Index Digests Decedents (See: Income in respect of decedents) Deductions (See also specific subject headings) General 134.50 Nonprofit activity; house rented to relative. A taxpayer who rents a house to his brother for less than the fair market value and less than his total expenses attributable to the house may not deduct, under sections 162 and 212 of the Code, the interest, taxes, operating expenses, and depreciation but he may deduct the expenses to the extent allowed under section 1.183-1(b)(1) of the regulations provided he itemizes his deductions. §1.62-1, 1.162-12, 1.183-1, 1.212-1. (Secs. 62, 162, 183, 212; '54 Code.) Rev. Rul. 75-14, 1975-2 I.R.B. 7. When taken 136.10 Accrual of expenses after incomereporting change. An accrual-method taxpayer that made an approved change in reporting income from COD sales, representing 90 percent of its total sales, from the year of shipment to the year in which payment is received has not changed to a cash method of accounting and must continue deducting its expenses under the accrual method of accounting. §1.446-1. (Sec. 446, '54 Code.) Rev. Rul. 75-96, 1975-12 I.R.B. 12. 136.50 Interest; loan discount; cash or accrual methods. A loan discount that is the agreed charge for the use of borrowed money is interest deductible under the cash method of accounting when it is actually paid and under the accrual method of accounting when it accrues. I.T. 3298 superseded. §§1.163-1, 1.461-1. (Secs. 163, 461; '54 Code.) Rev. Rul. 75-12, 1975-2 I.R.B. 6. Deferred compensation (See: Employees' plans) Deficiencies 142.40 Interest rate computation. Examples are provided for the computation of the 9 percent interest rate on under payments and overpayments of tax, effective on July 1, 1975, under the provisions of section 6621 of the Code as added by Pub. L. 93-625. §§301.6332-1, 301.6601-1, 301.6602-1, 301.6611-1, 301.7426-1. (Secs. 6332, 6601, 6602, 6611, 6621, 7426; '54 Code.) Rev. Rul. 75-58, 1975-8 I.R.B. 24. Delegation of authority (See: Administration) Depletion 146.80 Gross income from property; compression of natural gas prior to sale. Gross income from property does not include that portion of the selling price of natural gas attributable to the taxpayer's process of compressing the gas, to meet purchaser's specifications, prior to its delivery to the purchaser's pipeline. §§1.611-1, 1.6133. (Secs. 611, 613; '54 Code.) Rev. Rul. 75-6, 1975-1 I.R.B. 15. 146.150 Timber; long-term contract. The fair market value of the timber existing at the time of the execution of a longterm timber purchase contract constitutes the basis for depletion of the timber and payments in excess of the fair market value are consideration for the use of the land deductible as a business expense. §§1.162-1, 1.612-1. (Secs. 162, 612; '54 Code.) Rev. Rul. 75-59, 1975-8 I.R.B. 19. Depreciation 148.50 Guidelines; asset depreciation range system; options. A description is given of the options available to a taxpayer in the application of Rev. Procs. 72-10, 74-27, and 74-30 under the provisions of section 1.167(a)-11 of the regulations concerning the class life asset depreciation range system for assets placed in service during 1974. The options for the manufacture of ferrous primary metals, industrial steam and electric generation and distribution systems, and the manufacture of ferrous primary metals-special tools, are illustrated. §1.167(a)-11. (Sec. 167, '54 Code.) Rev. Rul. 75-92, 1975-12 I.R.B. 9. 148.80 Mining; underground pumping facilities. Disability benefits 13 allowance for depreciation as improvements to the property and neither the expenditures nor the depreciation on the facilities is deductible under section 616 of the Code. §§1.167(a)-1, 1.616-1. (Secs. 167, 616; '54 Code.) Rev. Rul. 75-60, 1975-8 I.R.B. 19. 148.120 Returnable cable reels. Returnable reels used by a manufacturer to ship cable to a customer, who pays a deposit refundable within one year for the reels, are depreciable property used in the taxpayer's trade or business within the meaning of section 1231(b) of the Code and gain or loss recognized as a result of retaining the forfeited deposits is treated in accordance with the provisions of section 1231(a), subject to recapture under section 1245. Rev. Rul. 58-77 revoked. §§1.1231-1, 1.1245-1. (Secs. 1231, 1245; '54 Code.) Rev. Rul. 75-34, 1975-5 I.R.B. 14. 