"Tangible personal property," as defined in section 1.48-1(c) of the Income Tax Regulations, includes all tangible property except land and improvements thereto, such as buildings or other inherently permanent structures (including items which are structural components of such buildings or structures). In addition, all property which is in the nature of machinery (other than structural components of a building or inherently permanent structure), shall be considered "tangible personal property" even though located outside a building.

"Other tangible property," to qualify as "section 38 property," under section 1.48-1 (d) of the regulations, as an integral part of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, must be property used in a trade or business of furnishing such services.

Whether the dock can qualify as "section 38 property" depends upon whether it can qualify as "tangible personal property," or as "other tangible property" used as an integral part of one of the specified activities. The floating dock will not qualify as "tangible personal property" if it is an inherently permanent structure within the meaning of section 1.48-1(c) of the regulations when placed in service. In this case, the dock and its anchorage were built to be used as a unit in place of a similar nonfloating berthing facility annexed to the ground. Therefore, by reason of its nature and use, regardless of how classified by local law, the dock is an inherently permanent structure and does not qualify as "tangible personal property." However, it may qualify as "other tangible property" under section 1.48-1 (d) of the regulations if it is used as an integral part of one of the specified business activities listed within this section. In this case, however, the dock is not used as an integral part of one of the specified activities.

Accordingly, the taxpayer's floating dock is not "section 38 property" for investment credit purposes.

(Also Section 179; 1.179-3.)

Rev. Rul. 67-156

A motor vehicle trailer used as a launderette is, under the facts stated, a building within the meaning of sections 1.48-1(e) (1) and 1.179-3(b) of the Income Tax Regulations and does not qualify either as "section 38 property" for the investment credit or as "section 179 property" for the additional first-year depreciation allowance.

The question has been asked whether, under the facts stated, a motor vehicle trailer located in a trailer park and used as a launderette will qualify as "section 38 property" for the investment credit allowed under section 38 of the Internal Revenue Code of 1954 and as "section 179 property" for the additional first-year depreciation allowance under section 179 of the Code.

Many trailer parks contain housetrailers of a permanent nature and also accommodate overnight parking of housetrailers for persons who are transient. Some of these trailer parks provide laundry facilities for their tenants in a building whereas others, as in this case, convert mobile type trailers to provide these facilities.

Generally, most trailers use the same kind of shell or skin, running gear, wheels, tires, frames, windows, roof, doorways, doors, etc. Therefore, the outward appearance of one trailer resembles that of another.

On the other hand, the interior fittings of trailers differ substantially, depending upon the purpose for which it is to be used. For example, an office trailer is usually equipped with office furniture, such as flattop desks, slanttop draftsman's tables, and similar items.

The launderette in the instant case is equipped with washing machines and dryers, appropriate water and electrical connections, and other equipment ordinarily found in a laundry. In this case, the trailer is used as a laundry building and as a permanent structure at its location in the trailer park.

A taxpayer is allowed under section 38 of the Code to claim a credit against his tax for his qualified investment in "section 38 property." This includes depreciable "tangible personal property" or certain depreciable "other tangible property" (other than buildings and their structural components), having a useful life of four years or more.

An asset which has mobility characteristics is not automatically excluded from the category of buildings for investment credit purposes. Its actual functional use rather than its possible use will be controlling. See section 1.48-1(e) (1) of the Income Tax Regulations which defines a building as any structure or edifice enclosing a space within its walls, and usually covered by a roof, the purpose of which is to provide shelter or housing or to provide working, office, parking, display, or sales space.

An asset which, in fact, is primarily used to provide living, working, office, parking, display, sales space, or any other similar use, as distinguished from its use in transporting persons, freight, or equipment, is generally included within the term "building" as used in section 1.48-1(e) (1) of the regulations. The fact that an asset, incidental to its primary use, may be moved from one location to another location does not detract from its primary use as a building.

Under section 179 of the Code, a taxpayer may elect, in the first taxable year for which a deduction for depreciation is allowed on "tangible personal property," an additional depreciation allowance of 20 percent of the cost of the property subject to certain limitations. Only depreciable "tangible personal property" which has a useful life of 6 years or more qualifies.

