconsistent<br />
with section 3 of Rev. Proc. 71–21, relating<br />
to the permissible methods of treating advance<br />
payments for services to be performed in the<br />
future by accrual basis taxpayers. Rev. Rul.<br />
70-445 superseded. §§1.446–1, 1.451-1. (Secs.<br />
446, 451; ’86 Code.)<br />
Rev. Rul. 65–141, 1965-1 C.B. 210; Rev. Rul.<br />
71-299, 1971-2 C.B. 218.<br />
278.9 Advance payments; future services;<br />
accrual basis taxpayer. Procedures are prescribed<br />
under which accrual basis taxpayers will<br />
be allowed to defer the inclusion in gross <strong>income</strong><br />
of payments received, or amounts due and payable,<br />
in one taxable year for services to be performed<br />
before the end of the next succeeding taxable<br />
year. Rev. Proc. 70–21 superseded.<br />
§1.446-1, 1.451–1. (Sec. 601.204, S.P.R.; Secs.<br />
446, 451, ’86 Code.)<br />
Rev. Proc. 71-21, 1971-2 C.B. 549.<br />
278.10 Advance payments; meter purchase<br />
plan. Situations illustrate whether deposits<br />
received by a corporate supplier under certain<br />
meter purchase plans are security deposits or<br />
advance payments for goods and when amounts<br />
determined to be advance payments are includible<br />
in gross <strong>income</strong>. §§1.61–1, 1.446-1, 1.451-1,<br />
1.481-1. (Secs. 61, 446, 451, 481; ’86 Code.)<br />
Rev. Rul. 72-519, 1972-2 C.B. 32.<br />
278.11 Advance payments; new plant; agreement<br />
to finance; foreign purchasing commission.<br />
An amount received by a domestic corporation<br />
from a foreign purchasing commission<br />
(acting as agent for a foreign country) to finance<br />
a new plant upon an agreement to produce and sell<br />
a certain product to a foreign country is not taxable<br />
<strong>income</strong> at the time the loan is made, even though<br />
the agreement provides that upon termination or<br />
cancellation, monies due may, if not otherwise<br />
paid, be offset against the loan. I.T. 3349 superseded.<br />
§§1.61–1, 1.451–1. (Secs. 61, 451; ’86<br />
Code.)<br />
Rev. Rul. 70-226, 1970-1 C.B. 116.<br />
278.12 Advance payments; residential facilities<br />
provided to retirement community. Lumpsum<br />
payments received by a calendar-year accrual-method<br />
corporation from residents of a<br />
retirement community for providing them an<br />
apartment unit and the use of social, recreational,<br />
laundry, medical and other common facilities for<br />
the remainder of their lives are advance rentals and<br />
must be included in gross <strong>income</strong> for the taxable<br />
year of receipt. Rev. Rul. 64–231 distinguished.<br />
§§1.61-8, 1.451-1. (Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 73-549, 1973-2 C.B. 17.<br />
278.13 Advance payments; service contracts.<br />
Prepaid <strong>income</strong> from contracts to furnish services<br />
and other types of prepaid <strong>income</strong>, such as prepaid<br />
royalties, rent, bonuses, etc., will constitute taxable<br />
<strong>income</strong> in the year of receipt, regardless of<br />
whether the period of proration is definite or indefinite;<br />
the contrary decision in Bressner Radio Inc.<br />
will not be followed. Modified to the extent inconsistent<br />
with section 3 of Rev. Proc. 71–21, relating<br />
to the permissible methods of treating advance<br />
payments for services to be performed in the<br />
future by accrual basis taxpayers; Rev. Rul.<br />
70-445 superseded. §§1.446-1, 1.451–1. (Secs.<br />
446, 451; ’86 Code.)<br />
Rev. Rul. 60-85, 1960-1 C.B. 181; Rev. Rul.<br />
71-299, 1971-2 C.B. 218.<br />
278.14 Advance payments; telephone company<br />
basic monthly charge. Advance payments<br />
received by a telephone company for subscribers<br />
representing a basic monthly charge applicable to<br />
the following month’s telephone service may be<br />
deferred to the extent provided in Rev. Proc.<br />
71-21. §§1.446-1, 1.451-1. (Secs. 446, 451; ’86<br />
Code.)<br />
Rev. Rul. 72-49, 1972–1 C.B. 125.<br />
278.15 Airmail rates; temporary and retroactive<br />
increase. Income resulting from a retroactive<br />
increase in temporary airmail rates, accrues in<br />
the year in which the Civil Aeronautics Board<br />
issues an order providing for such increase. Pending<br />
final determination of airmail rates, compensation<br />
will accrue at the airmail rates in effect<br />
at the end of the taxable year for which such<br />
<strong>income</strong> is reported. I.T. 3961 revoked. §29.42–1.<br />
(Sec. 42, ’39 Code; Sec. 451, ’86 Code.)<br />
Rev. Rul. 169, 1953-2 C.B. 139.<br />
278.16 Assumption of promissory note by<br />
wholly owned corporation. An individual contracted<br />
to purchase all the outstanding stock of<br />
four related corporations for cash and promissory<br />
notes and subsequently transferred the interest in<br />
the stock of one of the related corporations to<br />
another of the corporations in exchange for the<br />
second corporation’s assumption of the primary<br />
obligation of the individual to pay off the notes.<br />
The second corporation made payments of principal<br />
and interest on the notes as they came due.<br />
Held, the assumption of the debt obligations is a<br />
constructive dividend in the year of the assumption<br />
rather than in the years in which principal and<br />
interest payments were made. Held, further the<br />
corporation is entitled to a deduction for interest<br />
accruing on the promissory notes. (Secs. 61, 163,<br />
301, 304; ’86 Code.)<br />
Ray A. Maher, 55 T.C. 441, Nonacq., 1977-2<br />
C.B. 2.<br />
278.17 Auction sale of livestock; cash-basis<br />
cattle breeder. The entire <strong>income</strong> realized from<br />
the sale of cattle at an auction through a livestock<br />
market, as sales agent for a cash basis cattle<br />
breeder, is recognized to the breeder in the year of<br />
the sale although a portion of the proceeds was<br />
paid to the breeder in the subsequent year. Rev.<br />
Rul. 58-162 distinguished. §1.61-1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 70-294, 1970-1 C.B. 13.<br />
278.18 Auction sale of livestock; deferred<br />
payment contract. A “deferred payment contract”<br />
between a marketing company and a cash<br />
method farmer retaining ownership of cattle until<br />
sale at auction and agreeing to receive his payment<br />
in a subsequent year is a consignment and recognition<br />
of his gain may not be deferred. §1.451–1.<br />
(Sec. 451, ’86 Code.)<br />
Rev. Rul. 72-465, 1972-2 C.B. 233.<br />
278.19 Auction sale of livestock; deferred<br />
payment contract. A cash method farmer sold<br />
cattle to a licensed dealer under a “deferred payment<br />
contract. ” The cattle were delivered to an<br />
affiliate of the dealer and sold at auction with the<br />
net proceeds paid to the dealer. In compliance with<br />
the contract the dealer paid the net proceeds to the<br />
farmer in the following taxable year. The dealer<br />
acted as the agent of the farmer and the receipt of<br />
the net proceeds by the dealer is the equivalent to<br />
receipt by the farmer. Therefore, the net proceeds<br />
must be reported by the farmer for the year the<br />
cattle were sold and not deferred to the following<br />
taxable year. §1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 79-379, 1979-2 C.B. 204.<br />
278.20 Awards; escrow account; installment<br />
payments. Where a taxpayer is awarded a cash<br />
prize which, according to the terms of the contest,<br />
is placed by the contest sponsor in a noninterestbearing<br />
escrow account to be paid at future intervals,<br />
the discounted value of the right to receive<br />
future payments from the escrow account is<br />
includible in the gross <strong>income</strong> of the taxpayer for<br />
the taxable year in which the prize was awarded.<br />
The excess of future payments received over the<br />
discounted value is includible in the taxpayer’s<br />
gross <strong>income</strong> for the taxable years in which<br />
received. §§1.74–1, 1.451–1. (Secs. 74, 451; ’86<br />
Code.)<br />
Rev. Rul. 62–74, 1962-1 C.B. 68.<br />
278.21 Awards; non-qualified deferred compensation<br />
plan. An employee who is awarded<br />
supplemental compensation and elects to receive<br />
it in accordance with the provisions of a nonqualified<br />
deferred compensation plan which includes<br />
substantial forfeiture provisions receives taxable<br />
<strong>income</strong> only in the taxable year the payment is<br />
actually received unless otherwise made available<br />
to the employee at an earlier date. §1.451–2. (Sec.<br />
451, ’86 Code.)<br />
Rev. Rul. 67-449, 1967-2 C.B. 173.<br />
278.22 Barter club transactions; value of services.<br />
The value of services exchanged by members<br />
of a barter club is includible in each member’s<br />
gross <strong>income</strong> for the taxable year in which<br />
received. Also, these exchanges are reportable by<br />
the barter club pursuant to section 6045. §§1.61–2,<br />
1.451-1, 1.6045-1. (Secs. 61, 451, 6045; ’86<br />
Code.)<br />
Rev. Rul. 83-163, 1983-2 C.B. 26.<br />
278.23 Barter club transactions. A barter club<br />
uses credit units to credit or debit member’s<br />
accounts for goods or services provided or<br />
received. As soon as units are credited to the member’s<br />
account, the member may use them to purchase<br />
goods or services or may sell or transfer the<br />
units to other members. The value of credit units
eceived is includible in the gross <strong>income</strong> of members<br />
for the taxable year in which the units are<br />
credited to their accounts. the dollar value of units<br />
received for services by an employee of the club,<br />
who may use the units in the same manner as other<br />
members, is includible in gross <strong>income</strong> for the taxable<br />
year in which received. §§1.61–1, 1.61–2,<br />
1.451-1. (Secs. 61, 162, 262, 263, 451, 3121,<br />
3306, 3401; ’86 Code.)<br />
Rev. Rul. 80-52, 1980-1 C.B. 100.<br />
278.24 Benefits from retirement plan; physicians<br />
in partnership. A partnership of physicians<br />
that, pursuant to an agreement, furnishes medical<br />
services to a nonprofit medical and hospital corporation<br />
is not a party to the corporation’s retirement<br />
plan provided for the physicians and derives no<br />
gross <strong>income</strong> therefrom; when the corporation<br />
becomes obligated to make payments under the<br />
retirement plan to a physician eligible under the<br />
plan to receive such payments, by reason of his<br />
interest in and rights under the retirement plan, he<br />
derives gross <strong>income</strong> at such time or times as he<br />
receives the payments. Rev. Rul. 69-49 superseded.<br />
§1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 69-474, 1969-2 C.B. 105.<br />
278.25 Blocked foreign <strong>income</strong>. A series of<br />
questions and answers with respect to blocked foreign<br />
<strong>income</strong> explain the term “deferrable<br />
<strong>income</strong>”; how to account for and report such<br />
<strong>income</strong>; how and when to make an election to<br />
defer such <strong>income</strong>; when deferrable <strong>income</strong><br />
ceases to be deferrable; how to deduct expenses<br />
paid or incurred or paid or accrued in the foreign<br />
country in which there is deferrable <strong>income</strong>; how<br />
to deduct costs and direct expenses paid or<br />
incurred in U.S. dollars in a transaction giving rise<br />
to deferrable <strong>income</strong>; and how to determine the<br />
basis of investment or business property acquired<br />
with funds representing deferrable <strong>income</strong>. Mires.<br />
6475, 6494, and 6584 and I.T. 4037 superseded.<br />
Modified by Rev. Rul. 81-290. §§1.61-1,<br />
1.162-1, 1.446-1. (Secs. 61, 162, 446; ’86 Code.)<br />
Rev. Rul. 74-351, 1974–2 C.B. 144.<br />
278.26 Blocked foreign <strong>income</strong>; partial<br />
remittance. A partial remittance of previously<br />
blocked foreign <strong>income</strong> which has ceased to be<br />
deferrable is includible in gross <strong>income</strong> on the<br />
basis of the first-in first-out rule. (Sec. 446, ’86<br />
Code.)<br />
Rev. Rul. 57–379, 1957-2 C.B. 299.<br />
278.27 Bonus; baseball players. Bonus payments<br />
received under contract by a professional<br />
baseball player for services (whether or not per<br />
formed), and for refraining from playing for any<br />
other club during the period of the contract, even<br />
though the player entered the Armed Forces and<br />
performed no services, are taxable as ordinary<br />
<strong>income</strong> in the taxable year received. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 55–727, 1955–2 C.B. 25.<br />
278.28 Bonus; corporate offficer and major<br />
stockholder. A bonus based on net sales for the<br />
year, computed after yearend by a calendar year<br />
corporation as part of the compensation of its<br />
cash-method calendar year senior officer and<br />
major stockholder, paid to him within 2 1/2 months<br />
following yearend and not otherwise available to<br />
him, is includible in his gross <strong>income</strong> for the year<br />
in which received even though it is accrued on the<br />
corporation’s books as of December 31 of the preceding<br />
year. §1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 75–180, 1975-1 C.B. 142.<br />
278.29 Bonus; corporate officers. Calendar<br />
year taxpayers organized and controlled a fiscal<br />
year corporation which paid a small monthly<br />
salary with the understanding that a bonus would<br />
be paid if a satisfactory profit was earned. In February<br />
1960 the salary for the entire fiscal year ending<br />
June, 1960 was increased and accrued. Held,<br />
taxpayers were taxable on the monthly amounts<br />
received in 1959, not half the salary as adjusted in<br />
1960. (Sec. 451, ’86 Code.)<br />
R.E. Hughes, Jr., 42 T.C. 1005, Acq., 1965-1<br />
C.B. 4.<br />
278.30 Bonus; nonqualified deferred compensation<br />
plan. Incentive bonuses awarded to<br />
employees at the discretion of the corporate-employer<br />
to be paid at a designated future time in<br />
accordance with the provisions of a nonqualified<br />
unfunded deferred compensation plan constitute<br />
<strong>income</strong> in the taxable year actually received or<br />
made available. The employer-corporation is<br />
entitled to deduct the deferred bonus award only<br />
in the taxable year in which payments are actually<br />
made to the employee or his legal representative,<br />
to the extent such payments are ordinary and necessary<br />
business expenses. §§1.404(a)-1, 1.451–2.<br />
(Secs. 404, 451; ’86 Code.)<br />
Rev. Rul. 69-649, 1969-2 C.B. 106.<br />
