page 8.

The Revenue Service discusses the valuation for Federal Rev. Rul. 59-195,
income tax purposes of a life insurance policy pur-
chased by an employer on the life of an employee and
subsequently sold to the employee.

The fair market value of a charitable contribution con-
sisting of an undivided interest in oil and gas leases
is deductible by the donor; such fair market value is
not includible in the donor's gross income; and the
amount of the contribution need not be reduced by
the intangible drilling and development costs previ-
ously deducted by the donor.

Rev. Rul. 59-196, page 10.

The Revenue Service discusses the applicability of the Rev. Rul. 59–197,
control and continuity of interest requirements to a
“split-off”_reorganization involving a sale of stock to

a key employee who, as a result of the sale and the re-
organization, acquired a one-third voting interest in
the new corporation.

page 11.

A restricted stock option will not be disqualified solely Rev. Rul. 59-198, by reason of the fact that its terms differ from those

of options granted other employees.

page 14.

A husband and wife, citizens and residents of a foreign Rev. Rul. 59-199,

country, may, for Federal income tax purposes, divide
income from sources within the United States which
constitutes community income under the laws of such
foreign country.

page 32.

page 15.

Regulations have been adopted relating to corporations T. D. 6377,
improperly accumulating surplus; also, the regula-
tions relating to disallowance of surtax exemption and
accumulated earnings credit have been amended.

page 43.

Treasury Decision 4914, relating to the surtax on corpo- T. D. 6378,
rations improperly accumulating surplus, has been
further amended to limit its application to taxable
years to which the 1939 Code and the Revenue Act
of 1938 are applicable.

(Continued on page 3)

TREASURY DEPARTMENT • INTERNAL REVENUE SERVICE

506743°-59-1

INTRODUCTION

The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for the announcement of official rulings and procedures of the Internal Revenue Service, and for the publication of Treasury Decisions, Executive Orders, tax conventions, legislation, and court decisions pertaining to internal revenue matters. Other items considered to be of general interest are also published in the Bulletin, such as announcements relating to proposed regulations published with notice of proposed rulemaking, announcements relating to decisions of the Tax Court of the United States, announcements of the disbarment and suspension of attorneys and agents from practice before the Treasury Department, Delegation Orders, etc.

It is the policy of the Service to publish in the Bulletin all substantive and procedural rulings of importance or of general interest, the publication of which is considered necessary to promote a uniform application of the laws administered by the Service. It is also the policy to publish all rulings and statements of procedures which supersede, revoke, modify, or amend any published ruling or procedure. Except where otherwise indicated, published rulings and procedures apply retroactively. Rulings and statements of procedures relating solely to matters of internal management are not published. However, statements of internal practices and procedures affecting rights or duties of taxpayers, or industry regulation, which appear in internal management documents, are published. Revenue Rulings and Revenue Procedures are based upon rulings and internal management documents prepared in the various divisions of the National Office, including the Office of the Chief Counsel for the Internal Revenue Service. In the preparation of these, caution is exercised to conceal the identity of the taxpayer, as well as any confidential personal and business information. All Revenue Rulings published in the Bulletin have received the consideration and concurrence of the Chief Counsel.

Revenue Rulings and Revenue Procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations (including Treasury Decisions), but are published to provide precedents to be used in the disposition of other cases, and may be cited and relied upon for that purpose. Since each published ruling represents the conclusion of the Service as to the application of the law to the entire state of facts involved, Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. In applying rulings and procedures published in the Bulletin,

(Continued on page 4)

HIGHLIGHTS OF THIS ISSUE-(Continued from page 1)

EXCISE TAXES:

page 44.

The Revenue Service will follow the decisions in Kerns Rev. Rul. 59-200,
v. United States and Getchell Mine, Inc. v. United
States in disposing of cases involving the applicability
of the now-repealed tax on the transportation of prop-
erty to the movement of material from the point of
excavation to the point of processing on the same
premises; Revenue Ruling 249, modified.

The conversion of high fidelity phonographs into stereo-
phonic phonographs constitutes the further manu-
facture of such phonographs, sales of which are sub-
ject to the manufacturers tax.

A leather carrying case which is especially designed for
carrying a radio is not a part or accessory therefor or
a radio or television component, for purposes of the
manufacturers tax; neither is it subject to the retailers
tax on luggage, handbags, etc.

A weighted average formula for computing excludable
transportation and delivery charges may be used, if
approved by the District Director, in determining the
basis for the manufacturers tax with respect to sales
of matches.
Lubricating oil which is placed by a manufacturer in
an enclosed assembly or housing of a taxable article,
whether or not it is sealed in, is considered to be a
component material used in the manufacture of such
article for purposes of exempting the lubricating oil
producer's sale; S. T. 581 and Revenue Ruling 58–
477, modified; S. T. 571 revoked.

Rev. Rul. 59-201, page 35.

Rev. Rul. 59-202, page 34.

Rev. Rul. 59-203, page 36.

Rev. Rul. 59-204, page 38.