148.170 Used real property; buildings; structural components. In applying the provisions of Rev. Rul. 73410 to used buildings acquired after July 24, 1969, a taxpayer must use one of the applicable methods of depreciation prescribed by section 167(j)(4) or (5) of the Code for the various structural components of the building. Rev. Rul. 73-410 clarified. §§1.48-1, 1.167(a)-7, 1.1245-3, 1.1250-1. (Secs. 48, 167, 1245, 1250; '54 Code.) Rev. Rul. 75-55, 1975-8 I.R.B. 5. Development expenditures (See: Exploration and development) Disability benefits 150.40 Damages; aircraft liability insurance policy. An amount received by the estate of an employee killed while a passenger in his employer's airplane, under the employer's aircraft liability insurance policy that provided specified payments for injury or death while a passenger of the plane and upon execution of a full release from all claims for damage against the employer, is excludable from the gross income of the estate. Rev. Rul. 58-578 superseded. §1.104-1. (Sec. 104, '54 Code.) Rev. Rul. 75-45, 1975-7 I.R.B. 8. 14 Dividends: Paid Dividends Paid 158.30 Domestic parent of Namibian subsidiary; foreign tax credit. The dividend paid by a wholly owned South West African (Namibian) subsidiary to its domestic parent out of accumulated profits of taxable years 1973 and 1974 is not a dividend received from a less developed country corporation for purposes of computing the parent's foreign tax credit. §§1.902-3, 1.955-4. (Secs. 902, 955; '54 Code.) Rev. Rul. 75-53, 1975-7 I.R.B. 13. 158.100 Taxable status. Instructions and guidelines are set forth relating to the determination of the taxable status of corporate distributions and the supporting information to be furnished to the Service. Rev. Procs. 65-10 and 67-12 superseded. §§1.301-1, 1.316-1, 1.333-1, 1.6042-2. (Sec. 601.602, S.P.R.; Secs. 301, 316, 333, 6042; '54 Code.) Rev. Proc. 75-17, 1975-13 I.R.B. 20. Domestic international sales corporations (DISC) 166.50 Qualified export assets; election. Procedures are set forth to be followed in making an election, for taxable years beginning after 1971, and before 1974, under section 3(b) of Pub. L. 93-482 which allows a parent corporation to set up a selling DISC and a financing DISC which purchases the accounts receivable of the selling DISC and holds such accounts receivable as qualified export assets; an election pursuant to this procedure must be filed on or before January 24, 1975. (Sec. 601.602, S.P.R.; Sec. 993, '54 Code.) Rev. Proc. 75-2, 1975-3 I.R.B. 42. 166.75 Qualified export receipts; foreign engineering services performed by nonresident aliens. Performance of engineering services in a foreign country by a domestic corporation's nonresident alien employees will not preclude the amount of the corporation's gross receipts from qualifying as qualified export receipts of its DISC acting as commission agent. (Sec. 993, '54 Code.) Rev. Rul. 75-69, 1975-9 I.R.B. 8. Earned income (See: Income source) Earnings (See: Self-employment tax) Earnings and profits 168.80 Taxable status of distributions. Instructions and guidelines are set forth relating to the determination of the taxable status of corporate distributions and the supporting information to be furnished to the Service. Rev. Procs. 65-10 and 67-12 superseded. §§1.301-1, 1.316-1, 1.333-1, 1.6042-2. (Sec. 601.602, S.P.R.; Secs. 301, 316, 333, 6042; '54 Code.) Rev. Proc. 75-17, 1975-13 I.R.B. 20. Elections 172.40 Carrying charges, etc.; capitalized; change of accounting method. A manufacturing corporation that for ten years capitalized taxes and carrying charges incurred on machinery used in its business without having properly elected to do so adopted a method of accounting with respect to such expenses and is precluded from amending its returns for open years and deducting the expenses for such years. Rev. Rul. 70-539 distinguished. §§1.266-1, 1.446-1. (Secs. 266, 446; '54 Code.) Rev. Rul. 75-56, 1975-8 I.R.B. 5. 