tors' claims. It follows that taxes may then be assessed and collected as prescribed by section 301.7507-9 of the Regulations on Procedure and Admin. istration. G.C.M. 22656 and Rev. Rul. 60-139 are hereby superseded since the positions set forth therein are restated under current law in this Revenue Ruling. Chapter 79.-Definitions cert. denied, 386 U.S. 971 (1967), the facts were similar to those in volved in the instant case. The bank's directors, in 1932, placed the bank in the hands of a receiver and an agree ment was entered into between the bank and its depositors under which which 100 percent of their deposits to the bank and, in return, received a lien on the bank's future earnings. By 1957, the bank's current earnings, plus the amount of retained earnings set aside in a special reserve fund, exceeded the amount needed to satisfy the old depositor's claims. However, in 1957, the State Banking Commissioner declined the bank's request to permit it to make a payment to its old depositors on the ground that such payment would have jeopardized the safety of the bank's current depositors, as well as the eventual payment in full to the old depositors under the 1932 agreement. In reversing the District Court deci. sion, the Court of Appeals said: Section 7701.-Definitions Whether the Virgin Islands is a separate taxing, jurisdiction and not a part of the United States. See Rev. Rul. 73-315, page 225. Whether the sale of stock in a small business corporation to an alien individual. a citizen of a foreign country who is a résident of Puerto Rico, terminates valid election the corporation made under section 1372 of the Internal Revenue Code of 1954. See Rev. Rul. 73-478, page 310. that professional service organizations that are organized and operated under certain state statutes designated therein will be treated as corporations for Federal income tax purposes. Rev. Rul. 70-101 also provides that a professional service organization formed under certain other state statutes enumerated, utes enumerated, including Vernon's Annotated Civil Statutes, Article 1528f, Sections 1-20 (Texas Professional Association Act), effective June 18, 1969, may or may not qualify for classification as a corporation in a given case. The test for classification as a corporation for an organization formed under such statutes is whether the organization qualifies for corporate status under section 301.7701-2 of the Procedure and Administration Regulations, exclusive of the 1965 amendments. See also Rev. Rul. 71. 574. 1971-2 C.B. 432. The Texas Professional Association Act, now Article 1528f, Sections 1-25, Vernon's Annotated Civil Statutes, was amended effective May 10, 1971. was amended enective May 10, 191 Also, West Virginia has enacted a legal cor legal corporation act, West Virginia Code, Chapter 30, Article 2, Sections 30-2-5, 30-2-5a. It was effective 90 days after its March 9, 1972, enactment. It is held that a professional service organization (1) that is organized and operated under the above West Virginia statute, or (2) that is organized and operated under, or that conforms its organization and operation to, the above Texas statute, as amended, will be treated as a corporation for Federal income tax purposes. Rev. Rul. 70-101 is further modi The district court interpreted the words "available for payment" to mean available for immediate distribution under the orders of any banking authorities recognized by the taxpayer bank as controlling its operations. We think the test of "availability" intended by Congress was whether the assets were on hand without regard to whether the relevant banking authorities were willing to allow such assets to be paid out at that time. vanization, under the that is hat Legislative history does not support the conclusion that the word "available" as used in the statute was meant to be construed as currently available for distribution instead of meaning simply on hand. 26 CFR 301.7701-2: Associations, includ. ing organizations labeled “corporations." Professional service organizations; tax classification. A professional service organization organized and operated under the Texas Professional Association Act, as amended effective May 10, 1971, or under the legal corporation act of West Virginia, enacted March 9, 1972, will be treated as a corporation for Federal income tax purposes; Rev. Rul. 70-101 modified. Rev. Rul. 73-596 The Internal Revenue Service stated its position with respect to the classification of professional service organizations formed under state professional association or corporation statutes in Rev. Rul. 70-101, 1970-1 C.B. 278, amplified by Rev. Rul. 