of the Act, taxpayers who placed claim from the Commissioner or his relating to election of the forty-percent movie and television films (films and delegate.

method of determining investment tapes) in service in taxable years be- If a taxpayer does not make the credit for movie and television films ginning before January 1, 1975, may forty-percent election for films placed placed in service in a taxable year elect to have their investment credit in service during taxable years begin- beginning before January 1, 1975, unon such films and tapes determined ning before January 1, 1975, invest- der section 804(c) (2) of the Tax using an amount equal to 40 percent ment credit with respect to such films Reform Act of 1976 (Pub. L. 94-455), of aggregate production costs (in lieu shall be determined under section 804 the following temporary regulations of the basis of such property). If the (c) (1) of the Act (unless a taxpayer are hereby adopted: election is made, 100 percent is the makes an election under section 804 applicable percentage used in deter- (c)(3) or (e) (2) of the Act). Under

$ 7.48-2 Election of forty-percent mining qualified investment under sec- this provision investment credit is de

method of determining investtion 46(c) of the Code. The election termined separately for each film or

ment credit for movie and telecan be made only with respect to tape taking into account useful life,

vision films placed in service in qualified films and tapes that are new predominant foreign use, and dis

a taxable year beginning before section 38 property. Under section 48 positions after the film or tape was

January 1, 1975. (k) (1) (A) (ii) of the Code, invest placed in service. Under section 804 (a) General rule. Under section ment credit is allowed only to the (e) (2) of the Act, a taxpayer may 804(c)(2) of the Tax Reform Act of extent that a taxpayer has an owner elect to have investment credit on 1976 (90 Stat. 1595), taxpayers who ship interest in a film or tape.

films and tapes placed in service dur- placed movie or television films (hereThe regulations make it clear that ing taxable years beginning before inafter referred to as films and tapes) no investment credit is allowed on any January 1, 1975, which are property in service during taxable years befilm or tape that is not new section 38 described in section 50(a) of the Code, ginning before January 1, 1975, may property or that was produced and determined under sections 48(k) and elect to have their investment credit on shown exclusively outside of the 47(a) (7) of the Code. Under section all such films and tapes determined United States.

804(c)(3) of the Act, a taxpayer who under section 46(c) of the Code using Qualified investment in films and has filed an action in any court of com- an amount equal to 40 percent of agtapes subject to the election is deter- petent jurisdiction before January 1, gregate production costs in lieu of the mined without regard to estimated 1976, with respect to allowance of in- basis of such property. If the election useful life and any investment credit vestment credit for any film or tape is made, 100 percent is the applicable allowed is not subject to recapture be placed in service in any taxable year percentage used in determining qualicause of an early disposition or pre beginning before January 1, 1975, may fied investment under section 46(c) dominant use outside the United elect to have investment credit on of the Code regardless of actual useful States.

such films and tapes determined in liti- life. The election can be made only The election must be made not later gation without regard to section 48 with respect to qualified films and tapes than April 4, 1977. Under paragraph (k) of the Code and sections 804(c) that are new section 38 property and (b) (2) of $ 7.48-2 the election must (1) and (2), and (d) of the Act. the investment credit is allowed only be made by filing amended returns

to the extent that a taxpayer has an and a statement. In the statement, a

DRAFTING INFORMATION

ownership interest in the film or tape. taxpayer must provide certain speci- The principal author of this regula

No investment credit is allowed under

No investment credit fied information and consent to join in tion was James W. Corbitt, Jr. of the

section 804(c) (2) of the Act on any judicial proceedings to determine the Legislation and Regulations Division film or tape that is not section 38 person entitled to, and the amount of the Office of Chief Counsel. In property or that was produced and of, the investment credit allowable ternal Revenue Service. However, shown exclusively outsi with respect to any film or tape cov- personnel from other offices of the

United States. Thus, no election may

United States. Thus, no ered by the election.

Internal Revenue Service and Treas- be made under this section with reThe election will be revoked by the

ury Department participated in de spect to a film or tape which is susCommissioner of Internal Revenue veloping the regulation both on mata pension period prope under paragraph (c) (2) of $ 7.48-2 ters of substance and style.

section 48(h) applies or to a film or if a taxpayer fails to make all reason

tape which is termination period able efforts necessary to join in or Adoption of amendments to the regu.