The exemption from manufacturers tax of certain sup- Rev. Rul. 59-205,
plies for vessels and aircraft applies to the sale of
articles for use on vessels and aircraft of the United
States Coast Guard.

ALCOHOL TAX:

page 40.

page 46.

Under certain circumstances, the appropriate Assistant Rev. Rul. 59–206,
Regional Commissioner may authorize destruction of
small quantities of tax-free alcohol without Govern-
ment supervision and without the addition of kero-

sene.

page 47.

Upon approval by the appropriate Assistant Regional Rev. Rul. 59-207,
Commissioner, winemakers may use anion exchange
resin Duolite A-6 in the treatment of white wines;
Revenue Ruling 58-461, amplified.

TOBACCO TAX:

page 6.

Proposed regulations would implement the provisions Announcement,
of the Excise Tax Technical Changes Act of 1958 and
make certain editorial, clarifying, and conforming
changes in the regulations relating to cigars and cig-
arettes, and manufactured tobacco.

ADMINISTRATIVE:

page 8.

A printing error appearing in the Bulletin in Treasury T. D. 6364,
Decision 6364, relating to certain procedural and ad-
ministrative requirements in respect of records, re-
turns, payments and related matters applicable to the
taxes imposed by subtitle A of the 1954 Code, is cor-
rected.

Announcement of action on decisions of the Tax Court Page 7.
of the United States.

INTRODUCTION-(Continued from page 2)

personnel of the Service and others concerned must consider the effect of subsequent legislation, regulations, court decisions, rulings and procedures.

Each published ruling is designated as a "Revenue Ruling," and each published procedure is designated as a "Revenue Procedure." These should be cited by reference to the year of issuance and the Bulletin and page where reported. Thus, Revenue Ruling No. 11 for 1959, which is reported on page 18 of Bulletin No. 2 for 1959, should be cited as "Rev. Rul. 59-11, I.R.B. 1959-2, 18," until it appears in the Cumulative Bulletin, when it should be cited as "Rev. Rul. 59-11, C.B. 1959-1,-" Similarly, Revenue Procedure No. 1 for 1959, which is reported on page 61 of Bulletin No. 6 for 1959, should be cited as "Rev. Proc. 59-1, I.R.B. 1959-6, 61," until such time as it appears in the Cumulative Bulletin. Revenue Rulings are keyed to the applicable sections of the Internal Revenue Code and regulations. The Bulletin is published weekly and may be obtained on a subscription basis from the Superintendent of Documents, as indicated below. The contents of the Bulletin are consolidated at least semiannually into a permanent, indexed, Cumulative Bulletin. These are sold on a single-copy basis. Subscribers to the weekly Bulletin will be notified when copies of the Cumulative Bulletins are available.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington 25, D.C. Price 20 cents (single copy). Subscription price: $6.00

a year; $2.75 additional for foreign mailing.

FOREWORD

The Internal Revenue Bulletin is prepared in six parts as follows: I. Part I includes rulings and decisions which are based on the application of provisions of the Internal Revenue Code of 1954 and, unless otherwise stated in the ruling or decision, are published without consideration as to any application of the provisions of the Internal Revenue Code of 1939 or other related public laws.

II. Part II includes rulings and decisions which are based on the application of the Internal Revenue Code of 1939, the Federal Firearms Act, and other public laws except those pertaining to the various alcohol taxes; and, unless otherwise noted therein, they are published without consideration as to any application of the provisions of the Internal Revenue Code of 1954. Part II is subdivided into three subparts according to matters issued under the Internal Revenue Code of 1939 (Subpart A), the Federal Firearms Act (Subpart B), and other public laws (Subpart C).

III. Part III contains rulings and decisions pertaining to the various alcohol taxes. This part is subdivided into four subparts according to matters issued under the Internal Revenue Code of 1954 (Subpart A), the Internal Revenue Code of 1939 (Subpart B), the Federal Alcohol Administration Act (Subpart C), and other public laws (Subpart D).

IV. Part IV contains treaties and tax legislation, including related committee and Conference Reports. This part is subdivided into three subparts according to tax conventions, Treasury Decisions and Revenue Rulings issued with respect thereto (Subpart A), legislation (Subpart B), and Committee Reports (Subpart C). House, Senate and Conference Committee Reports printed in the Bulletin do not include the portion entitled "Changes in Existing Law."

V. Part V is devoted to administrative, procedural and miscellaneous matters.

VI. Part VI includes general announcements which are deemed to be of interest to the general public. With the exception of the disbarment list included in this part, none of the other announcements will be consolidated in the Cumulative Bulletin.

The Highlights of this Bulletin include a reference to each item. published in the Bulletin. Because these are grouped according to the type of tax involved, the Highlights for a particular issue serve as an index to matters published therein. The Bulletin service carries a cumulative index on a monthly basis. That index appears in the first Bulletin for each month and indexes matters published during the preceding month. These monthly indexes are cumulated on a quarterly and semiannual basis, and the indexes so cumulated are published in the first Bulletin of the succeeding quarterly period, respectively.