278.31 Bonus; paid in employer’s restricted<br />
stock. Where an employee elects, prior to January<br />
1 of a given year, to have all or part of any bonus<br />
awarded him for that year paid to him in stock of<br />
his employer corporation that is subject to restrictions<br />
which have a significant effect on its value,<br />
compensation will be realized by the employee at<br />
the time the restrictions on the stock lapse, or the<br />
stock is sold in an arm’s length transaction, whichever<br />
event occurs earlier. §§1.61–2, 1.421–6.<br />
(Secs. 61, 421; ’86 Code.)<br />
Rev. Rul. 68-86, 1968–1 C.B. 184.<br />
278.32 Awards; National Aeronautics and<br />
Space Act. The Service will not follow the decision<br />
in Jones v. Commissioner, (9th Cir. 1984)<br />
relating to the taxability of NASA awards, but will<br />
continue to follow the decision in Rogallo v.<br />
United States, and Rev. Rul. 69-129. §1.74-1.<br />
(Sec. 74, ’86 Code.)<br />
Rev. Rul. 86-31, 1986-1 C.B. 75.<br />
278.33 Fringe benefits; aircraft valuation<br />
formula. For purposes of section 1.61-2T(g) of<br />
the temporary regulations, relating to the rule for<br />
valuing noncommercial flights on employer-provided<br />
aircraft, the Standard Industry Fare Level<br />
(SIFL) cents-per-mile rates and the terminal<br />
charges in effect on June 30, 1987, and for prior<br />
periods are set forth. Rev. Rul. 87–28 superseded.<br />
§1.61-2T. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 87-101, 1987-2 C.B. 42.<br />
278.34 Payment of employee’s FICA tax by<br />
employer without deduction from wages. Payments<br />
by an employer of employee FICA tax without<br />
deduction from employee’s wages under an<br />
agreement between them are additional wages for<br />
FICA purposes, the amount of wages to be determined<br />
by a formula. The additional FICA wages<br />
so determined are includable in the employee’s<br />
gross <strong>income</strong> and are wages for purposes of<br />
<strong>income</strong> tax withholding. If otherwise appropriate,<br />
the employer may deduct the payments as ordinary<br />
and necessary business expenses under section<br />
162. Rev. Rul. 74–75 modified. §§1.61–2,<br />
1.162-7. (Secs. 61, 162, 3101, 3306, 3401, 6051,<br />
6413; ’86 Code.)<br />
Rev. Rul. 86-14, 1986-1 C.B. 304.<br />
278.35 Corporation; leasing arrangement<br />
with political subdivision; investment <strong>income</strong><br />
received by bond trustee. A corporation<br />
described in Rev. Rul. 68–590 must include in its<br />
gross <strong>income</strong> amounts received by the bond<br />
trustee from the investment of net bond proceeds<br />
during a temporary period and from the investment<br />
of the reserve fund if the investment <strong>income</strong><br />
inures to the benefit of the corporation. Rev. Rul.<br />
68-590 amplified. §§1.61-1, 1.103-1. (Secs. 61,<br />
103; ’86 Code.)<br />
Rev. Rul. 86-66, 1986-1 C.B. 9.<br />
<strong>Gross</strong> <strong>income</strong><br />
278.36 Breeding rights; thoroughbred stallion.<br />
A cash-basis taxpayer who receives, as compensation<br />
for services, breeding rights in a thoroughbred<br />
stallion must include the fair market<br />
value of the rights in his <strong>income</strong> at the time of<br />
receipt if the rights are freely transferable for the<br />
lifetime of the stallion, readily marketable, and<br />
immediately convertible to cash. Nontransferable<br />
rights are not includable in <strong>income</strong> until the taxable<br />
year in which they are earned and made available<br />
to the taxpayer. When agreements are silent concerning<br />
transferability, local law must be<br />
examined to determine whether the taxpayer may<br />
transfer his rights. §1.61–1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 73–173, 1973–1 C.B. 40.<br />
278.37 Carrying charges; installment sales.<br />
Finance or carrying charges included in an installment<br />
sales contract shall be accrued ratably over<br />
the contract period. The Gunderson Bros. .Engineering<br />
Corp., Luhring Motor Co. and Smith<br />
Motors, Inc., decisions followed. §§1.446-1,<br />
1.451-1, 1.453-2. (Secs. 446, 451, 453; ’86<br />
Code.)<br />
Rev. Rul. 67–316, 1967–2 C.B. 171; Gunderson<br />
Bros. Engineering Corp., 42 T.C. 419 and Luhring<br />
Motor Co., 42 T.C. 732, Acqs., 1967-2 C.B. 2, 3.<br />
278.38 Change in billing procedures. An<br />
accrual method taxpayer changed its customer<br />
contracts and billing system to make all orders<br />
noncancellable and billable in the year of publication<br />
which was the year after ordering. The Commissioner<br />
contended that <strong>income</strong> should be recognized<br />
in the year the noncancellable orders were<br />
received. Held, in the year of change <strong>income</strong> is to<br />
be recognized either when payment is due or when<br />
it is received, whichever is earlier. (Sec. 451, ’86<br />
Code.)<br />
Decision, Inc., 47 T.C. 58, Acq., 1967-2 C.B. 2.<br />
278.39 Claim of right; kickback payments.<br />
Taxpayer’s purchasing agent and nominal president<br />
received kickback payments from taxpayer’s<br />
suppliers. Taxpayer won judgment against the<br />
agent for these payments in state court in a later<br />
year. Held, until settlement of the court suit, taxpayer<br />
had no established right to the amounts and<br />
could not accrue them as <strong>income</strong>. (Sec. 42(a), ’39<br />
Code; Sec. 451, ’86 Code.)<br />
All Americas Trading Corporation, 29 T.C. 908,<br />
Acq., 1958-2 C.B. 3.<br />
278.40 Claim of right; overpayments; truck<br />
rental contract. Taxpayer, on the cash basis,<br />
received an overpayment of truck rental <strong>income</strong> in<br />
1956, which he discovered and agreed to repay in<br />
1957. Held, the overpayment is taxable in 1956,<br />
not 1957. (Sec. 61, ’86 Code.)<br />
J.W. Caddy, 38 T.C. 943, Nonacq., 1969-2 C.B.<br />
xxiv.<br />
278.41 Colorado State <strong>income</strong> tax refunded.<br />
A refund of Colorado State <strong>income</strong> tax resulting<br />
from a net operating loss carryback is includible in<br />
the <strong>income</strong> of an accrual-method taxpayer in the<br />
taxable year of the loss which gives rise to the<br />
refund. §1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 69-372, 1969-2 C.B. 104.<br />
278.42 Commissions; advance; insurance<br />
agents. Advances made against unearned commissions<br />
to an independent cash-basis insurance<br />
agent that the agent is legally obligated to repay,<br />
but for which repayment is customarily forgiven,<br />
are includible in gross <strong>income</strong> in the taxable year<br />
of receipt. Any change from not including to<br />
including such advances constitutes a change in<br />
accounting method. §§1.446-1, 1.451-1,<br />
1.481-1. (Secs. 446, 451, 481; ’86 Code.)<br />
Rev. Rul. 83-12, 1983-1 C.B. 99.<br />
278.43 Commissions; advance; insurance<br />
agents; consent for change in accounting<br />
method. A procedure is provided for certain cash<br />
basis insurance agents to expedite a consent to<br />
change their method of accounting for advance<br />
commission <strong>income</strong> applicable to the sale and<br />
renewal of insurance policies. §§1.446-1,
<strong>Gross</strong> <strong>income</strong><br />
1.451–1, 1.481–1. (Sec. 601.204, S.P.R.; Secs.<br />
446, 451, 481, ’86 Code.)<br />
Rev. Proc. 83-4, 1983-1 C.B. 577.<br />
278.44 Commissions; advanced by estate.<br />
The fair market value of securities received by an<br />
executor of an estate for estimated commissions<br />
that might be due him, for which he executed a<br />
note to be held by the estate and enforced only if<br />
commissions were not authorized, is includable in<br />
his gross <strong>income</strong> in the year of receipt. §1.451-1.<br />
(Sec. 451, ’86 Code.)<br />
Rev. Rul. 71-528, 1971-2 C.B. 219.<br />
278.45 Commissions; deposited with court;<br />
rates contested. Commissions in excess of rates<br />
established by a Government agency that are<br />
required to be deposited with the court while the<br />
rates are being contested are not reported in gross<br />
<strong>income</strong> until the taxable year ownership has been<br />
judicially determined. O.D. 980 superseded.<br />
§§1.61-1, 1.451-1. (Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 69-642, 1969-2 C.B. 9.<br />
278.46 Commissions; loan corporation; borrowers’<br />
credit life insurance. An accrual method<br />
loan corporation that receives a commission from<br />
an insurance company from which it obtains life<br />
insurance coverage for its borrowers, must report<br />
the entire commission as <strong>income</strong> for the taxable<br />
year in which the insurance coverage is arranged<br />
even though, in the event of a loan prepayment and<br />
termination of insurance coverage, it may be<br />
required to refund or abate a portion of the commission<br />
computed under the Rule of 78’s method.<br />
§1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Ru1. 75-541, 1975-2 C.B. 195.<br />
278.47 Commissions; salesman. Advance<br />
commissions received by a cash basis salesman<br />
are includible in gross <strong>income</strong> in the taxable year<br />
received; the portion of such commissions<br />
received and included in gross <strong>income</strong> that are<br />
later repaid to the employer are deductible business<br />
expenses in the taxable year repaid, subject to<br />
provisions of section 1341. O.D. 19 superseded.<br />
§§1.61-2, 1.162-7. (Secs. 61, 162; ’86 Code.)<br />
Rev. Rul. 72-78, 1972-1 C.B. 45.<br />
278.48 Commissions; stock broker; trade or<br />
settlement date. An accrual method stock brokerage<br />
business must accrue the commission <strong>income</strong><br />
on the sale or purchase of securities for a customer<br />
on the trade date rather than on the settlement date.<br />
Further, a change to the method of accruing commission<br />
<strong>income</strong> on the trade date is a change in<br />
accounting method. §§1.446-1, 1.451-1,<br />
1.481-1. (Secs. 446, 451, 481; ’86 Code.)<br />
Rev. Rul. 74-372, 1974-2 C.B. 147.<br />
278.49 Commodities dealers; futures contracts.<br />
Dealers in cotton and other commodities<br />
treated in a similar manner may, in determining<br />
gross <strong>income</strong>, take into account gains or losses at<br />
the end of the taxable year based upon market<br />
value of open futures contracts to which they are<br />
parties that are hedges against actual spot or cash<br />
transactions or against forward sales or purchases.<br />
This does not apply to purely speculative transactions<br />
in futures, which may not be included or<br />
taken into <strong>income</strong> in any manner until they are<br />
actually closed. A.R.M. 135, I.T. 1166, S.R. 5084,<br />
and S.M. 5693 superseded. §1.61–3. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 74-223, 1974–1 C.B. 23.<br />
278.50 Compensation for improper dismissal.<br />
A lump-sum payment received by a dismissed<br />
city employee as a settlement for waiving<br />
his right to reinstatement in his position and his<br />
salary rights for the period of dismissal constitutes<br />
<strong>income</strong> includable in the recipient’s gross <strong>income</strong><br />
in the year received. §§1.37-4, 1.61–14, 1.212–1.<br />
(Secs. 37, 61, 212; ’86 Code.)<br />
Rev. Rul. 60-188, 1960-1 C.B. 28.<br />
278.51 Compensation for services received<br />
from fiscal year taxpayer. An accrual-method<br />
calendar year taxpayer provided services for an<br />
accrual-method fiscal year corporation for compensation<br />
based upon the construction completed<br />
and sold by the corporation during the year at a<br />
percentage fixed at the fiscal year end. Held, the<br />
compensation was accruable as the amounts<br />
became fixed by the corporation at the end of its<br />
fiscal year, not as the services were rendered.<br />
(Secs. 41 ,42, ’39 Code; Secs. 446, 451, ’86 Code.)<br />
Emery Kinkead, Inc., 35 T.C. 152, Acq., 1961-2<br />
C.B. 4.<br />
278.52 Construction contract; long-term.<br />
The long-term construction contract provided that<br />
portions of the fee invoiced by the accrual method<br />
taxpayer and all the bonus, if one was due, would<br />
be retained until completion of the contract. Held,<br />
the retained fee and bonus attributable to work<br />
completed in years prior to the contracts’ completion<br />
were accruable prior to the completion year<br />
even though such amounts could not be exactly<br />
ascertained. (Secs. 41, 42, ’39 Code; Secs. 446,<br />
451, ’86 Code.)<br />
Dingle-Clark Co., 26 T.C. 782, Acq., 1957-2<br />
C.B. 4.<br />
278.53 Construction contract; long-term;<br />
accounting methods. An accrual method corporation<br />
in the construction business that uses the<br />
completed contract method of accounting to<br />
report <strong>income</strong> from long-term contracts of more<br />
than 12 months duration may not use the percentage<br />
of completion method to report <strong>income</strong> from<br />
long-term contracts of less than 12 months duration<br />
in a situation in which that method was used<br />
with respect to such contracts in prior years when<br />
its use was improper under section 1.451–3 of the<br />
then current regulations. §1.451–3. (Sec. 451, ’86<br />
Code.)<br />
Rev. Rul. 78-180, 1978–1 C.B. 136.<br />
278.54 Contested <strong>income</strong>. An accrual method<br />
taxpayer who has contested an increase in the per<br />
diem charge for the rental of railroad freight cars<br />
is not entitled to accrue and deduct the amount in<br />
dispute until the controversy is resolved. This<br />
principle is equally applicable in determining the<br />
taxable year of the inclusion of an amount in gross<br />
<strong>income</strong> where the right thereto is in dispute.<br />
§§1.451-1, 1.461-1. (Secs. 451, 461; ’86 Code.)<br />
Rev. Rul. 60-237, 1960-2 C.B. 164.<br />
278.55 Cooperatives; deposits by borrowerstockholders.<br />
A corporation, organized to finance<br />
crop operations, charged a deposit on each box of<br />
fruit sold by borrower-stockholders. The deposits<br />
were to indemnify the corporation against credit<br />
and operating losses but remained the property of<br />
the borrowers until the corporation, pursuant to<br />
the loan agreement, could elect to use them. Held,<br />
the deposits were not taxable <strong>income</strong> to the corporation<br />
in the year received. (Sec. 22(a), ’39 Code;<br />
Sec. 61, ’86 Code.)<br />
Growers Credit Corp., 33 T.C. 981, Acq.,<br />
1960-2 C.B. 5.<br />
278.56 Corporation franchise taxes<br />
refunded; New York State. A refund of New<br />
York State corporation franchise taxes resulting<br />
from a net operating loss carryback is includible in<br />