property to which section 49(a) apintervene in a judicial proceeding ini- lations

plies. Any investment credit taken on tiated by a rival claimant to the credit In order to prescribe temporary in any film or tape subject to the elecafter receiving notice of such rival come tax regulations (26 CFR Part 7) tion is not subject to recapture because

of an early disposition or because a forth computations necessary to deter- payer under section 804(e) (2) of the film or tape otherwise ceases to be sec- mine the ownership interest of the Act for films and tapes which are tion 38 property under section 47(a) entity in each such film or tape.) No property described in section 50(a) of the Code. Thus, there will be no amended return need be filed for a of the Code which were placed in recapture because a film or tape is taxable year if application of the elec- service in taxable years beginning beused outside the United States under tion to films and tapes placed in serv- fore January 1, 1975. section 48(a)(2) of the Code or sec- ice during that year would not affect (vii) A list by name of all films or tion 804(c)(1)(C) of the Act, or tax liability for any taxable year. The tapes placed in service during the because of any disposition under sec- statement shall contain the following years to which the election relates. tion 47(a) (7) (B) of the Code. information:

(viii) With respect to each film or (b) Time and manner of making (i) The taxpayer's name and tax- tape listed in paragraph (b) (2) (vii) an election—(1) Time for making payer identification number (under of this section, a list of all producers, the election. The election under sec- section 6109 of the Code).

distributors, and persons with a partion 804(c) (2) of the Act must be (ii) A statement that the taxpayer ticipation interest (with addresses made not later than April 4, 1977. is making the election under section where available). (2) Manner of making the election. 804(c) (2) of the Act.

(ix) In the case of an election made An election under this section must be (iii) A statement that the taxpayer by a partner, shareholder of an electmade by filing amended income tax agrees that the period for assessment ing small business corporation (as dereturns for each taxable year begin- and collection under section 6501 of fined in section 1371 (b) of the Code), ning before January 1, 1975, in which the Code will remain open until De or beneficiary, a statement indicating films and tapes subject to the election cember 31, 1978, solely with respect to the name, taxpayer identification were placed in service, together with a adjustments of tax liability attributable number, and address for tax return statement signed by the taxpayer con- to investment credit allowed on films purposes of the respective partnership, taining the information described be- and tapes placed in service in each electing small business corporation, or low. The amended returns and the year covered by the election. Unless trust or estate. statement must be filed with the dis- the district director notifies the tax- (3) Consent to join in judicial protrict director having audit jurisdiction payer within 7 days of receipt of the ceedings. No election may be made by over the last return filed to which the statement that such extension is de- any taxpayer unless the statement election relates. Each amended return nied, it will be presumed that the made under paragraph (b) (2) (v) of shall contain a schedule listing by district director consents to such ex this section provides that the taxpayer name all films and tapes placed in tension. Of course, the period covered shall: service during the year to which the by this statement may be extended (i) Treat the determination of the amended return relates and setting beyond December 31, 1978 by mutual investment credit allowable on each forth all computations necessary to agreement. This statement does not film or tape subject to an election as determine the aggregate production shorten the regular statutory period a separate cause of action; costs of each such film or tape listed for any year or take precedence over (ii) Make all reasonable efforts and the ownership interest of the a previous or subsequent agreement necessary to join in or intervene in any taxpayer in each film or tape listed. In with the Internal Revenue Service judicial proceeding in any court for the case of a taxpayer which is a extending the statutory period for any determining the person entitled to, partner, shareholder of an electing year.

and the amount of, the investment small business corporation, or bene (iv) A list of the addresses used by credit allowable with respect to any ficiary of a trust or estate, such com- the taxpayer on each return filed dur. film or tape covered by the election putations must be adequate to deter- ing each taxable year subject to the after receiving notice from the Commine the ownership interest of the election.

missioner of Internal Revenue or his partnership, electing small business (v) A statement that the taxpayer delegate indicating that a conflicting corporation, or trust or estate in each consents to join in judicial proceed claim to the investment credit for such film or tape. (A taxpayer which ings to determine the investment credit such film or tape is being asserted in is a partner, shareholder, or beneficiary allowable and entitlement to invest- such court by another person; and may satisfy the requirements of the ment credit on any film or tape sub (iii) Consent to revocation of the preceding sentence by attaching to his ject to the election, which meets all of election by the Commissioner of Inamended return a copy of an amended the requirements set forth in para ternal Revenue or his delegate with return, if one is filed, of the partner- graph (b)(3) of this section.

respect to all films and tapes placed in ship, electing small business corpora. (vi) A statement as to whether an service in taxable years for which the tion, or trust or estate which sets election has been made by the tax- election applies, if the taxpayer fails

48(k) anims and the

to make all reasonable efforts neces- sent to revoke the election is obtained (d) Furnishing of supplementary sary to join in or intervene in any from the Commissioner of Internal information required. If these regulajudicial proceeding under paragraph Revenue or his delegate. Application tions are revised to require the fur(b) (3) (ii) of this section.

