ployer as a means of promoting their good will, does not constitute wages subject to income tax withholding or wages for Federal Insurance Contributions Act or Federal Unemployment Tax Act purposes. In view of the small amounts involved, and since it may reasonably be contended in many cases that such items constitute excludable gifts, it is similarly held that the value of such an item of merchandise need not be treated as taxable income by the employee who receives it. The foregoing rules will not apply to distributions of cash, gift certificates, and similar items of readily convertible cash value, regardless of the amount involved. It is further held that the cost to the employer of turkeys, hams, and other merchandise of similar nominal value which are distributed generally to the employees engaged in his business, primarily for the business purpose of promoting good relations with his employees, is deductible by the employer under section 162 of the Code as an ordinary and necessary business expense. SECTION 162.-TRADE OR BUSINESS EXPENSES 26 CFR 1.162-10. Certain employee benefits Hams and turkeys, or other merchandise of similar nominal value, distributed by an employer to his employees. See Rev. Rul. 59-58, page 7. SECTION 421.-EMPLOYEE STOCK OPTIONS 26 CFR 1.421-4: Modification, extension, or renewal. Rev. Rul. 59-55 Where an optionee of a restricted stock option does not accept an invitation of the corporation to surrender his option in the hope of receiving a new option at a more favorable price, but retains his old option with no change in its terms, there is no modification of his option within the meaning of section 421 (e) of the Internal Revenue Code of 1954. New options issued at the more favorable price will qualify as restricted options provided they comply with the provisions of section 421 of the Code. Advice has been requested whether, under the circumstances below, the issuance of new stock options under a restricted option plan will cause unexercised options previously issued under the plan to be modified within the meaning of section 421 (e) of the Internal Revenue Code of 1954. The shareholders of a corporation in 1954 adopted a stock option plan the terms of which complied with the requirements of section 421 of the Code. In 1957, after an extended period during which the market price of the corporation's stock was below the price stated in the outstanding options, the corporation proposed the issuance of new options under the plan. To make available a sufficient number of shares of stock for this proposed issuance of new options, the corporation invited holders of outstanding, unexercised options to surrender those options to the corporation. The terms of the invitation to surrender were that optionholders who accepted would then, and only then, be considered along with other employees as recipients of new options. It was emphasized in this invitation that optionholders who accepted had no legal right, by virtue of their surrender of old options, to receive new options. Consequently, holders of old options who did not accept the invitation to surrender and thereby be reconsidered, retained their old options the terms of which remained unchanged. Section 421 (e) (2) of the Code, in part, defines the term "modification" to mean any change in the terms of the option which gives an employee additional benefits under the option. This same definition is contained in section 1.421-4 (c) (1) of the Income Tax Regulations. Accordingly, it is held that where an optionee of a restricted stock option does not accept an invitation of the corporation to surrender his option in the hope of receiving a new option at a more favorable price, but retains his old option with no change in its terms, there is no modification of his option for the purpose of section 421 (e) of the Code. New options issued at the more favorable price will qualify as restricted stock options provided that they comply with the provisions of section 421 of the Code. SECTION 901.-TAXES OF FOREIGN COUNTRIES AND OF POSSESSIONS OF UNITED STATES 26 CFR 1.901-1: Allowance of credit for taxes. Effect of a "saving clause" as found in most of the tax conventions. to which the United States is a party. See Rev. Rul. 59-56, page 26. SECTION 904.-LIMITATION ON CREDIT 26 CFR 1.904-1: Limitation on Credit for foreign taxes. [Effect of a "saving clause" as found in most of the tax conventions to which the United States is a party.] See Rev. Rul. 59-56, page 26. SECTION 2513.-GIFTS BY HUSBAND OR WIFE TO THIRD PARTY 26 CFR 25.2513-1: Gifts by husband or wife to third party considered as made Contributions or gifts to a political party or to a candidate running for public office. See Rev. Rul. 59-57, page 22. SECTION 2521.-SPECIFIC EXEMPTION 26 CFR 25.2521-1: Specific exemption. Contributions or gifts to a political party or to a candidate running for public office. See Rev. Rul. 59-57, page 22. 494368-59-2 SECTION 2522.-CHARITABLE AND SIMILAR GIFTS 26 CFR 25.2522 (a)-1: Charitable and similar gifts; citizens or residents. Contribution or gifts to a political party or to a candidate running for public office. See Rev. Rul. 59-57, page 22. SECTION 3121.-DEFINITIONS [FEDERAL INSURANCE CONTRIBUTIONS ACT] 26 CFR 31.3121(a)-1. Wages Hams and turkeys, or other merchandise of similar nominal value, distributed by an employer to his employees. See Rev. Rul. 59-58, page. 7. SECTION 3306.-DEFINITIONS [FEDERAL UNEMPLOYMENT TAX ACT] 26 CFR 31.3306(b)-1. Wages Hams and turkeys, or other merchandise of similar nominal value, distributed by an employer to his employees. See Rev. Rul. 59-58, page. 7. SECTION 3401.-DEFINITIONS [COLLECTION OF INCOME TAX AT SOURCE ON WAGES] 26 CFR 31.3401(a)-1. Wages. Hams and turkeys or other merchandise of similar nominal value, distributed by an employer to his employees. See Rev. Rul. 59-58, page. 7. SECTION 4251.