70455, 1970-2 C.B. 297, and by Rev. Rul. 72-468, 1972-2 C.B. 647. Rev. Rul. 70-101 and the Revenue Rulings amplifying it provide, in part, We think this history refutes the plaintiff's contention that the Congress' intention was to permit the statutory exemption to continue until the bank not only had on hand accumulated assets sufficient to pay off its old depositors but also had * surplus which would satisfy the various standards of local administrative authorities. the bank's e In view of the foregoing, the bank's immunity from tax assessment and collection terminates in 1971 when the balance sheets of the bank show earnings in excess of outstanding deposi 25 CFR 301.7701-4: Trusts. Fixed investment trust; tax classification. A fixed investment trust established by a stockbrokerage firm that deposited municipal obligations with a trustee bank in exchange for a certificate for 20,000 ownership units and sold minate upon the maturity, redemp- tions, except that if (1) the issuer is the units to investor clients, under tion, sale or other disposition of the in default with respect to such obligaa trust agreement prohibiting the last obligation held unless sooner ter- tions or (2) in the opinion of the stockbrokerage firm and the trus- minated as provided in the trust depositor, the issuer will probably detee from reinvesting moneys in ad- agreement. In no event shall the fixed fault with respect to such bonds in the ditional obligations or varying in investment trust continue beyond reasonably foreseeable future, the devestments and requiring semian- January 1, 2010. positor shall instruct the trustee in and interest distri- In order to preserve the sound in writing to accept or reject such offer butions, qualities as a trust under vestment character of the fixed invest- or take any other action with respect section 301.7701-4(c) of the regu- ment trust, the depositor may direct the ment trust, the depositor may direct thereto as the depositor may deem lations. the trustee to sell obligations, pro- proper. Rev. Rul. 73-460 vided the depositor has determined Section 301.7701-4(c) of the Pro the existence of certain conditions spe- cedure and Administration RegulaAdvice has been requested whether, cifically set out in the trust agreement tions provides as follows: under the circumstances described be- such as, for example, default in the (c) Certain investment trusts. An “inlow, a fixed investment trust qualifies payment of principal or interest on vestment" trust of the type commonly as a trust or as an association which i obligations or a substantial decline in known as a management trust is an assotaxable as a corporation. the market value of the obligations. ciation, and a trust of the type commonly known as a fixed investment trust is an A corporate stockbrokerage firm The trust agreement further pro association if there is power under the trust (depositor) executed a trust agree agreement to vary the investment of the vides that the trustee will collect invides that the certificate holders. See Commissioner V. ment with a bank (trustee) which stee) which terest terest income on the obligations and North American Bond Trust (C.C.A. 2d provided for the establishment of a all moneys other than interest income 1941) 122 F.2d 545, cert denied 314 U.S. fixed investment trust. The depositor 701. However, if there is no power under and credit such amounts to the inter the trust agreement to vary the investment deposited with the trustee certain in est account and the principal account of the certificate holders, such fixed investterest-bearing municipal obligations, respectively. The trustee is authorized ment trust shall be classified as a trust. contracts for the purchase of such under the trust agreement to with Under the terms of the trust agreeobligations, and the cash required for draw from the cash on deposit in the ment, the depositor and the trustee such purchases. The trustee delivered interest account or the principal ac- do not have the power to reinvest to the depositor a registered certifi count such amounts as it deems nec- moneys in additional obligations or to cate for 20,000 units which represent cssary to establish a reserve for any vary the investment of the certificate ed the entire ownership of the fixed applicable taxes or other governmen- holders. Furthermore, since the trust investment trust. The depositor, who tal charges that may be payable out agreement requires that the moneys was the sole underwriter of the units, of the funds of the fixed investment in the interest account and the prinsubsequently sold such units to investrust. cipal account must be