the <strong>income</strong> of an accrual-method taxpayer in the<br />
taxable year of the loss which gives rise to the<br />
refund. §1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 65-190, 1965-2 C.B. 150.<br />
278.57 Cost plus a percentage of cost, cost<br />
plus contracts; completed contract method of<br />
accounting. A taxpayer engaged in the construction<br />
business whose contracts are not completed<br />
within the taxable year in which they are entered<br />
into may report the <strong>income</strong> from “cost plus a percentage<br />
of cost”, “cost plus a fixed fee”, or “cost<br />
plus with a guaranteed maximum” contracts on<br />
the completed contract method of accounting.<br />
Rev. Rul. 74-129 amplified. §§1.446-1, 1.451-3,<br />
1.481–1. (Secs. 446, 451, 481; ’86 Code.)<br />
Rev. Rul. 77-38, 1977-1 C.B. 129.<br />
278.58 Cost-plus-fixed-fee contract; completed<br />
contract method of accounting. The<br />
<strong>income</strong> from cost-plus-fixed-fee contracts of a<br />
corporation engaged in the construction of ships<br />
requiring at least three years to complete may be<br />
reported on the completed contract method of<br />
accounting. I.T. 3459 revoked. Amplified by Rev.<br />
Rul. 77–38. §§1.446-1, 1.451–3, 1.481–1. (Secs.<br />
446, 451, 481; ’86 Code.)<br />
Rev. Rul. 74-129, 1974-1 C.B. 109.<br />
278.59 Cost-plus-fixed-fee contract; reimbursement<br />
of expenses. An accrual basis taxpayer<br />
included in <strong>income</strong> amounts of expenses<br />
which the Government agreed to reimburse under<br />
cost-plus-fixed-fee contracts. The next year some<br />
of the reimbursements were disallowed and in a<br />
later year, some of the disallowed items were reallowed.<br />
Held, the reimbursements disallowed<br />
must be subtracted from the amount reported as<br />
<strong>income</strong> in the year of the original agreement; the<br />
amounts subsequently re-allowed must be<br />
included in <strong>income</strong> of the year of re-allowance.<br />
(Sec. 42(a), ’39 Code; Sec. 451, ’86 Code.)<br />
Cramp Shipbuilding Co., 17 T.C. 516, Acq.,<br />
1954-2 C.B. 4.<br />
278.60 Cotton equalization payments. Payments-in-kind<br />
(or cash in lieu thereof) received<br />
under the cotton equalization programs of the<br />
Agricultural Act of 1964, must be included as<br />
items of other <strong>income</strong> in the tax return of an<br />
accrual basis taxpayer in the year in which the<br />
applications for payment-in-kind certificates are<br />
approved by the Commodity Credit Corporation.<br />
§1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 65-17, 1965-1 C.B. 207.<br />
278.61 Cotton price support payments. Cotton<br />
farmers property reporting price support payments<br />
on a cash basis may not apply Rev. Proc.<br />
64-16 to change the accounting treatment of these<br />
items for a year when he receives payments under<br />
title IV of the Food and Agricultural Act of 1965.<br />
§1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 67-404, 1967-2 C.B. 173.<br />
278.62 Cotton producer; loan from Commodity<br />
Credit Corporation. The amount of an<br />
unpaid loan from the Commodity Credit Corporation<br />
to a cotton producer, who has not elected<br />
under section 77 to treat the loan as <strong>income</strong> in the<br />
taxable year received, is includable in his gross<br />
<strong>income</strong> in the year in which his liability on the loan<br />
is discharged by transferring to the Corporation<br />
his ownership of the cotton pledged as security.<br />
Any additional amount realized by the producer<br />
from the Corporation’s sale of the cotton for more<br />
than the amount owed is includible in his <strong>income</strong><br />
in the taxable year received if he uses the cash<br />
method or the year his right to the amount becomes<br />
fixed if he uses the accrual method. I.T. 4016<br />
superseded. §1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 75–57, 1975-1 C.B. 141.<br />
278.63 Cotton sold; payment deferred; cashmethod<br />
farmer. Proceeds received in January by<br />
a cash-method farmer under a deferred payment<br />
contract entered into with a cooperative before<br />
delivery of his cotton in the prior year are includable<br />
in his gross <strong>income</strong> in the year received even<br />
though, under a preexisting marketing agreement<br />
with the cooperative, he would have been entitled<br />
to an advance payment equal to the government<br />
loan value of his cotton upon its delivery.<br />
§1.451-2. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 73-210, 1973-1 C.B. 211.<br />
278.64 Credit card service fees; bank. Fees<br />
charged for credit card services must be accrued<br />
by a bank, using the accrual method of accounting,<br />
in the year in which remittances for charge sales
are made to enrolled merchants. §1.451–1. (Sec.<br />
451, ’86 Code.)<br />
Rev. Rul. 71-365, 1971-2 C.B. 218.<br />
278.65 Credit card service fees; bank; cash<br />
method. The fees that a cash method bank operating<br />
a credit card plan charges for its services by<br />
deducting the fees from amounts it periodically<br />
remits for credit sales to merchants enrolled in the<br />
plan are includable in the bank’s <strong>income</strong> as payments<br />
are received from the cardholders on their<br />
accounts. §1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 78-40, 1978-1 C.B. 136.<br />
278.66 Crop advances; cooperative member<br />
growers. Advances received by cash method<br />
member growers from a cooperative association<br />
for crops sold to the association, under an agreement<br />
whereby all crops are sold to the association<br />
for resale, are partial payments includible in the<br />
growers’ gross <strong>income</strong> in the year received. The<br />
growers may not defer the accounting for the payments<br />
untiI the year final settlement is made for<br />
their crops. I.T. 2107 superseded. §§1.451–1,<br />
1.1385-1. (Secs. 451, 1385; ’86 Code.)<br />
Rev. Rul. 71-430, 1971-2 C.B. 219.<br />
278.67 Crop insurance proceeds; election. A<br />
cash-method taxpayer who receives crop insurance<br />
proceeds in the same calendar year his grain<br />
crops were damaged and who establishes that<br />
more than 50 percent of the crop <strong>income</strong> would<br />
have been reported in the following year under his<br />
normal business practice is entitled to elect under<br />
section 451(d) to include the proceeds in <strong>income</strong><br />
in the following year, but he may not allocate the<br />
proceeds between the two years. A mere disclosure<br />
on the return that insurance proceeds are<br />
being deferred is not a proper election. §1.451-6.<br />
(Sec. 451, ’86 Code.)<br />
Rev. Rul. 74-145, 1974-1 C.B. 113.<br />
278.68 Crop insurance proceeds; election.<br />
Section 451(d) of the Code which provides an<br />
election to include crop insurance proceeds in<br />
gross <strong>income</strong> in the taxable year following the taxable<br />
year of destruction or damage applies to payments<br />
received under title 1 of the Disaster Assistance<br />
Act of 1989. Rev. Rul. 75–36 revoked.<br />
§1.451-6T. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 91-55, 1991-2 C.B. 321.<br />
278.69 Crop shares; contributed to charity or<br />
used as feed. The fair market value of crop shares<br />
received as rent by a farmer-landlord, which are<br />
contributed to a charitable organization or are used<br />
as feed in the farming operation, must be included<br />
in the farmer-landlord’s gross <strong>income</strong> at the time<br />
of such contribution or use. The taxpayer is considered<br />
to have made a charitable contribution or<br />
becomes entitled to a business expense deduction<br />
at the same time and in the same amount as the<br />
<strong>income</strong> recognized. Taxpayer may be entitled to<br />
use the optional method of determining net earnings<br />
from self-employment under section 1402(a)<br />
and the retirement <strong>income</strong> credit under section 37.<br />
Rev. Ruls. 56-496 and 63-66 modified. §§1.61-4,<br />
1.162-12, 1.170A-1, 301.7805-1. (Secs. 61, 162,<br />
170, 7805; ’86 Code.)<br />
Rev. Rul. 75-11, 1975-1 C.B. 27.<br />
278.70 Dealers reserves; withheld by finance<br />
company. Credits to a dealers reserve by banks or<br />
finance companies to cover possible losses on<br />
notes purchased from dealers constitute <strong>income</strong> to<br />
the dealers employing the accrual method of<br />
accounting at the time such credits we made;<br />
losses sustained by the dealers on such notes are to<br />
be separately established. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 57–2, 1957–1 C.B. 17.<br />
278.71 Dealers reserves; withheld by finance<br />
company. A retail dealer on the accrual basis of<br />
accounting who sells installment paper to a<br />
finance company and a percentage of the sale price<br />
is retained by the company in a dealer reserve<br />
account as security for the dealer’s guarantor<br />
liability receives <strong>income</strong> when the amounts<br />
retained are recorded on the books of the finance<br />
company as a liability to the dealer. §§29.41–1,<br />
29.42-1, 39.41-1, 39.42-1, 1.446-1, 1.451-1.<br />
(Secs. 41, 42, ’39 Code; Secs. 446, 451, ’86 Code.)<br />
Hansen, 360 U.S. 466, Ct. D. 1838,1959-2 C.B.<br />
460.<br />
278.72 Deferred compensation; employeeemployer<br />
agreement. Amounts payable to an<br />
employee under a deferred compensation agreement<br />
whereby the employee does not acquire a<br />
present interest either in the amount credited to an<br />
account or in an employer’s annuity contract used<br />
as a funding method are not includable in his gross<br />
<strong>income</strong> until actually received or otherwise made<br />
available, whichever is earlier. §1.451–2. (Sec.<br />
451, ’86 Code.)<br />
Rev. Rul. 72-25, 1972-1 C.B. 127.<br />
278.73 Deferred payment arrangement with<br />
nonprofit corporation; physicians. A cash-basis<br />
physician electing, under an agreement with a<br />
nonprofit corporation insuring medical expenses<br />
of subscribers, to defer compensation due from the<br />
corporation for services rendered to patient-subscribers<br />
must include such amounts in gross<br />
<strong>income</strong> in the year withheld. Amplified by Rev.<br />
Rul. 77-420. §1.451-2. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 69-50, 1969-1 C.B. 140.<br />
278.74 Deferred payment arrangement with<br />
nonprofit corporation; physician. The conclusion<br />
of Rev. Rul. 69–50 which holds that a cashbasis<br />
physician who enters into an agreement with<br />
a nonprofit corporation insuring medical expenses<br />
of its subscribers and elects to defer compensation<br />
due from the corporation for services rendered to<br />
patient-subscribers must include the deferred<br />
amounts in gross <strong>income</strong> in the year withheld,<br />
applies even if the agreement contains a substantial<br />
forfeiture provision inuring to the corporation.<br />
Rev. Rul. 69-50 amplified. §1.451-2. (Sec. 451,<br />
’86 Code.)<br />
Rev. Rul. 77-420, 1977-2 C.B. 172.<br />
278.75 Deposit on purchase price of real<br />
property. A nominal payment made, when a purchase<br />
contract for real estate is signed, is treated as<br />
a deposit on the purchase price of the property and<br />
is taken into account in determining the character<br />
and amount of <strong>income</strong> in the year the actual sale<br />
is consummated. A.R.R. 13 and O. 988 superseded.<br />
§1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 69-93, 1969–1 C.B. 139.<br />
278.76 Discounted promissory note. A negotiable<br />
promissory note, issued by a cash-method<br />
client for deductible legal services and accepted as<br />
payment for such services by a cash-method lawyer,<br />
is includable in the lawyer’s <strong>income</strong>, to the<br />
extent of its fair market value, in the year the lawyer<br />
accepted the note as payment, and is deductible<br />
by the client, in its face amount, in the year<br />
payment is made to the bank. A.R.M. 201 superseded.<br />
§§1.451–1, 1.461–1. (Secs. 451, 461; ’86<br />
Code.)<br />
Rev. Rul. 76-135, 1976-1 C.B. 114.<br />
278.77 Disputed gift of <strong>income</strong> producing<br />
property. Taxpayer authorized publication of a<br />
manuscript received as a gift from an alien author<br />
living in a country at war with the U.S. Due to a<br />
dispute with the author’s agent in the U.S., the<br />
publisher paid all royalties into an escrow except<br />
for $12,000 which was paid to the taxpayer in the<br />
issue year with the balance paid in a later year.<br />
Held, in the issue year, only the $12,000 was taxable.<br />
(Sec. 42(a), ’39 Code; Sec. 451, ’86 Code.)<br />
Daniel M. Cory, 23 T.C. 775, Acq., 1975-2 C.B.<br />
4.<br />
278.78 Diversion payments; wheat stabilization<br />
or feed grain programs. A cash-method taxpayer<br />
who receives payments under the “1963<br />
<strong>Gross</strong> <strong>income</strong><br />
Wheat Stabilization Program” or the “1963 Feed<br />
Grain Program”, shall include the amounts of the<br />
advance and final payments in gross <strong>income</strong> in the<br />
taxable year received, or in the year the payments<br />
are made available, whichever is earlier.<br />
§1.451-2. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 65–97, 1965–1 C.B. 211; Rev. Rul.<br />
65-98, 1965-1 C.B. 213.<br />
278.79 Dividends; casualty insurance company;<br />
accrual method. An accrual-method casualty<br />
insurance company taxable under section 831<br />
is not required to accrue at the end of its taxable<br />
year and include in the computation of investment<br />
<strong>income</strong> under section 832(b)(2) dividends that<br />
have not been actually or constructively received.<br />
§§1.301-1, 1.451-1, 1.832-4. (Secs. 301, 451,<br />
832; ’86 Code.)<br />
Rev. Rul. 78-117, 1978-1 C.B. 214.<br />
278.80 Dividends on restricted stock;<br />
employee compensation. Dividends paid on substantially<br />
nonvested stock transferred to an<br />
employee in connection with the performance of<br />
services are treated as dividends and not as compensation<br />
if the employee makes the election<br />
under section 83(b). §1.83–2. (Sec. 83, ’86 Code.)<br />
Rev. Rul. 83–22, 1983–1 C.B. 17.<br />
278.81 Dividends on restricted stock;<br />
employee compensation. Dividends received by<br />
an employee on restricted stock that is not substantially<br />
vested, for which the election under section<br />
83(b) has been made, are reportable as dividend<br />
<strong>income</strong> and not as compensation on the<br />