172.50 Change to LIFO inventory method; financial disclosure. A LIFO election, reelection, or extension to all or a greater portion of the inventories will not be terminated solely because a taxpayer is subject to and complies with financial disclosure requirements of the Financial Accounting Standards Board and the Securities and Exchange Commission which require that footnotes or commentary on annual reports and financial statements disclose the effect of the change in method on income provided such disclosure is made solely for the taxable year of the change. Rev. Proc. 73-37 amplified. §§1.472-1, 1.4722. (Sec. 601.204, S.P.R.; Sec. 472, '54 Code.) Rev. Proc. 75-10, 1975-7 I.R.B. 16. 172.70 Crop disaster payments received by a cash-method farmer from the Department of Agriculture under the Agricultural Act of 1949, as amended, because of crop damage from natural disasters in the same taxable year do not qualify for the treatment provided by section 451(d) of the Code and must be included in gross income for the year received. §1.451-6. (Sec. 451, '54 Code.) Rev. Rul. 75-36, 1975-6 I.R.B. 7. 172.90 Index Digests Life insurance companies; reserves; revaluation. A life insurance company that computes its reserves using a recognized preliminary term basis for its decreasing term life insurance contracts and elects to revalue its reserves under the approximate revaluation method may not revalue that portion of the reserve added to meet State minimum reserve requirements. §1.818-4. (Sec. 818, '54 Code.) Rev. Rul. 75-51, 1975-7 I.R.B. 11. Employees' plans 176.80 Coverage; professional corporation using services of physician's former employees. Individuals who performed services for a physician who incorporated his practice as a professional corporation and at the same time formed a service corporation which hired the individuals to continue performing the same services for the professional corporation are employees of the professional corporation for purposes of determining whether a deferred compensation plan established by the professional corporation meets the coverage requirements of section 401(a)(3) of the Code. §1.401-2. (Sec. 401, '54 Code.) Rev. Rul. 75-35, 1975-6 I.R.B. 8. 176.150 Individual retirement plans; rulings and determination letters. Procedures are set forth for the issuance of rulings, determination letters, and opinion letters relating to the establishment of individual retirement accounts and annuities under section 408 of the Code, exemption of a related trust or custodial account under section 408(e), and to the purchase of retirement bonds under section 409. Rev. Proc. 72-3 amplified. (Sec. 601.201, S.P.R.; Secs. 408, 409, '54 Code.) Rev. Proc. 75-6, 1975-5 I.R.B. 26. 176.350 A partnership's pension plan, which excluded the partners from coverage, was adopted by a successor corporation. As amended on adoption, the plan required one year of completed service to participate and permitted credit for service for the partnership thereby granting two of the former partners, who became officers and shareholders, coverage under the corporate plan from its inception. Held, permitting former partners to acquire eligibility to participate based on past service with the partnership does not disqualify the plan. (Sec. 401, '54 Code.) Farley Funeral Home, Inc., 62 T.C. 150, Acq. in result, 1975-4 I.R.B. 5. Index Digests 176.400 Qualification; rulings and determination letters; individually designed. Procedures are set forth for the issuance of determination letters relating to the qualification of certain defined contribution individually designed pension, annuity, profit-sharing, bond purchase, and stock bonus plans under sections 401 and 405 of the Code. Rev. Procs. 72-6 amplified and 7438 modified. §§1.401-1, 1.405-1. (Sec. 601.201, S.P.R.; Secs. 401, 405, '54 Code.) Rev. Proc. 75-5, 1975-5 I.R.B. 25. Estates and trusts 180.30 Beneficiary's mortgage held by trust; interest deemed paid and distributed. Income of a testamentary trust required to be distributed periodically, and consisting solely of interest from mortgages on the beneficiary's property must be included in the gross income of both the trust and the beneficiary, and the beneficiary may deduct the interest, even though by agreement it is neither paid nor distributed. O.D. 606 superseded. §§1.61-1, 1.163-1, 1.662(c)-4. (Secs. 61, 163, 662; '54 Code.) Rev. Rul. 75-68, 1975-9 I.R.B. 7. 