Section 1.179-3 (b) of the regulations provides that local law definitions will not be controlling for purposes of determining the meaning of the term "tangible personal property." Land and land improvements such as buildings or other inherently permanent structures (including items which are structural components of such buildings or structures), are excluded from the term "tangible personal property." For purposes of determining whether property qualifies as "section 179 property" the distinction between a land improvement and tangible personal property for a structure which is designed with mobility characteristics will depend on the relative permanence of the structure. Accordingly, under the facts stated, the motor vehicle trailer used as a launderette is a building within the meaning of sections 1.48-1 (e) (1) and 1.179-3(b) of the regulations and does not qualify either as "section 38 property" for the investment credit or as "section 179 property" for the additional first-year depreciation allowance.

SUBCHAPTER B.-COMPUTATION OF TAXABLE INCOME

PART I-DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, AND

TAXABLE INCOME

SECTION 61.-GROSS INCOME DEFINED

26 CFR 1.61-1: Gross income.

(Also Section 170; 1.170-2.)

Rev. Rul. 67-30

The taxpayer, a retired executive, performs gratuitous services for an organization of the type described in section 170 (c) of the Internal Revenue Code of 1954 and receives a per diem allowance to cover his reasonable travel expenses, including meals and lodging, while away from home in the performance of such services. Held, under the circumstances the per diem allowance is includible in gross income to the extent it exceeds the taxpayer's actual travel expenses. Held further, a deduction is allowable as a charitable contribution for his travel expenditures necessarily incurred incident to the rendition of the donated services only to the extent they exceed the amount of the per diem allowance.

Rev. Rul. 67-38

An individual is employed by a State agency which is not a covered employer under the State's unemployment compensation laws. Therefore, the individual is not entitled to statutory unemployment compensation coverage. However, as a result of a collective bargaining agreement, the State agency agrees to pay the individual an amount comparable to that provided under the State's unemployment compensation laws. Held, under such circumstances the individual is in receipt of gross income at such time as he receives the payment. This conclusion is in accordance with Revenue Ruling 56-249, C.B. 1956-1, 458, which holds that benefits paid to individuals by trustees of a trust created pursuant to the provisions of a supplemental unemployment benefit plan established by the M company pursuant to a collective bargaining agreement entered into with the O Labor Union are includible in gross income of such individuals for the year in which received.

Rev. Rul. 67-47

Sums received by a principal from his exclusive sales agent as a security deposit to insure the agent's performance under the terms of a contract are not includible in the gross income of the principal where he is under an obligation to repay such amounts upon the performance of the terms of the contract. The sales agent may not deduct these payments made during the period of the contract. However, the security deposit or the appropriate part thereof will be includible in the gross income of the principal in any year in which the agent defaults on the contract and the sums are, consequently, appropriated by the principal to cover such default. When such default occurs the sales agent may deduct such sums.

The Internal Revenue Service has been requested to state its posion with respect to the treatment for Federal income tax purposes

of amounts received by an individual and paid by another as a security deposit which must later be returned to the payer if he does not default on his obligations under the agreement between the individuals.

An individual who owns certain trademarks, copyrights, and secret formulas, and has developed certain methods of operation with respect to a food business, entered into an agreement with another individual, whom he designated as his exclusive sales agent, to sell franchises.

Under the agreement, the agent is required to secure and write two franchise agreements a year for a period of 10 years and thereafter one franchise agreement each year. To secure the performance of his obligations under the agreement, the agent agreed to establish a security deposit with his principal, payable 25x dollars upon signing of the agreement and 5x dollars at the end of each calendar year thereafter until a total of 75x dollars has been established as a security deposit. If, at the end of 10 years after a total of 75 dollars has been on deposit as security, the agent performs his obligation under the agreement, the principal is required to return the entire security deposit to the agent.