employee’s <strong>income</strong> tax return. Rev. Proc. 80-11<br />
distinguished. §§1.83-2, 1.116-1, 1.6042-2.<br />
(Sec. 601.602, S.P.R.; Secs. 83, 116, 6042, ’86<br />
Code.)<br />
Rev. Proc. 83-38, 1983-1 C.B. 76.<br />
278.82 Dividends; right to receive disputed;<br />
accrual method. Pursuant to a compromise settlement<br />
of a claim to dividends, the recipient of dividends<br />
declared and paid the prior year, gave the<br />
taxpayer half of the disputed amount. Held, the<br />
settlement amount was taxable in the year of<br />
settlement, not the prior year. (Sec. 42(a), ’39<br />
Code; Sec. 451, ’86 Code.)<br />
Distributors Finance Corp., 20 T.C. 768, Acq.,<br />
1954-2 C.B. 4.<br />
278.83 Domestic sale of “export” cotton. A<br />
domestic accrual method cotton merchant who<br />
sells, on the domestic market, “export” cotton<br />
which he purchased from the Commodity Credit<br />
Corporation under its cotton export program and<br />
who has not fulfilled his obligation to export a like<br />
quantity of such cotton at the close of the taxable<br />
year of sale, must include the entire gain on such<br />
sale in his gross <strong>income</strong> and may not offset such<br />
unfulfilled export obligation against this gain as a<br />
provisional purchase or a “hedge” in computing<br />
his tax liability for the taxable year of sale.<br />
§§1.446-1, 1.451-1. (Secs. 446, 451; ’86 Code.)<br />
Rev. Rul. 60-24, 1960-1 C.B. 171.<br />
278.84 Early salary payment; Federal<br />
employee. A yearend salary payment for work<br />
performed, received by a Federal employee before<br />
the regularly scheduled payday in the employee’s<br />
following taxable year, is subject to <strong>income</strong> tax<br />
withholding and must be included in the<br />
employee’s - gross <strong>income</strong> in the year received.<br />
§1.61-1. (Secs. 61, 3122, 3401; ’86 Code.)<br />
Rev. Rul. 75-478, 1975-2 C.B. 28.<br />
278.85 Embezzled funds. Embezzled funds are<br />
to be included in the gross <strong>income</strong> of the embezzler<br />
in the taxable year in which the funds are misappropriated.<br />
The Wilcox decision, 327 U.S. 404,<br />
Ct. D. 1668, 1946-1 C.B. 6, overruled. However,<br />
conviction of the taxpayer is reversed on the<br />
ground that the element of willfulness could not<br />
be proven so long as the statute had the gloss<br />
placed upon it by the Wilcox decision at the time<br />
the taxpayer embezzled the funds. §§39.22(a)–1,
<strong>Gross</strong> <strong>income</strong><br />
39.145-1, 1.61-1. (Secs. 22(a), 145, ’39 Code;<br />
Secs. 61, 7201, ’86 Code.)<br />
James, 366 U.S. 213, Ct. D. 1863, 1961-2 C.B.<br />
9.<br />
278.86 Embezzled funds. Embezzled funds are<br />
to be included in the gross <strong>income</strong> of the embezzler<br />
in the year in which the funds are embezzled.<br />
James decision followed. G.C.M. 24945 revoked;<br />
G.C.M. 16572 superseded. §§1.61-1, 1.451-1.<br />
(Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 61–185, 1961–2 C.B. 9.<br />
278.87 Employee stock option. An employee<br />
gave unconditional promissory notes for the<br />
option price of stock and, in a subsequent year,<br />
gave cash for the notes and received the stock.<br />
Held, the option was exercised and compensation<br />
received when the notes were given. (Sec. 22(a),<br />
’39 Code; Sec. 61, ’86 Code.)<br />
James S. Ogsbury, 28 T.C. 93, and Phillip J.<br />
LoBue, 28 T.C. 1317, Acq., 1960-2 C.B. 6, 5.<br />
278.88 Employee stock option; nonstatutory;<br />
full payment or payroll deductions. Where an<br />
employee has been granted a nonstatutory stock<br />
option without a readily ascertainable fair market<br />
value, and, upon exercising the option, elects to<br />
pay for the stock through payroll deductions<br />
although entitled to pay for it in full at any time, he<br />
realizes compensation at the time the option is<br />
exercised even though the shares are not transferred<br />
to him until the option price is paid.<br />
§1.421-6. (Sec. 421, ’86 Code.)<br />
Rev. Rul. 66-346, 1966-2 C.B. 192.<br />
278.89 Employee stock subscription agreement.<br />
An employee is in receipt of <strong>income</strong> in 1968<br />
when he enters into a subscription agreement in<br />
that year obligating him to purchase, at less than<br />
fair market value, stock of his employer over a<br />
five-year period and giving him an unconditional<br />
right to receive the stock. §1.61–2. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 71-34, 1971-1 C.B. 31.<br />
278.90 Employer-provided outplacement<br />
counseling. The Service has ruled on the <strong>income</strong><br />
tax and employment tax treatment in three situations<br />
where an employer provides outplacement<br />
services to its employees based on their individual<br />
needs and each affected employee is seeking new<br />
employment within the employee’s same trade or<br />
business. §1.132-5. (Secs. 61, 125, 132, 451,<br />
3121, 3306, 3401; ’86 Code.)<br />
Rev. Rul. 92-69, 1992-2 C.B. 51.<br />
278.91 Excessive salaries resulting in transferee<br />
liability. The taxpayers were held taxable in<br />
1945 for the full amount of salaries received as<br />
officers of a corporation, despite the fact that subsequently<br />
they paid corporate <strong>income</strong> taxes as<br />
transferees, which taxes resulted from the disallowance<br />
of a part of the salaries paid as being<br />
unreasonable. The claim of right doctrine requires<br />
that the full amount of compensation be treated as<br />
<strong>income</strong> when received, with a deduction allowed<br />
in the later year for the amount paid on the corporation’s<br />
deficiency. §§29.42–1, 29.43–2. (Secs.<br />
42, 43, ’39 Code; Secs. 451, 461, ’86 Code.)<br />
Healy, 345 U.S. 278, Ct. D. 1756, 1953–1 C.B.<br />
68.<br />
278.92 Farmers; generic commodity certificates;<br />
CCC loans. The tax consequences to farmers<br />
are set forth in situations involving (1) the<br />
receipt of generic commodity certificates, (2) the<br />
pledging of grain to secure a loan from the Commodity<br />
Credit Corporation and the termination of<br />
that loan, (3) the use of the certificates to repurchase<br />
the grain that was pledged, and (4) the subsequent<br />
sale of the grain. §1.61–1. (Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 87–17, 1987-1 C.B. 20.<br />
278.93 Federal employee; annual leave<br />
repaid on re-employment. The gross <strong>income</strong>,<br />
reported by a Federal employee who received a<br />
lump-sum annual leave payment from one agency<br />
and repaid a portion of it when re-employed by<br />
another agency in the same taxable year, may be<br />
adjusted to reflect the repayment and a copy of the<br />
agency receipt for the repayment should be<br />
attached to reconcile the amounts subject to withholding<br />
shown on the Forms W-2. I.T. 3969 superseded.<br />
§§1.61–1, 1.451–1. (Secs. 61, 451, 3401,<br />
6051; ’86 Code.)<br />
Rev. Rul. 75-531, 1975-2 C.B. 31.<br />
278.94 Federal employee; sick leave buy<br />
back. An explanation is presented of the treatment<br />
of amounts received by a federal employee for<br />
sick leave that were later repaid so that the recipient<br />
could be placed in leave without pay status and<br />
receive benefits under the Federal Employees<br />
Compensation Act for that period. §§1.61-1,<br />
l.104-1, 1.165-1, 1.451-1, 1.461-1, 1.1341-1.<br />
(Secs. 61, 104, 165, 451, 461, 1341; ’86 Code.)<br />
Rev. Rul. 79-322, 1979-2 C.B. 76.<br />
278.95 Foreign currency acquired at illegal<br />
exchange rates; gain on disposition. A U.S. citizen<br />
working in a foreign country who exchanged<br />
U.S. dollars for foreign currency at illegal<br />
exchange rates and then exchanged the foreign<br />
currency for Military Payment Certificates, for<br />
personal use, having a dollar value greater than his<br />
basis in the foreign currency, has realized gain that<br />
must be reported for the taxable year in which the<br />
foreign currency was disposed of. §1.61-1. (Sec.<br />
61, ’86 Code.)<br />
Rev. Rul. 75-477, 1975-2 C.B. 27.<br />
278.96 Fruit purchase contracts; farmers.<br />
Amounts received by a farmer, using the cash<br />
method of accounting, under a “fruit purchase<br />
contract” which provides for a fixed price (1) at<br />
the time the contract is signed, (2) the time the fruit<br />
is picked, or (3) at the time the fruit is delivered,<br />
and under which the farmer receives part payment<br />
at the time the contract is signed and the remainder<br />
when the fruit is picked or delivered, are includable<br />
in gross <strong>income</strong> for the taxable year received irrespective<br />
of when the total price is fixed. Under the<br />
accrual method of accounting, where a fixed price<br />
is determined at the time the contract is signed, the<br />
farmer must include in his gross <strong>income</strong> the total<br />
price received that year, however, where the total<br />
price is not determined until the fruit is picked or<br />
delivered, he must include any partial payment in<br />
the year received and the remaindering the year the<br />
price is determined. §§1.61-4, 1.451-1. (Secs. 61,<br />
451; ’86 Code.)<br />
Rev. Ru. 69-358, 1969-1 C.B. 139.<br />
278.97 Fruit purchase participation contracts;<br />
farmers. Amounts received by a farmer<br />
under the terms of a contract where the sales price<br />
is determined at the time the fruit is delivered and<br />
the farmer receives part of the price at time of harvest<br />
and the remainder when the fruit is resold by<br />
the purchaser, and which may involve advance<br />
payments subject to interest, are includable in<br />
gross <strong>income</strong> for the taxable year in which<br />
received under the cash method of accounting.<br />
Under the accrual method of accounting, such<br />
amounts are includable in the year received or<br />
determined, whichever is earlier. Any advance<br />
payments received prior to resale of the fruit by the<br />
purchaser merely represents a portion of the sales<br />
price and is not a loan. §§1.61-4, 1.451–1. (Secs.<br />
61, 451; ’86 Code.)<br />
Rev. Rul. 69-359, 1969-1 C.B. 140.<br />
278.98 Gambling revenue; credit customers.<br />
A gambling casino that uses the accural method of<br />
accounting must include in <strong>income</strong> the amount of<br />
gambling revenue derived from customers who<br />
gamble on credit for the tax year the gambling<br />
obligations arise and the gambling occurs.<br />
§§1.446-1, 1.451-1. (Secs. 446, 451; ’86 Code.)<br />
Rev. Rul. 83-106, 1983-2 C.B. 77.<br />
278.99 Gasoline tax credit; farmers. The<br />
amount of credit allowable for gasoline used on a<br />
farm for farming purposes after June 30, 1965,<br />
should be included in the gross <strong>income</strong> of a cashbasis<br />
farmer in the year in which he files a timely<br />
<strong>income</strong> tax return on which the credit is taken. An<br />
accrual-basis farmer should include the amount of<br />
the credit in gross <strong>income</strong> in the taxable year in<br />
which the gasoline is used. These rules are applicable<br />
in determining net profit or loss for <strong>income</strong><br />
tax purposes and for determining net earnings for<br />
self-employment tax purposes. §1.61-4, 1.451–1.<br />
(Secs. 39, 61, 451; ’86 Code.)<br />
Rev. Rul. 67-2, 1967-1 C.B. 13.<br />
278.100 Government contract; termination;<br />
time for reporting <strong>income</strong>. The position of the<br />
Service regarding the time for reporting compensation<br />
resulting from the termination of Government<br />
contracts has not been changed by the<br />
Apex Electrical Manufacturing Co. decision.<br />
§39.42-1. (Sec. 42, ’39 Code; Sec. 451, ’86 Code.)<br />
Rev. Rul. 55-205, 1955-1 C.B. 325.<br />
278.101 Improper accounting for installment<br />
sales. Taxpayer consistently reported <strong>income</strong> in<br />
full from installment sales in the year the last<br />
installment was received. The Commissioner<br />
assessed tax on gain from sales made in the audit<br />
year but left undisturbed the gain reported currently<br />
from prior years. Held, <strong>income</strong> attributable<br />
to prior years was not includible in current gross<br />
<strong>income</strong> despite the taxpayer’s consistent erroneous<br />
method of accounting. (Sec. 42(a), ’39<br />
Code; Sec. 451, ’86 Code.)<br />
John W. Commons, 20 T.C. 900, Acq., 1954-1<br />
C.B. 4.<br />
278.102 Incentive per diem charges; use<br />
restricted by I.C.C.; railroads. Incentive per<br />
diem charges received by a railroad corporation<br />
under I.C.C. regulations for the use of general service<br />
unequipped boxcars, the use of the charges<br />
being restricted to the purchase, building, or<br />
rebuilding of such boxcars, are not excludable<br />
from gross <strong>income</strong> under section 118, but are<br />
includible in the year earned or received, whichever<br />
is earlier. §§1.61–1, 1.451–1. (Secs. 61, 451;<br />
’86 Code.)<br />
Rev. Rul. 73-566, 1973-2 C.B. 152.<br />
278.103 Income from face-amount certificates;<br />
cash-method certificate holder. Amounts<br />
credited to certificate reserves for outstanding<br />
face-amount certificates are not includible in the<br />
gross <strong>income</strong> of a cash-method certificate holder<br />
prior to the surrender, redemption, or maturity of<br />
the certificate. The investment company issuing<br />
face-amount certificates must provide information<br />
of Forms 1096 and 1099 for the calendar year<br />
in which the certificates mature or are surrendered<br />
or redeemed. §§1.72–11, 1.6049-1. (Secs. 72,<br />
6049; ’86 Code.)<br />
Rev. Rul. 64-215, 1964-2 C.B. 19.<br />
278.104 Income from life insurance policy<br />
transferred to charity. The taxpayer transferred<br />
an endowment policy on his life to a charitable<br />
organization which paid him the amount of his<br />
basis therein. In a subsequent year, the organization<br />
collected the maturity value of the policy.<br />
Held, the amount by which the value of the policy<br />
exceeded the taxpayer’s basis was taxable as<br />
<strong>income</strong> in the year the proceeds were received by<br />
the organization, not in the year of transfer. (Sec.<br />
72, ’86 Code.)<br />
S.M. Friedman, 41 T.C. 428, Acq., 1964-2 C.B.<br />
5.<br />
278.105 Increment in value; growth savings<br />
certificates. The increment in value of growth<br />
savings certificates issued by a bank shall be<br />
included in the gross <strong>income</strong> of a taxpayer
employing the cash receipts and disbursements<br />
method of accounting in each taxable year in<br />
which the increase occurs, since the taxpayer (certificate<br />