180.100 Property title in beneficiaries; fiduciary return. A Fiduciary Income Tax Return must be filed by an executor with respect to the income from realty subject to administration prior to its transfer to the decedent's widow in satisfaction of her dower interest and by a trustee under a power in trust created by the will with respect to income he received from realty to which the beneficiaries held legal title. S.M. 4945 and Rev. Rul. 59-154 superseded. §§1.641(a)-2, 301.7701-4. (Secs. 641, 7701; '54 Code.) Rev. Rul. 75-61, 1975-8 I.R.B. 20. 180.150 Settlement under aircraft liability insurance policy. An amount received by the estate of an employee killed while a passenger in his employer's airplane, under the employer's aircraft liability insurance policy that provided specified payments for injury or death while a passenger of the plane and upon execution of a full release from all claims for damage against the employer, is excludable from the gross income of the estate. Rev. Rul. 58-578 superseded. §1.104-1. (Sec. 104, '54 Code.) Rev. Rul. 75-45, 1975-7 I.R.B. 8. Exchanges of property (See: Capital gains and losses; Reorganizations; Sales or exchanges) Exempt organizations General 188.50 Rulings; public interest law firms. Exempt organizations: Qualification 15 Procedures are described under which exempt public interest law firms may accept fees for their services. Rev. Proc. 71-39 amplified. §1.501(c)(3)-1. (Sec. 601.201, S.P.R.; Sec. 501, '54 Code.) Rev. Proc. 75-13, 1975-10 I.R.B. 46. Private foundations 192.30 Governing instruments; State laws enacted. States that have adopted legislation satisfying the requirements of section 508(e) of the Code, relating to private foundation governing instruments; are listed. Rev. Rul. 73286 superseded. §1.508-3. (Sec. 508, '54 Code.) Rev. Rul. 75-38, 1975-6 I.R.B. 7. 192.80 A grant authorized by an exempt private foundation to an exempt hospital for modernization, replacement, and expansion does not constitute an act of self-dealing even though two individuals serve as trustees of both organizations. §53.4941(d)-1. (Sec. 4941, '54 Code.) Rev. Rul. 75-42, 1975-6 I.R.B. 23. 192.100 Self-dealing; excess business holdings. In the proposed sale to a disqualified person of a private foundation's 15 percent interest in a corporation, in which the foundation and all disqualified persons with respect to the foundation have combined holdings of 45 percent of the voting stock as of May 26, 1969, the disqualified person would be subject to the tax on self-dealing imposed by section 4941 of the Code; in a similar situation in which the total combined holdings of the foundation and disqualified persons are 55 percent, the foundation has excess business holdings under section 4943(c)(4), and section 101(1)(2)(B) of the Tax Reform Act of 1969 would apply to except the proposed sale from the provisions of section 4941. §53.4941(d)-4. (Sec. 4941, '54 Code.) Rev. Rul. 75-25, 1975-3 I.R.B. 38. Qualification 196.50 Cooperatives; farmers; ingredient purchases from nonproducers. The purchase of cream from nonproducers by a dairy farmers' cooperative market ing association, that markets ice cream produced from the excess cream resulting from the processing of its members' raw milk, is not an ingredient purchase but is a product and will adversely affect the association's exempt status. §1.521-1. (Sec. 521, '54 Code.) Rev. Rul. 75-4, 1975-1 I.R.B. 13. 196.80 Cooperatives; farmers; marketing and purchasing association; vote by proxy. The exempt status of a farmers' cooperative will not be jeopardized if it permits proxy voting by shareholders. §1.521-1. (Sec. 521, '54 Code.) Rev. Rul. 75-97, 1975-12 I.R.B. 13. 196.90 Cooperatives; farmers; marketing range grasses. A nonprofit agricultural cooperative formed to produce and market range grasses, on land owned or leased by its members, by grazing its own herd of breeder cattle and by grazing the cattle of others during the peak growing season qualifies for exemption as a farmers', fruit growers', or like association. §1.521-1. (Sec. 521, '54 Code.) Rev. Rul. 75-5, 1975-1 I.R.B. 14. 