ANNOUNCEMENT RELATING TO DECISIONS OF THE TAX COURT OF THE UNITED STATES It is the policy of the Internal Revenue Service to announce in the Internal Revenue Bulletin at the earliest practicable date the determination of the Commission to acquiesce or not acquiesce in a decision of The Tax Court of the United States which disallows a deficiency in tax determined by the Commissioner to be due. Notice that the Commissioner has acquiesced or nonacquiesced in a decision of The Tax Court relates only to the issue or issues decided adversely to the Government. Actions of the acquiescences in adverse decisions should be relied on by Revenue officers and others concerned as conclusions of the Service only to the application of the law to the facts in the particular case. Caution should be exercised in extending the application of the decision to a similar case unless the facts and circumstances are substantially the same, and consideration should be given to the effect of new legislation, regulations, and rulings as well as subsequent court decisions and actions thereon. Acquiescence in a decision means acceptance by the Service of the conclusion reached, and does not necessarily mean acceptance and approval of any or all of the reasons assigned by the Court for its conclusions. No announcements are made in the Bulletin with respect to memorandum opinions of The Tax Court. The announcements published in the weekly Internal Revenue Bulletins are consolidated semiannually and annually. The semiannual consolidation appears in the first Bulletins for July and January and in the Cumulative Bulletin for the first half of the year, and the annual in the Cumulative Bulletin for the last half of the year. (5) Schneider, Molly, administratrix of the estate of 54289 54290 30 929 29 940 30 929 29 940 30 929 54292 Smith, Catherine, transferee of Harry Schneider, deceased. 54296 Yeomans, Betsy Lusk..... 60656 61741 330 757 The page citation of this decision which has not been reported will be published in the Cumulative Bulletin. For ready reference, the date of the decision is shown after the taxpayer's name. 1 Acquiescence regarding the issues as to whether the corporation's acquisition of assets under an installment sales contract was a bona fide sale; whether the basis to the corporation of the assets acquired by it is their cost; the allowability of corporate deductions for interest paid on the installment contract; and whether payments pursuant to such contract were taxable dividends to J. I. Morgan, et ux. The Commissioner does NOT ACQUIESCE in the following decisions: PART I RULINGS AND DECISIONS UNDER THE INTERNAL REVENUE CODE OF 1954 Rulings and decisions published in Part I of the Internal Revenue Bulletin are based on the application of provisions of the Internal Revenue Code of 1954 and, unless otherwise stated in the rulings or decisions, are published without consideration as to any application of the provisions of the Internal Revenue Code of 1939 or related public laws. SECTION 11.-TAX IMPOSED [TAX ON CORPORATIONS] 26 CFR 1.11: Statutory provisions; tax on T. D. 63501 TITLE 26-INTERNAL REVENUE, 1954.-CHAPTER 1, SUBCHAPTER A, PART 1.— INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953 Income Tax Regulations amended to conform to certain provisions of the Tax Rate Extension Act of 1958 (72 Stat. 259), relating to corporate normal tax under section 11(b) of the Internal Revenue Code of 1954. DEPARTMENT OF THE TREASURY, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, To Officers and Employees of the Internal Revenue Service and Others In order to conform the Income Tax Regulations (26 CFR Part 1) to those amendments made to the Internal Revenue Code of 1954 by the Tax Rate Extension Act of 1958 (72 Stat. 259), which relate to the extension of corporation normal-tax rate under section 11(b), such regulations are amended as follows: PARAGRAPH 1. Section 1.11, as amended by Treasury Decision 6237, approved June 5, 1957 [C.B. 1957-1, 7], is further amended by revising section 11(b) (1) and (2) and the historical note to read as follows: §1.11 STATUTORY PROVISIONS; TAX ON CORPORATIONS. SEC. 11. TAX IMPOSED. ✦ ✦ ✦ (b) NORMAL TAX (1) TAXABLE YEARS BEGINNING BEFORE JULY 1,1959.