holder) has a right to redeem the certificate<br />
in such taxable year. Rev. Rul. 57-452 revoked.<br />
§1.451-2. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 66-44, 1966-1 C.B. 94.<br />
278.106 Installment bonus contracts; oil and<br />
gas leases. Cash-method taxpayers who receive<br />
an installment bonus contract as consideration for<br />
an oil or gas lease must include its value in gross<br />
<strong>income</strong> for the year in which the lease is executed<br />
if the obligation is transferable and readily saleable.<br />
§§1.61–1, 1.446-1, 1.451–1. (Secs. 61, 446,<br />
451; ’86 Code.)<br />
Rev. Rul. 68-606, 1968-2 C.B. 42.<br />
278.107 Installment obligations assigned as<br />
collateral security for loan. The assignment of an<br />
installment obligation as collateral security for a<br />
loan in an amount substantially equal to the face<br />
amount of such obligation is considered to be a<br />
“disposition” of such obligation within the meaning<br />
of section 453(d) of the Code. §1.453–9. (Sec.<br />
453, ’86 Code.)<br />
Rev. Rul. 65-185, 1965-2 C.B. 153.<br />
278.108 Installments on corporation training<br />
program contract; two-year period. Installments<br />
received by a calendar year accrual basis<br />
corporation pursuant to a contract with the Department<br />
of Labor to hire and train underemployed<br />
low-<strong>income</strong> persons in its construction business<br />
over a two-year period must be included in <strong>income</strong><br />
in the year received. §1.451–1. (Sec. 451, ’86<br />
Code.)<br />
Rev. Rul. 72-207, 1972–1 C.B. 126.<br />
278.109 Installments on promissory note. All<br />
the corporate stock and the purchaser’s downpayment<br />
and promissory note in payment of the stock<br />
were placed in escrow in 1948 with the same<br />
escrow agent who, in 1948 and 1949 received payments<br />
on the note and distributed them to the sellers.<br />
Held, the fair market value of the note was not<br />
includable in gross <strong>income</strong> in 1948 but the payments<br />
were includible as received. (Sec. 42(a), ’39<br />
Code; Sec. 451, ’86 Code.)<br />
Virginia W. Stettinius Dudley, 32 T.C. 564,<br />
Acq., 1959-2 C.B. 4.<br />
278.110 Insurance proceeds received as a<br />
result of arson. Insurance proceeds received by a<br />
taxpayer who pays a third party to burn down the<br />
taxpayer’s building represents gain includable as<br />
ordinary <strong>income</strong> in the taxpayer’s gross <strong>income</strong>.<br />
Other federal <strong>income</strong> tax consequences resulting<br />
from discovery of the arson and repayment of the<br />
insurance proceeds in the following tax year are<br />
also discussed. §1.61–14, 1.162–18, 1.165–1,<br />
1.212–1, 1.1001-1, 1. 033(a)-2, 1.1231-1. (Secs.<br />
61, 162, 165, 212, 1001, 1033, 1231; ’86 Code.)<br />
Rev. Rul. 82-74, 1982-1 C.B. 110.<br />
278.111 Interest; attorney’s trust account.<br />
Interest earned on clients’ nominal and short-term<br />
advances deposited in an attorney’s trust account<br />
and paid over to a bar foundation, pursuant to a<br />
program established by the Supreme Court of<br />
State X, is not includable in the gross <strong>income</strong>s of<br />
the clients. §1.61–7. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 81-209, 1981-2 C.B. 16.<br />
278.112 Interest; attorney’s trust account. A<br />
Lawyer Trust Account Fund created, supervised<br />
and controlled by a state Supreme Court is not subject<br />
to federal <strong>income</strong> tax. Interest <strong>income</strong> that is<br />
earned on pooled accounts containing clients’<br />
nominal and short-term funds held by lawyers and<br />
paid over to the Fund pursuant to an order of the<br />
state Supreme Court is not includible in the gross<br />
<strong>income</strong>s of either the clients or lawyers. Rev. Rul.<br />
81-209 amplified. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 87-2, 1987-1 C.B. 18.<br />
278.113 Interest; collected in advance; insurance<br />
company. Interest collected in advance on<br />
an annual basis by an insurance company on outstanding<br />
loans constitutes taxable <strong>income</strong> in the<br />
year received, even though such company<br />
employs the accrual method of accounting, and is<br />
required by state authorities to report only the<br />
interest earned as <strong>income</strong> and to set up reserves for<br />
unearned interest. §§39.201–7, 1.803-4. (Sec.<br />
201(c), ’39 Code; Sec. 803, ’86 Code.)<br />
Rev. Rul. 58-225, 1958-1 C.B. 258.<br />
278.114 Interest; escrowed funds held by<br />
bank. A bank appointed escrowee of wrongful<br />
death action proceeds without the ordinary duties<br />
of a trustee or fiduciary is not required to file a<br />
fiduciary return, Form 1041, reporting interest on<br />
the escrowed funds pending the court’s determination<br />
of proper distribution; interest is taxable to the<br />
distributes in the year of determination.<br />
§§1.451-1, 1.641(b)-2, 1.6012-3, 301.7701-6.<br />
(Secs. 451, 641, 6012, 7701; ’86 Code.)<br />
Rev. Rul. 70-567, 1970-2 C.B. 133.<br />
278.115 Interest; Graduated Payment Mortgages.<br />
The proper method is discussed for reporting<br />
interest <strong>income</strong> by mortgagees and interest<br />
deductions by mortgagors under Graduated Payment<br />
Mortgage Plans implemented by the Department<br />
of Housing and Urban Development.<br />
§§1.61-1, 1.163-1, 1.446-1, 1.451-1, 1.461-1.<br />
(Secs. 61, 163, 446, 451, 461; ’86 Code.)<br />
Rev. Rul. 77-135, 1977-1 C.B. 133.<br />
278.116 Interest; injury settlement deposited<br />
for minor. A court-approved settlement of a<br />
minor’s personal injury suit, paid into the registry<br />
of the court for the benefit of the minor, is excludable<br />
from the minor’s gross <strong>income</strong> under section<br />
104(a)(2). However, interest on the court-ordered<br />
investment of the funds in the name of the minor<br />
in five-year certificates of deposit, the terms of<br />
which prohibit withdrawal of principal or interest<br />
prior to maturity, is subject to the ratable inclusion<br />
rules of section 1232(a)(3). §§1.61–7, §1.104-1,<br />
1.451-1, 1.1232-1. (Secs. 61, 104, 451, 1232; ’86<br />
Code.)<br />
Rev. Rul. 76-133, 1976-1 C.B. 34.<br />
278.117 Interest; installment loans; accounting<br />
method; Rule of 78’s. A permissible method<br />
of accounting is set forth for interest on short-term<br />
consumer loans when the terms of the indebtedness<br />
state that interest is earned in accordance with<br />
the Rule of 78’s. §§1.163-1, 1.451–1, 1.461–1.<br />
(Sec. 601.204, S.P.R.; Secs. 163, 451, 461, ’86<br />
Code.)<br />
Rev. Proc. 83-40, 1983-1 C.B. 774.<br />
278.118 Interest; installment loans; accounting<br />
method; Rule of 78’s. Even though a loan<br />
agreement provides that interest shall be earned in<br />
accordance with the Rule of 78’s, no deduction for<br />
interest will be allowed for any year in excess of<br />
the economic accrual of interest. Rev. Ruls.<br />
72-100 and 72–562 modified and superseded;<br />
Rev. Ruls. 74–395 and 79–228 modified; Rev.<br />
Rul. 74-607 clarified. §§1.163-1, 1.446-1,<br />
1.451-1, 1.461-1. (Secs. 163, 446, 451, 461; ’86<br />
Code.)<br />
Rev. Rul. 83-84, 1983-1 C.B. 97.<br />
278.119 Interest; installment loans; actuarial<br />
method. The actuarial method of accounting for<br />
<strong>income</strong> from interest on installment loans qualifies<br />
as a permissible method of accounting within<br />
the meaning of section 446, and a financial institution<br />
will be permitted to change to such method.<br />
Modified by Rev. Rul. 83–84. §1.446–1. (Sec.<br />
446, ’86 Code.)<br />
Rev. Rul. 79-228, 1979-2 C.B. 200.<br />
278.120 Interest; reverse mortgage loan.<br />
Interest on a “reverse mortgage loan” that is<br />
added monthly to the outstanding loan balance as<br />
it accrues is neither includable in a cash method<br />
<strong>Gross</strong> <strong>income</strong><br />
lender’s gross <strong>income</strong> nor deductible by a cash<br />
method borrower at the time it is added. §§1 .61–7,<br />
1.163-1, 1.451-2, 1.461-1. (Secs. 61, 163, 451,<br />
461; ’86 Code.)<br />
Rev. Rul. 80-248, 1980-2 C.B. 164.<br />
278.121 Interest; six-month money market<br />
certificate “rolled over” into an All-Savers<br />
Certificate. A taxpayer using the cash receipts<br />
and disbursements method of accounting must<br />
include interest <strong>income</strong> earned on a six-month<br />
money market certificate in gross <strong>income</strong> in the<br />
year the principal and interest are “rolled over”<br />
into an “All-Savers Certificate.” Rev. Ruls.<br />
80-157 and 81-218 amplified. §§1.451-1,<br />
5c.128-1. (Secs. 128, 451; ’86 Code.)<br />
Rev. Rul. 82-42, 1982-1 C.B. 77.<br />
278.122 Interest; Uniformed Services Savings<br />
Deposits Program. Section 1232(a)(3), as<br />
amended by Pub.L. 91-172, does not apply to<br />
interest earned on savings accounts established by<br />
servicemen under section 1035, title 10, U.S.<br />
Code. The interest is includable in servicemen’s<br />
gross <strong>income</strong> when actually received or made<br />
available in accordance with Rev. Rul. 67-450.<br />
§§1.451-2, 1.1232-3A. (Secs. 451, 1232; ’86<br />
Code.)<br />
Rev. Rul. 72-516, 1972-2 C.B. 487.<br />
278.123 Interest; Uniformed Services Savings<br />
Deposits Program. Interest on a Uniformed<br />
Services Savings Deposits Program account with<br />
a balance of less than $10,000 is subject to substantial<br />
restrictions on withdrawal and is not<br />
includible in gross <strong>income</strong> until actually received<br />
or made available to the serviceman, whichever is<br />
earlier; interest on an account that has reached and<br />
maintained a balance of $10,000 may be withdrawn<br />
quarterly and is includable in gross <strong>income</strong>.<br />
Rev. Rul. 67-450 modified. §1.451-2. (Sec. 451,<br />
’86 Code.)<br />
Rev. Rul. 74-37, 1974-1 C.B. 112.<br />
278.124 Interest; Uniformed Services Savings<br />
Deposits Program. Interest on the savings<br />
account of a serviceman under the provisions of<br />
section 1035, title 10, U.S.C., as amended by Pub.<br />
L. 89-538, is includable in his gross <strong>income</strong> in the<br />
taxable year such interest is actually received or<br />
made available to him, whichever is earlier. Modified<br />
by Rev. Rul. 74-37. §§1.61-1, 1.451-1.<br />
(Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 67-450, 1967–2 C.B. 174.<br />
278.125 Interest in real property; fee for legal<br />
services. In 1937 the client agreed to convey, as<br />
compensation for past and future services, an<br />
interest in property to an attorney who initiated<br />
legal action to restore legal title of said property in<br />
the client. Oil was discovered on the land in 1939;<br />
the royalties were held in escrow pending clarification<br />
of title; and in 1944 the State court found for<br />
the client who then delivered a “Confirmation<br />
Deed” to the attorney and a portion of the royalties<br />
were delivered to him. Held, attorney acquired his<br />
interest in 1937 and was not required to include the<br />
value thereof in gross <strong>income</strong> for 1944. (Sec.<br />
42(a), ’39 Code; Sec. 451, ’86 Code.)<br />
Thomas W. Blake, Jr., 20 T.C. 721, Acq.,<br />
1954-2 C.B. 3.<br />
278.126 Interest offset to stockholder’s commission.<br />
Amounts that are computed at the prevailing<br />
prime rate of interest on money deposited<br />
with a stockbroker by an investor, that are credited<br />
on the broker’s books, and that may be used only<br />
to offset commissions payable to the broker on<br />
subsequent stock transactions are includable in the<br />
gross <strong>income</strong>s of the investor as interest and of the<br />
broker as compensation when so used. §1.61-1.<br />
(Sec. 61, ’86 Code.)<br />
Rev. Rul. 79-247, 1979-2 C.B. 24.<br />
278.127 Interest on overpayments; accrual<br />
method taxpayer. Interest on a tax refund or<br />
credit to an accrual method taxpayer must be
<strong>Gross</strong> <strong>income</strong><br />
accrued as <strong>income</strong> when the right to receive the<br />
refund or credit is determined, generally the date<br />
on which the overassessment allowance in respect<br />
of the tax is first certified. Specific exemptions are<br />
set forth. §1.451–1. (Secs. 42(a), 3771(a), ’39<br />
Code; Secs. 451, 6611, ’86 Code.)<br />
Rev. Rul. 62–160, 1962–2 C.B. 139; Household<br />
Products, Inc., 24 B.T.A. 594, Pacific Coast Biscuit<br />
Co., 32 B.T.A. 39, Acqs., 1962–2 C.B. 4, 5.<br />
278.128 Interest on postal savings deposits.<br />
Interest on U.S. postal savings deposits made on or<br />
after March 1, 1941, by a cash method taxpayer is<br />
includible in his gross <strong>income</strong> in the taxable year<br />
it is actually received or available for withdrawal.<br />
§§1.61-7, 1.451-2. (Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 63-126, 1963-2 C.B. 197.<br />
278.129 Interest on U.S. securities; incorrect<br />
checks replaced in following year. A cashmethod,<br />
calendar-year taxpayer, who should have<br />
received two checks in equal amounts in 1971 for<br />
interest on U.S. securities, instead received one<br />
check for less and the other for more than the correct<br />
amount. He was requested to return the larger<br />
check, retain the smaller one, and file a claim for<br />
the underpayment, but he elected to return both<br />
checks and received two checks in the correct<br />
amounts in 1972. Held, taxpayer constructively<br />
received, and must include in his 1971 <strong>income</strong>, the<br />
amount shown on the check he was asked to retain;<br />
the remainder of the interest involved is includable<br />
in 1972. §1.451–2. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 73-486, 1973-2 C.B. 153.<br />
278.130 Irish Sweepstakes; minor’s winnings<br />
held by Irish court. Irish Sweepstakes winnings<br />
of a minor which must be held by the Irish court<br />
until his majority are included in his gross <strong>income</strong><br />
in the year the funds are paid over to the court.<br />
§§1.74-1, 1.451-1. (Secs. 74, 451; ’86 Code.)<br />
Rev. Rul. 67-203, 1967–1 C.B. 105.<br />
278.131 Issuance of emission allowances.<br />
<strong>Gross</strong> <strong>income</strong> does not include the issuance of an<br />
emission allowance by the Environmental Protection<br />
Agency pursuant to 42 U.S.C. section<br />
7651b(a). §§1.61-1, 1.1012-1. (Secs. 61, 1012;<br />
’86 Code.)<br />
Rev. Rul. 92–16, 1992–1 C.B. 15.<br />
278.132 Judgment award; breach of contract.<br />
A judgment award for breach of contract<br />
that is payable by the U.S. must be included in the<br />