196.110 Cooperatives; farmers; milk quality bonus program. A milk quality bonus program, adopted by a dairy farmers' cooperative association marketing milk only for its members, that is financed under contracts with milk handlers who in addition to the base price pay a premium that is shared by all the member-producers on the basis of points awarded according to each member's milk quality is a permissible method of allocating income and does not adversely affect the association's exempt status. §1.521-1. (Sec. 521, '54 Code.) Rev. Rul. 75-110, 1975-13 I.R.B. 15. 196.250 Public interest law firm. A public interest law firm that provides representation in cases it selects as having significant public interest and for which representation by traditional private law firms is not economically feasible is operated exclusively for charitable purposes and qualifies for exemption. §1.501(c)(3)-1. (Sec. 501, '54 Code.) Rev. Rul. 75-74, 1975-10 I.R.B. 7. 196.260 Public interest law firm; fees awarded by court or administrative agency. An exempt public interest law firm's policy of accepting only fees awarded or approved by a court or an administrative agency and paid by an opposing party will Public interest law firm; fees from clients. A nonprofit public interest law firm that has an established policy of charging or accepting fees from its clients does not qualify for exemption. §1.501(c)(3)-1. (Sec. 501, '54 Code.) Rev. Rul. 75-75, 1975-10 I.R.B. 8. Exploration and development 202.80 Mining; underground pumping facilities. Expenditures incurred at a producing mine to excavate for and install underground pumping facilities are subject to the allowance for depreciation as improvements to the property and neither the expenditures nor the depreciation on the facilities is deductible under section 616 of the Code. §§1.167(a)-1, 1.616-1. (Secs. 167, 616; '54 Code.) Rev. Rul. 75-60, 1975-8 I.R.B. 19. Farmers (See: Farmers and farming) Farmers and farming 206.40 Commodity Credit Corporation loans; cotton. The amount of an unpaid loan from the Commodity Credit Corporation to a cotton producer, who has not elected under section 77 of the Code to treat the loan as income in the taxable year received, is includible in his gross income in the year in which his liability on the loan is discharged by transferring to the Corporation his ownership of the cotton pledged as security. Any additional amount realized by the producer from the Corporation's sale of the cotton for more than the amount owed is includible in his income in the taxable year received if he used the cash method or the year his right to the amount becomes fixed if he uses the accrual method. I.T. 4016 superseded. 81.451-1. (Sec. 451, '54 Code.) Rev. Rul. 75-57, 1975-8 I.R.B. 18. 206.60 Crop insurance proceeds; election. Crop disaster payments received by a cash-method farmer from the Department of Agriculture under the Agricultural Act of 1949, as amended, because of crop damage Fellowships from natural disasters in the same taxable Rev. Rul. 75-36, 1975-6 I.R.B. 7. 206.70 Crop shares; contributed to charity or used as feed. The fair market value of crop shares received as rent by a farmer-landlord, which are contributed to a charitable organization or are used as feed in the farming operation, must be included in the farmer-landlord's gross income at the time of such contribution or use. The taxpayer is considered to have made a charitable contribution or becomes entitled to a business expense deduction at the same time and in the same amount as the income recognized. Taxpayer may be entitled to use the optional method of determining net earnings from self-employment under section 1402(a) and the retirement income credit under section 37. Rev. Ruls. 56-496 and 63-66 modified. §§1.61-4, 1.162-12, 1.170A-1, 301.7805-1. (Secs. 61, 162, 170, 7805; '54 Code.) Rev. Rul. 75-11, 1975-2 I.R.B. 5. 206.120 Inventories; poultry raised for egg production. An accrual method corporation that purchases and raises chicks for commercial sale of their eggs, selling the hens to meat processing plants only after they no longer produce eggs in marketable quantities, may inventory its flocks under the farm-price method; however, a change to that method is a change in accounting method. §§1.61-4, 1.162-12, 1.471-6, 1.1231-2. (Secs. 61, 162, 471, 1231; '54 Code.) Rev. Rul. 75-37, 1975-6 I.R.B. 6; W.P. Garth, 56 T.C. 610, Acq., 1975-6 I.R.B. 5. 