for consent to revoke the election will nishing of information in addition to (4) Who makes the election. The be accepted only if permanent regula- that which was furnished with the election must be made separately by tions are issued which contain rules amended returns and statement of each person who has an ownership which may not reasonably have been election filed pursuant to paragraph interest. However, where a film or anticipated by taxpayers at the time (b)(2) and (3) of this section, the tape is owned by a partnership, elect- the election was made. Any per- taxpayer must furnish such additional ing small business corporation (as de- manent regulations will provide a rea- information in a statement addressed fined in section 1371(b) of the Code), sonable period of time within which to the district director with whom or trust or estate, the election must be taxpayers will be permitted to apply the amended return and statement of made separately by each partner, for consent to revoke the election and election were filed. shareholder or beneficiary. The elec- will allow revocation (where revoca Because of the need for immediate tion is not to be made by a partner- tion is not barred by the limitations on guidance with respect to the proviship or electing small business corpora credit or refund in section 6511 of the sions contained in this Treasury decition, and is to be made by a trust or Code) in the event of a determination sion, it is found impracticable to issue estate only if the trust or estate in by the Commissioner of Internal Reve- it with notice and public procedure determining its tax liability would be nue or his delegate that such perma- thereon under subsection (b) of secallowed investment credit on a film or nent regulations contain provisions tion 553 of Title 5 of the United tape subject to the election. The elec that may not reasonably have been States Code or subject to the effective tion of any partner, shareholder, bene- anticipated by taxpayers at the time date limitation of subsection (d) of ficiary or trust or estate shall be effec- of making such election.

that section. tive regardless of whether any related (ii) An election properly made unpartner, shareholder, beneficiary, or der section 804(e) (2) of the Act, to

(This Treasury decision is issued trust or estate makes the election. have sections 48(k) and 47(a) (7) of

under the authority contained in sec

tion 7805 of the Internal Revenue (5) Additionul time to perfect elec the Code apply to films and tapes tion. A taxpayer that by April 4, 1977, which are property described in sec

Code of 1954 (68A Stat. 917; 26 files a statement containing the in- tion 50(a) of the Code and which

U.S.C. 7804) and section 804(c)(2) formation described in paragraph (b) were placed in service in taxable years

(C) and (D) of the Tax Reform Act (2) (i) through (v) of this section beginning before January 1. 1975. of 1976 (90 Stat. 1595)). shall be deemed to have made a timely shall automatically revoke any elec

William E. Williams, election under paragraph (b)(2) of tion under section 804(c) (2) of the

Acting Commissioner of this section if by July 5, 1977, the tax- Act with respect to such films and

Internal Revenue. payer has complied with all of the tapes. Such revocation does not rerequirements of paragraph (b) (2) of quire the consent of the Commissioner Approved March 20, 1971. this section. If a taxpayer demonstrates of Internal Revenue or his delegate. LAURENCE N. WOODWORTH, to the satisfaction of the district direc (2) Revocation by Commissioner.

Assistant Secretary tor that it is unable to meet the July The Commissioner of Internal Reve

of the Treasury. 5, 1977, date even though it has made nue or his delegate shall revoke an a good faith effort to do so, the dis- election made under section 804(c).

(Filed by the Office of the Federal Register

on March 29, 1977; 5:15 a.m., and pubtrict director may at his discretion ex- (2) of the Act if a taxpayer fails to lished in the issue of the Federal Register tend that date to no later than Octo make all reasonable efforts necessary for March 31, 1977, 42 F.R. 17122) ber 4, 1977, for that taxpayer. Re- to join in or intervene in a judicial quests for extensions of the July 5, proceeding for determination of the 26 CFR 7.48.2: Election of forty-percent 1977, date should be addressed to the person entitled to, and the amount of, method of determining investment credit district director with whom the state the investment credit allowable with

for movie and television films placed in

service in a taxable year beginning before ment was filed.

respect to any film or tape covered by January 1, 1975. (c) Revocation of election—(1) the election after receiving notice from TD 7480. Revocation by taxpayer—(i) Except the Commissioner or his delegate as provided in paragraph (c) (1) (ü) of which indicates that a conflicting claim TITLE 26.—INTERNAL REVEthis section, an election made under to the investment credit for such film NUE.-CHAPTER I, SUBCHAPsection 804(c)(2) of the Act may not or tape is being asserted in court by TER A, PART 7.-TEMPORARY be revoked by a taxpayer unless con- another person.