gross <strong>income</strong> of an accrual basis taxpayer in the<br />
year the judgment becomes final even though payment<br />
is dependent upon a Congressional appropriation<br />
in a subsequent year. I.T. 3165 superseded.<br />
§1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 70-151, 1970-1 C.B. 116.<br />
278.133 Liquidating trust distributions. Ordinary<br />
<strong>income</strong> or capital gain realized by a liquidating<br />
trust currently distributed to a beneficiary, is<br />
includable in the gross <strong>income</strong> of the recipient for<br />
his taxable year in which or with which the taxable<br />
year of the trust ends. Capital gain realized by the<br />
trustee on sale of the trust property, which is distributed<br />
to the beneficiary, would also be capital<br />
gain in the hands of the certificate holders. Gain or<br />
loss is also realized by the certificate holders with<br />
respect to distribution of trust principal other than<br />
proceeds of capital gain measured with respect to<br />
the certificate holder’s basis in his trust certificate,<br />
and constitutes ordinary <strong>income</strong> or loss.<br />
§39.162-1. (Sec. 162, ’39 Code; Sec. 641, ’86<br />
Code.)<br />
Rev. Rul. 56-78, 1956-1 C.B. 648.<br />
278.134 Loan fee <strong>income</strong>; savings and loan<br />
association. Fees received on loans by a cash basis<br />
savings and loan association at the time the loan is<br />
made are includible in gross <strong>income</strong> in the year<br />
received. The fact that the Federal Home Loan<br />
Bank Board requires that a portion of the fees be<br />
credited to a deferred account and taken into<br />
<strong>income</strong> proportionately over a period of years is<br />
not controlling for <strong>income</strong> tax purposes.<br />
§1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 68–220, 1968-1 C.B. 194.<br />
278.135 Lump-sum payment in cancellation<br />
of agreement. The lump-sum payment received<br />
by an employee as consideration for the cancellation<br />
of his employment contract constitutes gross<br />
<strong>income</strong> to the recipient in the taxable year of<br />
receipt. However, such amount does not constitute<br />
“wages” for employment tax purposes. Distinguished<br />
by Rev. Rul. 75-44.§§1.61-1, 1.451-1.<br />
(Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 58-301, 1958–1 C.B. 23.<br />
278.136 Lump-sum payment in relinquishment<br />
of seniority rights. A lump-sum payment<br />
received by a railroad employee as consideration<br />
for relinquishing employment seniority rights is<br />
ordinary <strong>income</strong> in the taxable year of receipt and<br />
the payment constitutes compensation for purposes<br />
of the RRTA and is wages for purposes of<br />
<strong>income</strong> tax withholding. Rev. Rul. 58–301 distinguished<br />
and Rev. Rul. 59-227 superseded.<br />
§§1.61-1, 1.1221-1, 1.1222-1, 301.7805-1.<br />
(Secs. 61, 1221, 1222, 3231, 3401, 7805; ’86<br />
Code.)<br />
Rev. Rul. 75-44, 1975-1 C.B. 15.<br />
278.137 Lump-sum payment to Civil Service<br />
retiree. That part of a lump-sum payment from the<br />
United States Civil Service Retirement and Disability<br />
Fund representing the monthly benefits<br />
which accrued to a retired Civil Service employee<br />
between the date of his retirement and the time he<br />
filed a claim five years later, that exceeds his contribution<br />
to the fund, is includable in his gross<br />
<strong>income</strong> in the taxable year received. §§1.72–13,<br />
1.402(a)-1, 1.1301-1. (Secs. 72, 402, 1301; ’86<br />
Code.)<br />
Rev. Rul. 68-486, 1968–2 C.B. 184.<br />
278.138 Management fees deferred. An<br />
accrual method taxpayer entered into a management<br />
contract with a business that later encountered<br />
financial difficulty and the bank, as a condition<br />
to granting a loan, required the taxpayer to<br />
waive its right to the management fees as long as<br />
the business was indebted to the bank. Held, the<br />
agreement by the taxpayer was a modification of<br />
the contract which made the receipt of the fee so<br />
uncertain that no <strong>income</strong> was accruable in the<br />
issue year. (Sec. 451, ’86 Code.)<br />
Commercial Solvents Corp., 42 T.C. 455, Acq.,<br />
1965-1 C.B. 4.<br />
278.139 Medicaid; accrual-basis nursing<br />
home; year-end adjustment. An accrual-basis<br />
nursing home must report the actual amount of<br />
readily calculable year-end adjustments with<br />
respect to <strong>income</strong> earned for services rendered<br />
during the taxable year to Medicaid patients in the<br />
taxable year the services are performed.<br />
§§1.451-1, 1.461-1. (Secs. 451, 461; ’86 Code.)<br />
Rev. Rul. 81-176, 1981-2 C.B. 112.<br />
278.140 Medicare; current financing payments.<br />
Current financing payments received<br />
under the Medicare program by providers of services<br />
are payments for services rendered, includable<br />
in <strong>income</strong> of cash method taxpayers for the<br />
taxable year received and treated as payments on<br />
accounts receivable by accrual method taxpayers.<br />
§§1.61-1, 1.451-1. (Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 72–22, 1972-1 C.B. 21.<br />
278.141 Membership fees; subject to refund.<br />
Membership fees received by a taxpayer-swimming<br />
club, organized for profit, are includible in<br />
<strong>income</strong> for the taxable year in which received or<br />
accrued, depending upon the taxpayer’s method of<br />
accounting, even though subsequently it may be<br />
required to refund portions of such fees. Rev. Rul.<br />
58–17 distinguished. §§1.451–1, 1.461–1. (Secs.<br />
451, 461; ’86 Code.)<br />
Rev. Rul. 66-347, 1966-2 C.B. 196.<br />
278.142 Mineral production payments;<br />
“take or pay” gas purchase contract. Payments<br />
received for gas that is to be taken in the future<br />
under a “take or pay” gas purchase contract are<br />
not mineral Production payments and are includible<br />
in gross <strong>income</strong>. §§1.451–1, 1.636-1. (Secs.<br />
451, 636; ’86 Code.)<br />
Rev. Rul. 80-48, 1980-1 C.B. 99.<br />
278.143 Mineral production payments;<br />
“take or pay” gas purchases contracts; inclusion;<br />
deficiency takings. The deficiency taking<br />
amount in a “take or pay” gas purchase contract<br />
determined at December 31, the last day of the<br />
contract year, must be included in the taxpayer’s<br />
gross <strong>income</strong> for its tax year ended June 30, the tax<br />
year in which the amount of the deficiency taking<br />
became fixed and determinable. §1.451-1. (Sec.<br />
451, ’86 Code.)<br />
Rev. Rul. 84-31, 1984-1 C.B. 127.<br />
278.144 Mortgage service fees. A mortgage<br />
service fee may be averaged over the life of the<br />
mortgage but is includable in gross <strong>income</strong> for the<br />
taxable year in which received even though the<br />
accounts are kept on an accrual basis and the<br />
amount received diminishes each year. I.T. 3496<br />
superseded. §§1.446-1, 1.451-1. (Secs. 446, 451;<br />
’86 Code.)<br />
Rev. Rul. 70-142, 1970-1 C.B. 115.<br />
278.145 Note; consolidation of prior obligations.<br />
Taxpayer, on the cash basis of accounting,<br />
accepted a note given by the maker to consolidate<br />
all the maker’s obligations to taxpayer, which<br />
included accrued interest and bills for livestock<br />
feed. Held, in the absence of a determination that<br />
the note was the equivalent of cash or was given<br />
or accepted as payment, the note was not <strong>income</strong><br />
in the year it was received. (Sec. 42(a), ’39 Code;<br />
Sec. 451, ’86 Code.)<br />
Joe W. Scales, 18 T.C. 1263, Acq., 1954-2 C.B.<br />
5.<br />
278.146 Operating interest in oil and gas<br />
property; received for drilling well. The proper<br />
treatment is shown for an arrangement under<br />
which, in consideration for drilling an oil and gas<br />
well at a designated location on a leased tract of<br />
land, the driller receives from the lessee of the land<br />
an assignment of the entire working interest in the<br />
drill site and an undivided fraction of the working<br />
interest in the remainder of the tract. §§1.61–2;<br />
1.263(c)-1, 1.451-1, 1.612-4, 1.614-1,<br />
1.1001-1, 301.7805-1. (Secs. 61, 263, 451, 612,<br />
614, 1001, 7805; ’86 Code.)<br />
Rev. Rul. 77-176, 1977-1 C.B. 77.<br />
278.147 Original issue discount; ratable<br />
inclusion of interest on church bonds. The ratable<br />
inclusion rules of section 1232(a)(3) apply to<br />
interest earned on a nonprofit corporate church’s<br />
10-year bonds issued at par, bearing annual interest<br />
of 7 percent compounded semiannually, and<br />
payable only at the maturity of the bonds.<br />
§1.1232-3A. (Sec. 1232, ’86 Code.)<br />
Rev. Rul. 75-112, 1975-1 C.B. 274.<br />
278.148 Overplus held by Commodity Credit<br />
Corporation. A farmers’ cooperative does not<br />
have a claim of right to any part of the one-half of<br />
the “overplus” held as collateral security retained<br />
by the Commodity Credit Corporation from the<br />
sale of a crop until the excess over the outstanding<br />
indebtedness can be determined. Such amount<br />
constitutes gross <strong>income</strong> to the cooperative in the<br />
year received. §1.77-2. (Secs. 61, 77; ’86 Code.)<br />
Rev. Rul. 57–358, 1957-2 C.B. 42.<br />
278.149 Partner; receipt of guaranteed payment;<br />
capitalized by partnership. A guaranteed<br />
payment that is received by a partner as a finders<br />
fee is includible in the partner’s gross <strong>income</strong> in
the year of receipt, even though the partnership<br />
must capitalize and amortize the expense.<br />
§1.707-1. (Sec. 707, ’86 Code.)<br />
Rev. Rul 80-234, 1980-2 C.B. 203.<br />
278.150 Pay; Coast Guard Academy cadet.<br />
The statutory pay of a cadet of the United States<br />
Coast Guard Academy is includible in his gross<br />
<strong>income</strong> and subject to withholding of <strong>income</strong> tax<br />
in the year it is received by the Superintendent, or<br />
a subordinate, as his agent. Expenditures made on<br />
the cadet’s behalf for insignia, shoulder boards,<br />
and similar items are deductible in computing taxable<br />
<strong>income</strong>, but not the cost of text books, supplies,<br />
and uniforms. §§1.61–2, 1.117-4, 1.162–5,<br />
1.262-1. (Secs. 61, 117, 162, 262; ’86 Code.)<br />
Rev. Rul. 62-122, 1962-2 C.B. 12.<br />
278.151 Payment to security fund; reimbursement<br />
for insurance costs. The initial<br />
deposit made by a transit authority to an independent<br />
security fund set up to reimburse an accrual<br />
method railroad for future increases in the railroad’s<br />
liability insurance premiums that result<br />
from the transit authority’s use of rail road property<br />
is not <strong>income</strong> to the railroad. §§1.61–14, 1.451–1.<br />
(Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 79-266, 1979-2 C.B. 203.<br />
278.152 Payments to escrow account; sale of<br />
property owned by incompetent. A guardian<br />
negotiated the sale, with the necessary State court<br />
approval, of property owned by an incompetent.<br />
The terms of sale called for the proceeds, less the<br />
down payment, to be placed into an irrevocable<br />
escrow account and paid to the incompetent in<br />
later years. The transaction was an installment<br />
sale, and the proceeds were not taxable until actually<br />
received by the incompetent. Interest credited<br />
to the escrow account was not taxable until<br />
received by the incompetent. (Sec. 451, ’86 Code.)<br />
Nannie Carr Harris, 56 T.C. 1165, Nonacq.,<br />
1978-2 C.B. 3.<br />
278.153 Pension plan funded by insurance on<br />
employee’s life. Where the employer is the sole<br />
beneficiary under an insurance contract purchased<br />
to insure the payment of pension obligations, the<br />
employee is not in receipt of <strong>income</strong> at the time the<br />
employer entered into the insurance contract since<br />
the transaction did not produce a present economic<br />
benefit to the employee. The amounts paid by the<br />
employer will be includable in the employee’s<br />
gross <strong>income</strong> in the taxable year received or otherwise<br />
made available. §1.451–1. (Sec. 451, ’86<br />
Code.)<br />
Rev. Rul. 68-99, 1968-1 C.B. 193.<br />
278.154 Points, commitment and service fees;<br />
lending institutions. Examples illustrate the rule<br />
for determining the taxable year in which lending<br />
institutions should include in their <strong>income</strong><br />
the “points”, “commitment fees”, and “service<br />
fees” charged by them in connection with real<br />
estate mortgage loans. Amplified by Rev. Rul.<br />
74-607. §1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 70-540, 1970-2 C.B. 101.<br />
278.155 Points; construction and development<br />
loans; accrual-method lender. Points representing<br />
interest in construction loans received<br />
by an accrual-method taxpayer engaged in making<br />
such loans, either discounted from the loan proceeds<br />
with no rebate for prepayment or repaid at<br />
the end of the loan, are includable in gross <strong>income</strong><br />
ratably on a straight-line basis over the life of the<br />
loan unless they are received or become due earlier.<br />
Rev. Rul. 72–100 clarified and Rev. Rul.<br />
70-540 amplified. Clarified by Rev. Rul. 83-84.<br />
§1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 74-607, 1974-2 C.B. 149.<br />
278.156 Postponement of corporate bond<br />
interest payments. An accrual method taxpayer<br />
holding a corporation’s interest bearing debentures<br />
agreed to let the corporation postpone interest<br />
payments until it had fully repaid a Reconstruction<br />
Finance Corporation loan. Held, the<br />
taxpayer’s right to interest was contingent upon<br />
payment of the RFC loan; therefore, the postponed<br />
interest was not includible in taxpayer’s gross<br />
<strong>income</strong>. (Sec. 451, ’86 Code.)<br />
Standard Lumber Co., 35 T.C. 192, Acq.,<br />
1961-1 C.B. 4.<br />
278.157 Pre-need funeral contracts; payments<br />
held in trust. A funeral home collected<br />
funds for pre-need funeral arrangements under a<br />
contract which provided that the funds were to be<br />
deposited and held in trust; use of the funds was<br />
restricted for the benefit of the customers; the<br />
funeral home was entitled to the interest earned on<br />
the deposits. Held, payments from customers were<br />
not <strong>income</strong> when received. (Sec. 451, ’86 Code.)<br />
Angelus Funeral Home, 47 T.C. 391, Acq.,<br />
1969-2 C.B. 20.<br />
278.158 Prepaid fees; dance studio. A dance<br />
studio on the accrual-method of accounting must<br />