distributed to tor clients. The certificates may be transferred On each semiannual distribution the certificate holders, no reinvestment by the owners upon proper endorse date, each certificate holder of record of such moneys is possible. da ment and surrender to the trustee and se and on the preceding record date will re- Accordingly, it is held, in the ina certificate holder may tender his ex his ceive his pro rata share of the balance stant case, that the fixed investment certificates to the trustee for redemp. of the interest account, computed as trust qualifies as a trust under section tion at any time and, thus, terminate of the next preceding computation 301.7701-4(c) of the regulations. the trust as to himself. The trustee is date, plus such certificate holder's pro authorized to sell certain bonds if inrata share of the cash balance of the 26 CFR 301.7701-12: Employer identificasufficient cash is available to redeem principal account, computed as of the tion number. certificates tendered for redemption. next preceding record date. Whether a new employer identification The certificates shall remain outstand In the event that an offer is made number, as defined by this section, is reing until redeemed by any certificate by an obligor of any of the obligations quired for proper identification of the holder, which may include the deposi employer. See Rev. Rul. 73-526, page 404. to issuc new obligations in exchange tor, or until the termination of the and substitution for any issue of oblitrust agreement. Neither the death nor gations pursuant to a plan for the re- 26 CFR 301.7701-13: Domestic building and loan association. incapacity of any certificate holder funding or refinancing of such obligashall operate to terminate the fixed tions, the depositor shall instruct the Building and loan association; investment trust. trustee in writing to reject such offer qualifying loans. For purposes of The fixed investment trust shall ter and either to hold or sell such obliga- meeting the definition of "domestic tion which is an instrumentality of the United States within the meaning of section 7701 (a) (19) (C) (ii) of the Code. See Rev. Rul. 73-548, page 14. Chapter 80.-Goneral Rules Section 7805.-Rules and Regulations building and loan association," loans secured by an interest in property, made to a corporation for the development of commercial property that is an integral part of a redevelopment project, approved as being "predominantly residential" in character by the Secretary of Housing and Urban Development are loans described in section 7701(a)(19)(C)(vi) of the Code. Rev. Rul. 73-598 Advice has been requested whether, under the circumstances described below, certain loans qualify as loans described in section 7701 (a) (19) (C) (vi) of the Internal Revenue Code of 1954. A domestic development corporation is engaged in the development of an office building with retail stores and other service facilities upon land conveyed to it by the Urban Renewal Agency of a city for development as a center which is an integral part of the city's redevelopment project. The entire project consists of 300 acres of which only 30 acres are allocated for commercial use. The development company's project consists of 5 of the 30 acres to be developed for commercial use. The redevelopment project includes plans for 3,000 housing units of which approximately one-third are earmarked for low income families and senior citizens. The redevelopment project has been approved as being "predominantly residential” in character by the Secretary of Housing and Urban Development under Subchapter II (Slum Clearance and Urban Renewal) — Part A, 42 U.S. Code, Sec. 14501468a of the Housing Act of 1949, as amended. As a result of the approval of the plan by the Secretary as being a project which is “predominantly residential,” the Urban Renewal Agency of the city received financial assistance from the Federal Government to the extent of three-quarters of the net cost of the project under the Federal "limited project costs” financing formula. The development company has obtained from various financial institutions commitment letters for a portion of the permanent mortgage financing of the center. The specific question is whether the loans from the financial institutions to the development company, secured by an interest in the real property described above as part of the center, will be qualifying investments within the meaning of section 7701(a):(19) (C) (vi) of the Code. Section 1701(a)(19) (C) (V1) of the Code includes, as a qualifying asset within the meaning of that section, within the meaning of that section, loans