-IMPOSITION OF TAX 26 CFR 42.4251: Statutory provisions; imposition of tax. T. D. 63561 TITLE 26-INTERNAL REVENUE, 1954.-CHAPTER I, SUBCHAPTER D, PART 42.— FACILITIES AND SERVICES EXCISE TAXES Regulations under sections 4251 to 4254, inclusive, of the Internal Revenue Code of 1954, as amended, relating to taxes on communications services or facilities. DEPARTMENT OF THE TREASURY, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington 25, D.C. To Officers and Employees of the Internal Revenue Service and Others Concerned: On October 18, 1958, notice of proposed rulemaking regarding the regulations under sections 4251 to 4254, inclusive, of the Internal Reve 124 F. R. 358. nue Code of 1954, as amended, relating to taxes on communications services or facilities, was published in the Federal Register (23 F. R. 8063). After consideration of all such relevant matter as was presented by interested persons regarding the rules proposed, the regulations as so published are hereby adopted without change. PARAGRAPH 1. Section 42.0-3 of the Facilities and Services Excise Tax Regulations (26 CFR Part 42) is hereby amended by striking paragraph (b) and inserting in lieu thereof the following: (b) Subpart C. The regulations in subpart C of this part apply, unless otherwise specified in such subpart, to all amounts paid on or after January 1, 1955, for communications services or facilities. PAR. 2. The following regulations are hereby prescribed under sections 4251 to 4254, inclusive, of the Internal Revenue Code of 1954, as amended: 42.4232-4 Provisions common to telephone and telegraph services. 42.4252-5 Leased wire, teletypewriter, or talking circuit special service. 42.4232-6 Wire and equipment service. 42.4252-7 Provisions common to leased wire, teletypewriter, talking circuit special service, and wire and equipment service. 42.4253 Statutory provisions; exemptions 42.4253-1 Exemption for certain coin-operated service. 42.4253-2 Exemption for news services. 42.4253-3 Exemption for certain organizations. 42.4253-4 Exemption for servicemen in combat zone. 42.4253-5 Exemption for items otherwise taxed. 42.4253-6 Exemption for special wire service in company business. 42.4253-7 Use and retention of exemption certificates. 42.4254 Statutory provisions; computation of tax. 42.4254-1 Computation of tax. 42.4254-2 Payment in a coin-operated telephone. Subpart C-Communications 42.4251 STATUTORY PROVISIONS; IMPOSITION OF TAX. SEC. 4251. IMPOSITION OF TAX. There is hereby imposed on amounts paid for the communication services or facilities enumerated in the following table a tax equal to the percent of the amount so paid as is specified in such table: The taxes imposed by this section shall be paid by the person paying for the services or facilities. § 42.4251-1 IMPOSITION AND RATES OF TAX.-(a) Imposition of tax.-Section 4251 imposes a tax on amounts paid for local telephone service; long distance telephone service; telegraph service; leased wire, teletypewriter or talking circuit special service; and wire equip ment service. (b) Rates of tax.-Tax is imposed on amounts paid for each of the following services and facilities furnished at the rate specified below: TAXABLE SERVICE Local telephone service--- Rate of tax Long distance telephone service_-_ Telegraph service--- Leased wire, teletypewriter or talking circuit special service_-_- Percent 10 10 10 10 8 (c) Amounts paid.-The term "amounts paid" means the amounts collected for the communication services and facilities specified in paragraph (a) of this section, without regard to whether the charge therefor is paid or satisfied in money, service, or other valuable consideration. See also paragraph (c) of § 42.4252-1. (d) Liability for, and return of, tax.-The taxes imposed by section 4251 are payable by the person paying for the services and facilities furnished, and shall be paid to the person furnishing the services and facilities who is required to collect the tax and return and pay over the tax in accordance with the applicable provisions of the regulations contained in subparts H and I of this part. § 42.4252 STATUTORY PROVISIONS; DEFINITIONS. As used in section 4251 the term, "local telephone service" means any telephone service not taxable as long distance telephone service; leased wire, teletypewriter or talking circuit special service; or wire and equipment service. Amounts paid for the installation of instruments, wires, poles, switchboards, apparatus, and equipment shall not be considered amounts paid for service. This subsection shall not be construed as defining as local telephone service, amounts paid for services and facilities which are exempted from other communication taxes by section 4253 (b). (b) LONG DISTANCE TELEPHONE SERVICE.-As used in section 4251 the term "long distance telephone service" means a telephone or radio telephone message or conversation for which the toll charge is more than 24 cents and for which the charge is paid within the United States. (c) TELEGRAPH SERVICE.-As used in section 4251 the term "telegraph service" means a telegraph, cable, or radio dispatch or message for which the charge is paid within the United States. (d) LEASED WIRE, TELETYPEWRITER OR TALKING CIRCUIT SPECIAL SERVICE. As used in section 4251 the term "leased wire, teletypewriter or talking circuit special service" does not include any service used exclusively in rendering a service taxable as wire and equipment service. The tax imposed by section 4251 with respect to a leased wire, teletypewriter or talking circuit special service shall apply whether or not the wires or services are within a local exchange area. (e) WIRE AND EQUIPMENT SERVICE. AS used in section 4251 the term "wire and equipment service" shall include stock quotation and information services, burglar alarm or fire alarm service, and all other similar services, but not including service described in subsection (d) of this section. The tax imposed by section 4251 with respect to wire and equip |