include in <strong>income</strong> for a particular year the advance<br />
payments received by way of cash and negotiable<br />
notes, plus contract installments becoming due<br />
and payable during that year. The studio’s method<br />
of deferring such payments until the lessons were<br />
taught or forfeited, or the contract lapsed, does not<br />
clearly reflect <strong>income</strong>. §39.41-1, 1.446-1. (Sec.<br />
41, ’39 Code; Sec. 446, ’86 Code.)<br />
Schlude, 372 U.S. 128, Ct. D. 1879, 1963-1<br />
C.B. 99.<br />
278.159 Promissory note exchanged for<br />
series of notes; recovery of cost. Purchasers of an<br />
insolvent corporation’s overdue note were each<br />
issued twenty notes, each new note in the terms of<br />
the original note. Each purchaser turned in a randomly<br />
chosen note as the debtor paid one-twentieth<br />
of the indebtedness. Held, the notes did not<br />
represent dividend interests in the original debt,<br />
and purchasers were not required to allocate cost<br />
basis to the twenty notes or report <strong>income</strong> until the<br />
cost basis in the original indebtedness was recovered.<br />
(Sec. 117(f), ’39 Code; Sec. 1232, ’86 Code.)<br />
Webster Atwell, 17 T.C. 1374, Acq., 1954-1<br />
C.B. 3.<br />
278.160 Property exchanged for annuity contract.<br />
Gain realized on the transfer of property by<br />
an individual to an organization, such as a corporation,<br />
trust, fund, or foundation (other than a commercial<br />
insurance company) which from time to<br />
time issues annuity contracts, for a lifetime annuity<br />
is taxable in the year of the exchange to the<br />
extent that the value of the contract exceeds the<br />
basis of the property transferred. If the property<br />
transferred is a capital asset in the hands of the<br />
transferor, the gain will be capital gain. An annuity<br />
rate table is provided in Rev. Rul. 62–137 for use<br />
in valuing such contracts; supplemented by Rev.<br />
Rul. 62–216 to provide additional tables; clarified<br />
by Rev. Rul. 67–39 to provide that the additional<br />
tables are to be used for estate and gift tax purposes;<br />
amplified by Rev. Rul. 72-438 to add tables<br />
to be used in the evaluation of certain types of deferred<br />
payment annuity contracts. §§1.61–1,<br />
1.72-1, 1.451-1. (Secs. 61, 72, 451; ’86 Code.)<br />
Rev. Rul. 62-136, 1962-2 C.B. 12; Rev. Rul.<br />
62-137, 1962-2 C.B. 28; Rev. Rul. 62-216,<br />
1962-2 C.B. 30.<br />
278.161 Public utilities; excess revenues collected.<br />
Revenues of a utility company in excess of<br />
approved rates during a period of rate dispute<br />
between the company and the regulatory authority<br />
are taxable <strong>income</strong> when received, even though<br />
the excess is in a restricted bank account.<br />
§39.22(a)-1. (Sec. 22(a), ’39 Code; Sec. 61, ’86<br />
Code.)<br />
Rev. Rul. 55–137, 1955–1 C.B. 215; Brooklyn<br />
Union Gas Co., 22 B.T.A. 507, Acq., 1955-1 C.B.<br />
4.<br />
<strong>Gross</strong> <strong>income</strong><br />
278.162 Public utilities; fuel adjustment<br />
charges. A public utility that uses the accrual<br />
method of accounting is authorized to include fuel<br />
adjustment charges in its customer’s bills for natural<br />
gas. The charges may be adjusted every six<br />
months and are based on estimated sales for the<br />
period they are in effect, but they are intended to<br />
recover the increased fuel costs for the preceding<br />
six-month period. The utility must include the fuel<br />
adjustment charges in gross <strong>income</strong> as part of the<br />
selling price of gas sold during the period the<br />
charges are in effect. §1.451–1. (Sec. 451, ’86<br />
Code.)<br />
Rev. Rul. 80-308, 1980–2 C.B. 162.<br />
278.163 Readjustment or lump-sum severance<br />
payments; Armed Forces. Readjustment<br />
payments received by members of a reserve component<br />
of the Armed Forces involuntarily released<br />
from active duty and lump-sum severance payments<br />
received by commissioned officers are<br />
includable in gross <strong>income</strong> in the year received;<br />
however, <strong>income</strong> averaging may be applicable to<br />
payments received after 1963. If members of a<br />
reserve component later qualify for retirement<br />
pay, such pay must be reduced by 75 percent of the<br />
readjustment payments previously received and<br />
the remainder is includable in gross <strong>income</strong>.<br />
§§1.61-1, 1.1301-1. (Secs. 61, 1301; ’86 Code.)<br />
Rev. Rul. 58-496, 1958–2 C.B. 20; Rev. Rul.<br />
67-350, 1967-2 C.B. 58.<br />
278.164 Real property sold; additional rentals<br />
received. Additional calendar year rent based<br />
on gross receipts, partially determinable at the<br />
time the property was sold by the fiscal year<br />
accrual method seller, was required under the sale<br />
contract to be collected by the buyer and shared<br />
with the seller in proportion to the months each<br />
owned the property during the calendar year. Held,<br />
the additional rent was not part of the sale price<br />
and the seller must report it as ordinary <strong>income</strong>.<br />
The amount determinable in the fiscal year of the<br />
sale must be reported by the seller in that year and<br />
the remainder in the following year. §§1.61-8,<br />
1.451-1, 1.1001-1. (Secs. 61, 451, 1001; ’86<br />
Code.)<br />
Rev. Rul. 73–276, 1973–1 C.B. 210.<br />
278.165 Real property tax rebated; California.<br />
Illustrative situations are set forth relative to<br />
the tax treatment of rebates of the California real<br />
property tax on personal residences for the fiscal<br />
year 1968-69 as a result of the November 5, 1968,<br />
amendment of section 1(d), article XIII, to the<br />
California Constitution. §§1.61-1, 1.111-1,<br />
1.164-1. (Secs. 61, 111, 164; ’86 Code.)<br />
Rev. Rul. 70-86, 1970-1 C.B. 23.<br />
278.166 Real property taxes paid as additional<br />
rent to lessor. An accrual-method lessee<br />
who is obligated to pay as additional rent the real<br />
estate taxes on the leased property which accrue<br />
on January 1, but become due and payable on June<br />
1 of the following year when the tax bills are<br />
issued to the lessor, may not accrue the taxes as an<br />
additional rent deduction until June 1 of the year<br />
they become payable. The accrual-method lessor<br />
may deduct the real estate taxes on January 1 and<br />
include them in <strong>income</strong> on June 1 when they<br />
become due and payable by the lessee. Clarified<br />
and distinguished by Rev. Rul. 76-474.<br />
§§1.162-11, 1.446-1, 1.451-1, 1.461-1. (Secs.<br />
162, 446, 451, 461; ’86 Code.)<br />
Rev. Rul. 74-244, 1974-1 C.B. 118.<br />
278.167 Real property taxes paid as additional<br />
rent to lessor. An accrual-method lessee<br />
who is obligated on January 1 to pay as additional<br />
rent the real estate taxes on the leased property<br />
which accrue on that date, but become payable on<br />
June 1 of the following year when the tax bills are<br />
issued to the lessor, may accrue and deduct the<br />
taxes as additional rent on January 1. Rev. Rul.<br />
74-244 clarified and distinguished. §§1.162-11,<br />
1.461-1. (Secs. 162, 461; ’86 Code.)<br />
Rev. Rul. 76-474, 1976-2 C.B. 135.
<strong>Gross</strong> <strong>income</strong><br />
278.168 Rent based on lessee’s sales. An<br />
accrual method corporation leased a plant to its<br />
shareholder president who was to pay one-half the<br />
plant’s yearly net <strong>income</strong> as rent. Commissioner<br />
determined the lessee failed to report substantial<br />
amounts of <strong>income</strong>. Held, the unreported <strong>income</strong><br />
was not accruable by the corporation which<br />
reported as <strong>income</strong> the amounts submitted by the<br />
lessee and had no knowledge of any additional<br />
rent due. (Secs. 22(a), 42, ’39 Code; Secs. 61, 451,<br />
’86 Code.)<br />
Camilla Cotton Oil Co., 31 T.C. 560, Acq.,<br />
1959-1 C.B. 3.<br />
278.169 Restricted savings account. A cash<br />
basis taxpayer received, as part of the property’s<br />
sales price, a restricted savings account from<br />
which limited amounts could be withdrawn only<br />
as the purchaser made mortgage payments. Held,<br />
the face amount of the restricted savings account<br />
is not required to be included in gross <strong>income</strong><br />
when received but amounts are includable when<br />
they can be withdrawn. (Secs. 61, 1001; ’86<br />
Code.)<br />
Western Oaks Bldg. Corp., 49 T.C. 365, Nonacq.,<br />
1968–2 C.B. 3.<br />
278.170 Restricted stock exchanged in reorganization.<br />
Compensation is realized by an<br />
employee when stock, subject to restrictions having<br />
a significant effect on its value, is exchanged<br />
for nonrestricted stock of the acquiring corporation<br />
in a reorganization described in section<br />
368(a)(1)(A) of the Code, notwithstanding the<br />
fact, that section 354 applies to the plan of reorganization.<br />
§§1.61–2, 1.354–1, 1.421–6. (Secs. 61,<br />
354, 421; ’86 Code.)<br />
Rev. Rul. 68-473, 1968-2 C.B. 191.<br />
278.171 Retainages under Government contract;<br />
boat builder. An accrual-basis builder of<br />
small boats under a Government contract is not<br />
required to include in <strong>income</strong> the 40 percent retainage<br />
applicable to each boat until final acceptance<br />
of each boat and is not required to include in<br />
<strong>income</strong> the remaining 60 percent of the retainage<br />
until final acceptance of all boats specified in the<br />
particular contract. §§1.446-1, 1.451–1. (Secs.<br />
446, 451; ’86 Code.)<br />
Rev. Rul. 69-314, 1969–1 C.B. 139.<br />
278.172 Retained portion of construction<br />
contract price. The portion of a contract price<br />
withheld pending final acceptance and completion<br />
of construction work performed by a cash-method<br />
taxpayer is includable in gross <strong>income</strong> for the taxable<br />
year in which received, even though the taxpayer<br />
was required to deposit other property in<br />
order to secure release of the withheld amount<br />
prior to completion of the contract. §1.451-1.<br />
(Sec. 451, ’86 Code.)<br />
Rev. Ru1. 69–92, 1969–1 C.B. 138.<br />
278.173 Retirement contributions; State<br />
employees. Amounts deducted from the salaries<br />
of public employees of the State of Arizona and<br />
credited to their retirement accounts are taxable<br />
for the year in which deducted. Clarified by Rev.<br />
Rul. 72-94. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 56-473, 1956-2 C.B. 22.<br />
278.174 Retirement contributions; U.S. Government<br />
employees. The portion of a U.S. Government<br />
employee’s compensation that is withheld<br />
and contributed to the U.S. Civil Service<br />
Retirement and Disability Fund is includable in<br />
gross <strong>income</strong> in the same taxable year in which it<br />
would have been included if it had been paid to<br />
him directly. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 72–250, 1972–1 C.B. 22.<br />
278.175 Retroactive decrease in gas rates<br />
ordered by Federal Power Commission. Where<br />
an accrual method distributor receives a refund<br />
from its natural gas supplier by reason of a retroactive<br />
price decrease pursuant to a F.P.C. order, the<br />
amount of the refund is includible in the distributor’s<br />
gross <strong>income</strong> for the taxable year during<br />
which the decrease is ordered. Similarly, refunds<br />
which the distributor is required to pay to its customer-consumers<br />
must be accrued as a liability in<br />
the same taxable year, regardless of the manner<br />
used in making such refunds to the customer. Distinguished<br />
by Rev. Rul. 80–308. §§1.451–1,<br />
1.461-1. (Secs. 451, 461; ’86 Code.)<br />
Rev. Rul. 63-182, 1963–2 C.B. 194.<br />
278.176 Right to refund of prepaid advertising<br />
expenses. Where a manufacturer’s letter<br />
established the right of an accrual method dealer<br />
to a refund of the unspent portion of his contributions<br />
to an advertising and promotional fund, and<br />
the amount thereof can redetermined with reasonable<br />
accuracy before the due date for filing his<br />
return for the taxable year in which the right was<br />
established, the dealer should accrue and include<br />
in his gross <strong>income</strong> for that taxable year the<br />
amount so determined. §1.446–1. (Sec. 446, ’86<br />
Code.)<br />
Rev. Rul. 58-474, 1958-2 C.B. 158.<br />
278.177 Royalties; escrow account; ownership<br />
pending litigation. Royalty payments<br />
deposited in escrow pending litigation regarding<br />
ownership of land are not to be included in the lessor’s<br />
<strong>income</strong> for the years in which they would<br />
otherwise have been payable, but should be<br />
reported as <strong>income</strong> for the year in which the litigation<br />
is settled or the lessor’s right to the royalties<br />
is established in some other way. I.T. 1212 superseded.<br />
§1.451–1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 70-66, 1970-1 C.B. 114.<br />
278.178 Security deposit to insure agent’s<br />
performance under contract. Sums received by<br />
a principal from his exclusive sales agent as a<br />
security deposit to insure the agent’s performance<br />
under the terms of a contract are not includable in<br />
the principal’s gross <strong>income</strong> where he is under an<br />
obligation to repay such amounts upon performance<br />
of the terms of the contract. The agent may<br />
not deduct these payments made during the period<br />
of the contract. However, any amounts appropriated<br />
from the security deposit are includible in<br />
the principal’s gross <strong>income</strong> and may be deducted<br />
by the agent, in the year in which such amounts are<br />
appropriated to cover such default. §1.61–1. (Sec.<br />
61, ’86 Code.)<br />
Rev. Rul. 67-47, 1967-1 C.B. 9.<br />
278.179 Seed sold under contract of sale or<br />
return. An accrual method taxpayer must include<br />
<strong>income</strong> from the sale of seed under a contract of<br />
sale or return when title passes upon delivery of<br />
the seed to a common carrier; seed sold under such<br />
contracts are not includable in inventory.<br />
§§1.446-1, 1.451-1. (Secs. 446, 451; ’86 Code.)<br />
Rev. Rul. 71-451, 1971-2 C.B. 217.<br />
278.180 Settlement payment; stock loss suit.<br />
An accrual method corporation that incurred a loss<br />
on the sale of stock held four months for investment<br />
received payment in a later year under a<br />
court-approved settlement of a law suit it filed<br />
alleging its loss resulted from the issuer’s violations<br />
of federal securities laws. The payment is<br />