secured by an interest in real property located within an urban renewal area to be developed for “predominantly residential” use under an urban renewal plan approved by the Secretary of Housing and Urban Development under Part A of Title I of the Housing Act of 1949, as amended. The plan for the redevelopment project has been approved as being “predominantly residential” in char. acter by the Secretary of Housing and Urban Development under Part A of Title I of the Housing Act of 1949, as amended. The proposed loans from the financial institutions to the taxpayer are to be secured by an interest in real property being developed within the center which is an integral part of the redevelopment project. Accordingly, it is held that the loans from the financial institutions to the development company are loans secured by an interest in real property described in section 7701 (a) (19) (C) (vi) of the Code and are therefore qualifying investments within the meaning of that section. podpredoby the Selopmece Houghe prolutions redevelop housimind are of Title Developmetary of Hou in charge 26 CFR 301.7805-1: Rules and regulations. (Also Sections 422, 425; 1.422-2, 1.425-1.) Employee "tandem” qualified and nonstatutory stock options. Rev. Rul. 73-26 is modified to provide that the limitation of its retroactive effect is applicable to "tandem" qualified and nonstatutory stock options of the type described in Rev. Rul. 71-62 considered granted by reason of section 425 (h) of the Code before January 3, 1973, that satisfied the requirement of section 422(b) at the time of modification, and also to options of the type described where the "qualified" option was granted simultaneously with the alternative rights before January 3, 1973. Rev. Rul. 73-330 Rev. Rul. 73-26, 1973-1 C.B. 204, sets forth the position of the Internal Revenue Service with respect to qualified stock options granted in tandem with nonqualified stock options, and also revoked Rev. Rul. 69-428, 1969-2 C.B. 103, and Rev. Rul. 71-81, 1971-1 C.B. 134, the holdings of which were inconsistent with the position stated in Rev. Rul. 73-26. In addition, Rev. Rul. 73-26 amplified Rev. Rul. 71-62, 1971-1 C.B. 135, by explaining the income tax consequences of the transaction described therein under the principles enunciated in Rev. Rul. 7326. Rev. Rul. 71-62 holds that a qualified stock option was modified within the meaning of section 425 (h) of the Internal Revenue Code of 1954 when, in the year following the granting of qualified stock options to employees, the employer adopted an alternate red stock oualified Rul. 69, 26 CFR 301.7701-13: Domestic building stic building and loan association. Whether stock and obligations of the Student Loan Marketing Association constitute stock or obligations of a corpora Other rulings relating to administrative provisions published before 1953 are currently being reviewed. Therefore, failure to include any particular ruling in this or previous lists should not be construed as indicating that the ruling necessarily has continuing application to future transactions. 26 CFR 301.7805-1: Rules and regulations. Retroactive application of a ruling relating to the qualification of a shopping center merchants' association as a business league or chamber of commerce under section 501(c)(6) of the Code. See Rev. Rul. 73-411, page 180. 602 plan under which it granted certain although not specifically revoked or rights to the holders of qualified op- superseded, are not considered deter minative with respect to future transIn applying the authority granted actions. under section 7805(b) of the Code, In accordance with that program Rev. Rul. 73-26 provides that the pro- and based on a review of certain rulvisions of the Revenue Ruling will ings relating primarily to the adminisnot be applied to stock options of the trative provisions of the Internal Rev. types described in Rev. Rul. 69-428 enue Code of 1954, the rulings listed and Rev. Rul. 71-81 granted on or below are hereby declared obsolete. before January 2, 1973. Office Decisions (0.D.) Ruling Series Consistent with the foregoing, the OU limitation of the retroactive effect of O.D. No. C.B. Citation Rev. Rul. 73-26 is equally applicable 476 2,222 to stock options of the type described 582 3,211 in Rev. Rul. 71-62 considered granted General (or Chief) Counsel's by reason of section 425(h) of the Memorandum (G.C.M.) Ruling Series Code on or before January 2, 1973, G.C.M. No. and which satisfied the requirements C.B. Citation of section 422(b) at the time of modi. V-2, 97 fication. Also, the limitation stated 2514 VI-2, 99 4715 above is applicable to options of the VII-2, 94 type described in Rev. Rul. 71-62, 9147 X-1, 279 where the "qualified" option was 10759 XI-2, 99 granted simultaneously with the al 16092 XV-1,499 ternative rights on or before January Income Tax (I.T.) Ruling Series 2, 1973. I.T. No. C.B. Citation Rev. Rul. 73-26 is hereby modified. 