Prior to any default by the agent, the sum is deposited with the principal who is not required to keep such funds in a separate account. However, if the agent defaults upon his obligations under the agree ment, he will forfeit all or part of the security deposit made by him. Provision is also made in the agreement whereby certain franchise fee payments to be received by the principal would be assigned to the agent if, at the time the security deposit is to be returned to him, the principal is unable to repay all or a portion of the security deposit.

Section 61(a) of the Internal Revenue Code of 1954 provides that gross income means all income from whatever source derived, including compensation for services, except as otherwise provided.

In the case of John Mantell v. Commissioner, 17 T.C. 1143, 1148 (1952), acquiescence, C.B. 1952-1, 3, the court held that the sum received by the lessor upon execution of a lease, as security for the lessees' performance of the terms of the lease, was not taxable income upon receipt where the lessor was under obligation to repay it unless in the meantime it should be appropriated to make good a default by the lessees.

A similar result was reached in the case of Bradford Hotel Operating Co. v. Commissioner, 244 F. 2d 876 (1957), vacating and remanding 26 T.C. 454 (1956), in connection with a security deposit made under a 35-year lease. In that case the lessor was given the right to commingle and use the security deposit for its own purposes without interest throughout the term of the lease and was obligated to return the security deposit to the lessee immediately upon the expiration of the lease or any extension or renewal thereof provided that the lessee had fulfilled all the obligations of the lease.

Although the above-cited cases concern security deposits made with regard to leased premises as opposed to contracts for service, the principles set forth in those cases are applicable to the facts in this

case.

Accordingly, the sums received by the principal from his exclusive sales agent as a security deposit to insure the agent's performance un

der the terms of a contract, are not includible in the gross income of the principal where he is under an obligation to repay such amounts upon the performance of the terms of the contract. The sales agent may not deduct these payments paid during the period of the contract. However, the security deposit or the appropriate part thereof will be includible in the gross income of the principal in any year in which the agent defaults on the contract and the sums are, consequently, appropriated by him to cover such default. When such default occurs the sales agent may deduct such sums.

(Also Section 72; 1.72-16.)

Rev. Rul. 67-154

Where an insurer has published one-year term life insurance rates which are lower than those set forth in Revenue Ruling 55–747, C.B. 1955-2, 228, such rates may not be used to compute the one-year term cost of the insurance protection to which an employee is entitled from year to year under a "split dollar" arrangement with his employer or under a trust qualified under section 401 (a) of the Internal Revenue Code of 1954 if these rates do not relate to initial issue insurance. Revenue Ruling 66-110, C.B. 1966-1, 12, amplified.

Advice has been requested as to whether it is proper to substitute an insurer's published one-year term insurance rates for those set forth in Revenue Ruling 55-747, C.B. 1955–2, 228, in determining the cost of insurance under a "split dollar" arrangement or a trust qualified under section 401(a) of the Internal Revenue Code of 1954, where such published rates are applicable only under a dividend option whereby term insurance may be purchased with dividends on existing policies, and are lower than the premium rates charged by the insurer for other individual one-year term life insurance policies.

Revenue Ruling 66-110, C.B. 1966-1, 12, provides that in any case where the current published premium rates per $1,000 of insurance protection charged by an insurer for individual one-year term life insurance available to all standard risks are lower than those set forth in Revenue Ruling 55-747, such published rates may be used in place of the rates set forth in that Revenue Ruling for determining the cost of insurance in connection with individual policies issued by the same insurer and used for "split dollar" arrangements or held by trusts qualified under section 401 (a) of the Code.

In referring to rates that may be substituted for the above purposes, Revenue Ruling 66-110 contemplates gross premium rates charged by an insurer for initial issue insurance, available to all standard risks. Dividend option rates such as those described in the first paragraph of this ruling are not available to all standard risks since an individual eking to purchase only a basic policy of term insurance could not obtain it at those rates. Accordingly, such rates are not rates of the kind contemplated by Revenue Ruling 66-110, and for the purposes menboned in that ruling may not be substituted for the rates set forth Revenue Ruling 55-747.

Revenue Ruling 66-110 is hereby amplified.

Whether income is realized on obtaining an oil and gas lease of ferally owned lands by means of a drawing conducted by the Bureau