short-term capital gain in the taxable year in which<br />
the court approved the settlement. §§1.451–1,<br />
1.1221-1, 1.1222-1. (Secs. 64, 451, 1221, 1222;<br />
’86 Code.)<br />
Rev. Rul. 79–278, 1979–2 C.B. 302.<br />
278.181 State sales and use taxes refund given<br />
State. State sales and use taxes previously<br />
deducted, which have been determined to be erroneously<br />
collected and subject to refund but which<br />
the taxpayer chooses to treat as a gift to the State,<br />
are includible in gross <strong>income</strong> in the year all events<br />
occurred that fixed his right to a refund; however,<br />
a charitable deduction is allowable for the taxable<br />
year during which the State is affirmatively notified<br />
of the gift; where no such action has been<br />
taken and the statute of limitations within which to<br />
file a claim for refund with the State has expired,<br />
no deduction is allowable. Distinguished by Rev.<br />
Rul. 73–385. §§1.61–1, 1.170–1, 1.451–1. (Secs.<br />
61, 170, 451; ’86 Code.)<br />
Rev. Rul. 70-419, 1970-2 C.B. 5.<br />
278.182 State sales and use taxes refunded to<br />
State bank. Sales and use taxes for which accrual<br />
method Virginia banks filed claims for refund that<br />
the State refused to process until 1970, although a<br />
1968 decision of the Supreme Court of the United<br />
States held national banks exempt from sales and<br />
use taxes, are includible in gross <strong>income</strong> in 1970,<br />
the year the State took affirmative action. Rev.<br />
Rul. 70-419 distinguished. §§1.111-1, 1.451-1.<br />
(Secs. 111, 451; ’86 Code.)<br />
Rev. Rul. 73-385, 1973-2 C.B. 151.<br />
278.183 Stock appreciation rights. A corporation<br />
grants stock appreciation rights to its key<br />
employees that entitle them to a cash payment for<br />
each right exercised equal to the excess of the fair<br />
market value of a share of the corporation’s common<br />
stock on the date of exercise over the fair market<br />
value of a share on the date the right is granted.<br />
The rights cannot be exercised before one year,<br />
and if they are not exercised within five years, they<br />
are deemed exercised on the fifth anniversary of<br />
the grant. At that time, the employee will be paid<br />
the amount of the appreciation. Payments received<br />
for the stock appreciation rights are includible in<br />
gross <strong>income</strong> in the year the rights are exercised.<br />
Amplified by Rev. Rul. 82-121. §§1.61-2,<br />
1.451–2. (Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 80-300, 1980-2 C.B. 165.<br />
278.184 Stock appreciation rights. The surrender<br />
of the related option upon exercise of a<br />
stock appreciation right (SAR), where the amount<br />
receivable upon the exercise of the SAR is limited<br />
to the price per share at which the related option<br />
could have been exercised on the exercise date, is<br />
the loss of a valuable right and, therefore, is a substantial<br />
limitation that precludes constructive<br />
receipt of <strong>income</strong> by virtue of the appreciation of<br />
the employer’s stock. Rev. Rul. 80–300 amplified.<br />
§§1.61-2, 1.451-2. (Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 82-121, 1982–1 C.B. 79.<br />
278.185 Stock bequest as compensation;<br />
constructive receipt; New York. Stock received<br />
by bequest in 1966 as compensation for past services<br />
rendered a New York decedent who died in<br />
1965 was constructively received in 1965. (Sec.<br />
451, ’86 Code.)<br />
Victor R. Welder, 58 T.C. 974, Nonacq., 1978-2<br />
C.B. 4.<br />
278.186 Stock sold; proceeds withheld from<br />
seller; constructive receipt. The taxpayer sold<br />
stock in a corporation in 1953 but agreed to permit<br />
the buyer to withhold the sales proceeds pending<br />
the outcome of suits filed against the taxpayer by<br />
third parties questioning her title to the stock.<br />
Held, the taxpayer did not constructively receive<br />
the stock sale proceeds in 1953. (Sec. 42, ’39<br />
Code; Sec. 451, ’86 Code.)<br />
Margaret L. Carpenter, 34 T.C. 408, Acq.,<br />
1960-2 C.B. 4.<br />
278.187 Stock transferred to employee; risk<br />
of forfeiture. A corporation transferred common<br />
stock to an employee subject to a substantial risk<br />
of forfeiture. The fair market value of the stock at<br />
the time the risk lapses is includable in the<br />
employee’s gross <strong>income</strong> for that year. §1.83–1.<br />
(Secs. 83, 3121, 3306, 3401; ’86 Code.)<br />
Rev. Rul. 79-305, 1979-2 C.B. 350.<br />
278.188 Supplemental unemployment benetits.<br />
Benefits paid to former employees of a company<br />
from a particular trust pursuant to a supplemental<br />
unemployment benefit plan established as<br />
a result of a collective bargaining agreement are<br />
includible in gross <strong>income</strong> in the year received.<br />
However, the benefits paid do not constitute
wages for employment tax purposes (Rev. Rul.<br />
56-249). Amplified to provide similar treatment<br />
where plans are initially instituted by the employer<br />
(Rev. Rul. 58-128), and where benefit payments<br />
are made by an employer direct to certain qualifying<br />
former employees under such a plan which<br />
does not involve the use of a trust (Rev. Rul.<br />
60-330). §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 56-249, 1956-1 C.B. 90; Rev. Rul.<br />
58-128, 1958-1 C.B. 89; Rev. Rul. 60-330,<br />
1960-2 C.B. 46.<br />
278.189 Supplemental unemployment benefits.<br />
Benefits paid to former employees of a company<br />
from a trust fund, established pursuant to a<br />
supplemental unemployment compensation benefits<br />
plan, are includable in the recipients’ gross<br />
<strong>income</strong> in the year received and are subject to<br />
<strong>income</strong> tax withholding. Rev. Ruls. 56-249 and<br />
58–128 amplified and modified. §§1.61-1. (Secs.<br />
61, 3121, 3306, 3402; ’86 Code.)<br />
Rev. Rul. 77-347, 1977–2 C.B. 362.<br />
278.190 Trademark license and purchase<br />
option. Taxpayer received payment from a corporation<br />
in consideration for an extension of a trademark<br />
license agreement. The payment was also<br />
intended to be applied against the purchase price<br />
of the trademark if the corporation exercised its<br />
option to purchase it. Held, the payment is not<br />
includable in taxpayer’s gross <strong>income</strong> until the<br />
option to purchase either is exercised or lapses.<br />
(Secs. 61, 451, 1234; ’86 Code.)<br />
Dill Co., 33 T.C. 196, Nonacq., 1961-1 C.B. 4.<br />
278.191 Trading stamps; redemption; estimated<br />
volume. Guidelines are set forth relating to<br />
acceptable methods of estimating the volume of<br />
trading stamps to be redeemed at the end of any<br />
taxable year. The guidelines are to be used in conjunction<br />
with reg. 1.451-4 by trading stamp companies<br />
and those companies issuing stamps or coupons<br />
with sales of merchandise. §1.451-4. (Sec.<br />
601.105, S.P.R.; Sec. 451, ’86 Code.)<br />
Rev. Proc. 72-36, 1972-2 C.B. 771.<br />
278.192 Treasure-trove. The finder of a treasure-trove<br />
is in receipt of taxable <strong>income</strong> to the<br />
extent of its value in U.S. currency, for the taxable<br />
year in which it is reduced to undisputed possession.<br />
§29.22(a)-1. (Sec. 22(a), ’39 Code; Sec. 61,<br />
’86 Code.)<br />
Rev. Rul. 61, 1953–1 C.B. 17.<br />
278.193 Trust; termination of employment;<br />
consulting services. A labor association placed<br />
$50,000 into an irrevocable trust for a cash basis<br />
former officer as a condition of his resignation<br />
which was to be distributed over five years in<br />
equal annual installments to him or his survivors<br />
under conditions that he would serve as a consultant<br />
to the association and would not perform similar<br />
services in competition with the association.<br />
Held, the former officer’s rights to, or interest in,<br />
the trust was conditional or forfeitable, rendering<br />
section 402 of the Code inapplicable, and the<br />
<strong>income</strong> was taxable when received and not when<br />
placed in trust. (Sec. 61, ’86 Code.)<br />
James Max Harrison, 62 T.C. 524, Acq., 1974-2<br />
C.B. 2.<br />
278.194 Trust <strong>income</strong> due beneficiary in year<br />
of death. Where all trust <strong>income</strong> is required to be<br />
distributed currently to a beneficiary (now<br />
deceased), who reported his <strong>income</strong> under the<br />
accrual method, such <strong>income</strong> earned by the trust to<br />
the date of the beneficiary’s death is includable in<br />
the final return of the deceased beneficiary.<br />
§§1.451-1, 1.652(a)-1. (Secs. 451, 652; ’86<br />
Code.)<br />
Rev. Rul. 59–346, 1959–2 C.B. 165.<br />
278.195 Tuition; promissory notes. An accrual<br />
method correspondence school receives federally<br />
guaranteed nonnegotiable promissory notes from<br />
students enrolled in courses to be completed over<br />
36 months. The amount of the note is conditioned<br />
on the number of lessons completed and no payment<br />
is due until nine months after graduation or<br />
a student ceases to carry at least half of a normal<br />
full-time academic workload. The school transfers<br />
the notes to banks or other financial institutions<br />
under repurchase agreements that entitle the<br />
banks to interest on the notes during the period<br />
they are held. The arrangement between the<br />
school and banks is a loan with the notes as collateral<br />
security. The tuition <strong>income</strong> is realized by the<br />
school as each lesson is completed by a student.<br />
§1.451-1. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 79-195, 1979-1 C.B. 177.<br />
278.196 Unauthorized expenditures over<br />
subcontract sum. The accrual method taxpayer’s<br />
expenditures under a cost-plus-fixed-fee subcontract<br />
were limited unless specifically authorized<br />
by the prime contractor who was not obligated to<br />
reimburse unauthorized amounts but could ratify<br />
and pay them. Held, taxpayer had no fixed or<br />
unconditional right to reimbursement of excess<br />
expenditures until their ratification, and they were<br />
not includible in <strong>income</strong>. (Sec. 42(a), ’39 Code;<br />
Sec. 451, ’86 Code.)<br />
Marquardt Corp., 39 T.C. 443, Acq., 1965-2<br />
C.B. 6.<br />
278.197 Unclaimed mutual insurance company<br />
premium refunds. After unsuccessful<br />
attempts to locate policy holders, the accrual basis<br />
agent for mutual insurance companies who<br />
received premium refunds for transmission to<br />
policy holders credited the unclaimed premium<br />
refunds at least annually to a “dividends stored”<br />
account. That liability account balance was later<br />
transferred to a surplus account. Held, <strong>income</strong> was<br />
realized upon the annual transfers to the liability<br />
account, not upon the transfer of the dividends<br />
stored account to surplus. (Sec. 61, 63; ’86 Code.)<br />
Policy Holders Agency, Inc., 41 T.C. 44, Acq.,<br />
1964-2 C.B. 7.<br />
278.198 Unemployment benefits. The amount<br />
equivalent to unemployment benefits paid to a taxpayer<br />
by the Railroad Retirement Board in prior<br />
years which is deducted from the total compensation<br />
found to be due the taxpayer upon the settlement<br />
of his claim for additional salary for such<br />
prior years is includible in the taxpayer’s gross<br />
<strong>income</strong> in the taxable year the proceeds of the<br />
claim are received. (Secs. 61, 451; ’86 Code.)<br />
Rev. Rul. 56-631, 1956-2 C.B. 25.<br />
278.199 U.S. savings bonds; transferred to<br />
reversionary trust. A valid short-term reversionary<br />
trust was created to which the grantor transferred<br />
a Series H bond, on which the interest from<br />
exchanged Series E bonds had been deferred.<br />
Since the trust instrument provided that the<br />
accrued bond interest was to be allocated to corpus,<br />
the transfer did not result in such a disposition<br />
of the bond as to require the owner to include in his<br />
gross <strong>income</strong> in the year of transfer the interest on<br />
the bonds not previously returned as <strong>income</strong>.<br />
§§1.671-3, 1.677(a)-1. (Secs. 671, 677; ’86<br />
Code.)<br />
Rev. Rul. 64-302, 1964-2 C.B. 170.<br />
278.200 Warehouse receipts for crop shares;<br />
transferred as gift. An individual who transfers,<br />
by gift, warehouse receipts evidencing crop shares<br />
received as rent for the use of his farm land, must<br />
include in his gross <strong>income</strong> the amounts received<br />
by the donees for the crop shares in the taxable<br />
years in which they reduce such crop shares to<br />
money or the equivalent of money. Rev. Rul.<br />
55-531 distinguished. Modified by Rev. Rul.<br />
75-11. §§1.61-4, 1.451-1. (Secs. 61, 451; ’86<br />
Code.)<br />
Rev. Rul. 63-66, 1963-1 C.B. 13.<br />
<strong>Gross</strong> Income<br />
278.201 Welfare payments; fraudulently<br />
received. Welfare payments fraudulently received<br />
under state and Federal assistance programs are<br />
includible in the recipient’s gross <strong>income</strong> in the<br />
year received. §1.61-1. (Sec. 61, ’86 Code.)<br />
Rev. Rul. 78–53, 1978-1 C.B. 22.<br />
278.202 Wheat sold; payment deferred; cashmethod<br />
farmer. The proceeds from the sale of<br />
wheat by a cash method farmer under a contract<br />
calling for payment in the taxable year following<br />
that in which the wheat was delivered to the purchaser<br />
are includable in his gross <strong>income</strong> for the<br />
taxable year in which payment is received. Distinguished<br />
by Rev. Rul. 70–294 with respect to cattle<br />
consigned to auction. §1.451-2. (Sec. 451, ’86<br />
Code.)<br />
Rev. Rul. 58-162, 1958–1 C.B. 234.<br />
278.203 Year end; check drawn in December;<br />
mailed in January. A cash-basis, calendar year<br />
taxpayer must include in his gross <strong>income</strong> for<br />
1967 the amount of a retirement check drawn in<br />
December 1967, but placed in the mail and delivered<br />
to him in January 1968, where the check was<br />
made available to him on the last working day of<br />
December. §1.451-2. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 68-126, 1968–1 C.B. 194.<br />
278.204 Year end; severance pay mailed in<br />
December; received in January. Severance pay<br />
sent by certified mail that could not be delivered<br />
when attempted on December 31, 1974, as the<br />
payee was not home to sign the requested return<br />
receipt, was constructively received and includible<br />
in the calendar-year payee’s 1974 gross<br />
<strong>income</strong>. §1.451–2. (Sec. 451, ’86 Code.)<br />
Rev. Rul. 76-3, 1976-1 C.B. 114.