2020 III-1, 348 2484 VIII-2, 147 26 CFR 301.7805-1: Rules and Regulations 2987 XV-2, 169 3946 Obsolete rulings; administrative 1949-1, 81 provisions. Additional rulings, re Social Security Tax (S.S.T.) lating primarily to the administra Rulings Series tive provisions of the Internal S.S.T. No. C.B. Citation Revenue Code, have been declared obsolete. 294 1938-1,385 Rev. Rul. 73-376 The purpose of this declaration of obsolescence is to make clear to all Rev. Proc. 67-6, 1967-1 C.B. 576, concerned that the above-listed rulings announced a program for the review are not determinative with respect to of rulings published in the Internal future transactions. It is not the purRevenue Bulletin before 1953 for the pose of this Revenue Ruling to deterprimary purpose of identifying and mine the applicability of any of the declaring obsolete those rulings which, listed rulings to past transactions. 26 CFR 301.7805-1: Rules and regulations. Nonretroactive application of ruling relating to costs of unrecoverable portion of purchased liquefied petroleum gas injected into hydrocarbon reservoir to increase recovery of native oil. See Rev. Rul. 73-469, page 84. 26 CFR 301.7805-1: Rules and regulations. Whether the tax imposed by section 4061 (a)(1) of the Code applies to the sale of a truck body or chassis equipped with a hydraulic tailgate added by a person who purchases the articles separately from the manufacturers thereof. See Rev. Rul. 73480, page 347. 26 CFR 301.7805-1: Rules and regulations. Whether section 7805 (b) of the Internal Revenue Code of 1954 is applicable to distributions received by shareholders prior to October 19, 1970, the issuance date of Rev. Rul. 70-531, 1970-2 C.B. 76. See Rev. Rul. 73-550, page 108. 26 CFR 301.7805-1: Rules and regulations. Prospective application of Revenue Rule ing relating to the qualification of a federated farmers' cooperative for exemption under section 521 of the Code. See Rev. Rul. 73-568, page 194. Part II. Rulings and Decisions Under the Internal Revenue Code of 1939 and Mr. Justiine Cous cederal Subtitle A.-Taxos Subject to the Jurisdiction of Section 113(a).-Adjusted Basis No. 72-90 Burlington & Quincy Railroad Com- [412 U.S. 401] On Writ of Certiorari to the United States Court of Claims (June 4, 1973) Syllabus road seeks to recover an alleged in- spondent was entitled to the claimed Mr. Justice Blackmun delivered the Tithe programaci de Stat 195 income. Here, almost none of these Industrial Recovery Act, 48 Stat. 195, criteria was met, since the facilities Congress authorized federal reimwere not bargained for and, but for bursement to the States of the shares the governmental subsidies, would of the costs the States incurred in the not have been constructed. No sub construction of those improvements stantial incremental benefit in terms that inured to the benefit of public of income production was consid- safety and improved highway traffic ered at the time the facilities were control.1 In 1944 Congress went furtransferred, and such minor benefit ther and authorized reimbursement, as may have accrued to respondent with stated limitations, to the States from the facilities was merely for the entire cost of the improveperipheral to the railroad's business. ments, subject to the condition that a Nor would respondent's asserted railroad that received a benefit from a obligation to replace the facilities facility so constructed was liable to warrant the claimed depreciation. the Government for up to 10% of the Pp. 4-15. cost of the project pro rata in rela197 Ct. Cl. 264, 455 F. 2d 993, re tion to the benefit received by the rail19 road.2 versed and remanded. Under these programs CB&Q reBlackmun, J., delivered the opinion ceived. at public expense, highway of the Court, in which Burger,, C. J.; of the Court, in which Burger, C. J., undercrossings and overcrossings havand Brennan, White, Marshall, and ing a cost of $1,538,543; crossing sigRehnquist, JJ., joined. Douglas, J., nals, signs, and floodlights having a filed a dissenting opinion. Stewart, J., cost of $548,877; and jetties and filed a dissenting opinion, in which Douglas, J., joined. Powell, J., took no National Industrial Recovery Act, $ 204(a) (1), 48 part in the consideration or decision od 2 * Federal-Aid Highway Act of 1944, 1 5, 58 Stat. of the case. 838, 840-841. Stat. 203 (1933). |