INCOME TAX REGULATIONS

U.S.C. 110 of the

on

the individual homeowners since such right income of competent and non- must include in gross income, payments are in the nature of general competent Osage Indians. The court under section 61 of the Code, interwelfare.

cited Choteau v. Burnet, 283 U.S. 691 est and dividends or other income Held, grants made pursuant to Title (1931), X-1 C.B. 355 (1931), in received by the custodian of the inIV of the Act are excludable from which the Supreme Court of the vestment account created in congross income for Federal income tax United States concluded that the tax junction with the contract and over purposes.

status of the petitioner, as a com- which the policyholder has investpetent Osage Indian, was no different ment control. An investment ac

from that of any other citizen of the count created under contracts en26 CFR 1.61-1: Gross income.

United States and, therefore, mineral tered into after March 9, 1977, will Indians; headright income from headright income received by the not be treated as a segregated mineral interests. Headright in- petitioner was subject to Federal in- asset account of the insurance come from tribal mineral interests come tax.

company under section 801(g)(1); received by a competent Osage In In discussing Choteau, the court, in investment accounts created under dian is includible in gross income; Hayes Big Eagle, stated, in part, on contracts entered into before March Rev. Rul. 70-116 clarified. page 767:

10, 1977, will be treated as segreRev. Rul. 77-78 * * * Choteau was a competent Indian so

gated asset accounts subject to certified. The Supreme Court quoted the certain conditions. Advice has been requested whether Revenue Act of 1918 saying that the inRev. Rul. 70-116, 1970-1 C.B. 11,

come of “every individual” is subject to Rev. Rul. 77-85'

tax “from any source whatever" and went which holds that headright income

Advice has been requested regardfrom tribal mineral interests held in

exempt the sort of "person having peti-
tioner's status," which was that of a com-

ing the Federal income tax consetrust by the United States for non petent Indian, who, since receipt of his quences of an annuity arrangement competent Osage Indians (tribal mem certificate of competence, had been taxable. involving a custodial account. as debers who by treaty cannot alienate

The Court did not * # * go into the ques

tion of taxability of a noncompetent Indian scribed below. Specifically, advice has certain lands they own) is not in except to suggest that in the case of Chou been requested whether the subject cludible in the gross income of such teau [sic] his income was beyond the control of the United States in the sense that

custodial account is a segregated asIndians, is also applicable to com

he could use it as he pleased when he got set account for purposes of section petent Osage Indians (tribal members it from the government and that the same 801 (g) (1) (B) of the Internal Revewho have received patents in fee to

was subject to tax when there is no intent
definitely expressed by the statute to ex-

nue Code of 1954. The use of the their land). empt such income from tax.

terms "annuity", "policy" and "purSection 61(a) of the Internal Reve

Therefore, pursuant to the Supreme

chase" in this ruling is for descriptive nue Code of 1954 defines gross income Court's decision in Choteau, mineral

convenience only and is not intended as all income from whatever source headright income of competent Osage

to have any substantive legal effect. derived, unless excluded by law.

Indians is includible in their gross The custodial account is created by The holding in Rev. Rul. 70-116 signifies the acceptance by the Internal

incomes under section 61 of the Code agreement among a policyholder, an Revenue Service of the decision in

insurance company and a custodian in when received. Hayes Big Eagle v. United States,

Accordingly, Rev. Rul. 70-116 is ap- conjunction with the purchase of an

plicable only to the mineral headright investment annuity policy by the pol300 F.2d 765 (Ct. Cl. 1962). In that case the United States Court of Claims

income of non-competent Osage In- icyholder from the insurance company.

dians and is not applicable to mineral Upon purchase of the investment anheld that mineral headright income held in trust accounts for noncom

headright income of competent Osage nuity policy, the policyholder deposits Indians.

an initial amount of at least a specified petent Osage Indians was not subject

Rev. Rul. 70-116 is clarified. minimum with the custodian. At any to Federal income tax because certain

time before the annuity starting date, amendments to the Osage Allotment

the policyholder may make additional Act, 45 Stat. 1478, section 1, and 52 26 CFR 1.61-1: Gross income.

payments into the account in amounts Stat. 1034, section 3, contained lan. (Also Sections 72, 801, 809, 7805; 1.72-2, 1.801-8, 1.809-4, 301.7805-1.)

equal to a specified minimum. These guage that implicity exempted such

additional payments permit the purmineral headright income from Fed- Investment annuity policy; own

chase of increased benefits under the eral income tax. In arriving at this ership of assets; income from cus

investment annuity policy. The initial conclusion, the court recognized the todial accounts. A policyholder of distinction between the Federal in an investment annuity contract

1 Also released as News Release IR.1774, dated come tax treatment of mineral head- issued by a life insurance company March 9, 1977.