206.180 Partnership classification; cattle owner; feed lot; fattening agreement. A corporate feed lot operator and an individual cattle owner enter into a 5-year service agreement under which the cattle owner makes a cash commitment, supplies cattle for fattening, purchases feed from the feed lot operator, and independently markets the cattle. The feed lot operator furnished insurance, labor, accommodations, equipment for the separate care and feeding of the cattle, and guarantees the owner a return of a certain percentage of his cash commitment. The feed lot operator received a percentage of the owner's net profit in exchange for his services. The arrangement will not be classified as a partnership. §301.7701-3. (Sec. 7701, '54 Code.) Rev. Rul. 75-43, 1975-6 I.R.B. 24. Index Digests (See: Scholarships and fellowships) Fiduciaries 208.50 Returns; property title in beneficiaries. A Fiduciary Income Tax Return must be filed by an executor with respect to the income from realty subject to administration prior to its transfer to the decedent's widow in satisfaction of her dower interest and by a trustee under a power in trust created by the will with respect to income he received from realty to which the beneficiaries held legal title. S.M. 4945 and Rev. Rul. 59-154 superseded. §§1.641(a)-2, 301.7701-4. (Secs. 641, 7701; '54 Code.) Rev. Rul. 75-61, 1975-8 I.R.B. 20. Foreign corporations (See: Controlled foreign corporations; Withholding) Foreign countries (See: Foreign tax credit) Foreign exchange and currency 216.30 Conversion into U.S. dollars; branch assets and liabilities. A domestic corporation may compute the income or loss from its foreign branch operation by using the "net worth" or "balance sheet" method, recording noncurrent assets and liabilities at the rate of exchange in effect when acquired or incurred and appraising the current assets and liabilities at the currency exchange rate at the end of the taxable year. O.D. 489 superseded. §§1.4461, 1.481-1. (Secs. 63, 446, 481; '54 Code.) Rev. Rul. 75-106, 1975-13 I.R.B. 8. 216.40 The dollar conversion of net profits reported at the end of the taxable year in terms of foreign currency by a foreign branch of a domestic corporation using an accrual method of accounting may be computed by using the rate of exchange in effect on the date of any remittances made by the branch during the year and the rate of exchange at the close of the taxable year for any unremitted net profits. O.D. 550 superseded. §1.446-1. (Secs. 63, 446; '54 Code.) Rev. Rul. 75-107, 1975-13 I.R.B. 9. Index Digests 216.60 Conversion of rental profits into U.S. A U.S. calendar year individual whose Rev. Rul. 75-90, 1975-12 I.R.B. 8. 216.80 Dealer in foreign exchange; inventories. A dealer in foreign exchange who regu- Rev. Rul. 75-104, 1975-13 I.R.B. 6. 216.110 Gain or loss; bank's foreign branch; Funds required to be furnished by a do- 216.170 Losses; subsidiary's current accounts An accrual method domestic corporation Rev. Rul. 75-108, 1975-13 I.R.B. 13. Foreign personal holding 222.30 Controlled corporation; earnings in Two U.S. taxpayers were sole sharehold- Leonard E. Whitlock, 59 T.C. 490, come or loss under the "net worth" or "bal- Foreign tax credit ance sheet" method and any gain or loss due 216.150 Losses; advance to foreign agent and A calendar-year accrual-method domestic Rev. Rul. 75-109, 1975-13 I.R.B. 14. 224.40 Domestic parent; dividend paid by The dividend paid by a wholly owned Rev. Rul. 75-53, 1975-7 I.R.B. 13. 224.60 Domestic parent with foreign A domestic corporation can make a chain Fraud 17 foreign corporation has subpart F income Forms (See also: Returns) 228.40 Magnetic tape; Forms 1041 and 941; Requirements and conditions are set forth Rev. Proc. 75-12, 1975-8 I.R.B. 26. 228.80 Reproduction; 1087 and 1099 series. Specifications under which substitutes Rev. Proc. 75-14, 1975-10 I.R.B. 46. 228.100 Reproduction; W-2 and W-2P. Specifications under which substitutes Fraud 232.80 Penalties; joint return; liability of wife. A taxpayer was indicted for willful eva- |