-In the case of a taxable year beginning before July 1, 1959, the normal tax is equal to 30 percent of the taxable income. 124 F.R. 127. (2) TAXABLE YEARS BEGINNING AFTER JUNE 30,1959.-In the case of a taxable year beginning after June 30, 1959, the normal tax is equal to 25 percent of the taxable income. [Sec. 11 as amended by sec. 2, Tax Rate Extension Act 1955 (69 Stat. 14) [P.L. 18, C.B. 1955-1, 619]; sec. 2, Tax Rate Extension Act 1956 (70 Stat. 66) [P.L. 458, C.B. 1956-1, 869]; sec. 2, Tax Rate Extension Act 1957 (71 Stat. 9) [P.L. 85-12, C.B. 1957-1, 666]; sec. 2, Tax Rate Extension Act 1958 (72 Stat. 259) [P.L. 83-475, C.B. 1958-45, 33]] PAR. 2. Paragraph (c) of § 1.11-1, as amended by Treasury Decision 6237, is further amended by striking out "1958" each time it occurs and inserting in lieu thereof "1959". PAR. 3. Paragraph (a) and example (2) in paragraph (n) of 1.21-1, as amended by Treasury Decision 6237, is further amended by striking out "1958” each time it occurs and inserting in lieu thereof "1959". Because this Treasury Decision merely provides for the extension of the corporate normal-tax rate under the Tax Rate Extension Act of 1958 (72 Stat. 259), it is found unnecessary to issue the Treasury Decision with notice and public procedure thereon under section 4(a) of the Administrative Procedure Act, approved June 11, 1946, or subject to the effective date limitation of section 4 (c) of that Act. (This Treasury Decision is issued under the authority contained in section 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805).) O. GORDON DELK, Acting Commissioner of Internal Revenue. Approved December 31, 1958. FRED C. SCRIBNER, JR., Acting Secretary of the Treasury. (Filed by the Division of the Federal Register on January 6, 1959, 8:49 a.m., and published in the issue of the Federal Register for January 7, 1959, 24 F.R. 127.) SECTION 21.-EFFECT OF CHANGES [CHANGES IN RATES DURING A TAXABLE YEAR] 26 CFR 1.21-1: Changes in rate during taxable year. The regulations relating to corporate normal tax are amended. See T.D. 6350, page 7. SECTION 61.-GROSS INCOME DEFINED 26 CFR 1.61-1: Gross income. (Also Section 103; 1.103-1.) Rev. Rul. 59-41 Income to be earned by a nonprofit corporation formed, under the general laws of a state at the request of the governing body of a city, to purchase a water system by means of a bond issue with the city's approval and advice on operations and to supply water to a municipality and its environs, will not be subject to Federal income tax where (1) no part of the earnings or other assets of the corporation may inure to the benefit of any private shareholder or indi vidual,, (2) title to the water system will vest in the municipality Advice has been requested (1) whether income to be received by a nonprofit corporation, to be organized under the applicable provisions of the general laws of a state, is includible in gross income and (2) whether interest to be paid on bonds issued by the corporation is exempt from Federal income tax. Corporation M was incorporated under the non-profit corporation law of the State at the request of the governing body of the City of N. The corporation was organized for the exclusive purpose of purchasing and operating a water system to supply and distribute water for municipal, domestic, and industrial uses in and near the City of N. The City of N, which had the right pursuant to law to purchase such water system, waived such right and by contract with the M corporation ratified and approved the purchase of the water system by the corporation. Under such contract the City of N ratified the terms of an indenture under which the company proposed to incur debt and issue bonds to finance the purchase and construction of the water system. The contract expressly set forth the terms of an option under which the City of N might at any time purchase the water system for an amount equal to the indebtedness then outstanding, together with interest, and also expressly provided that, without demand or further action of any kind, the City of N should become the owner in fee and entitled to immediate exclusive possession of the properties when the debt of the company is fully paid. The contract created an advisory board composed of the members of the commission council of the City, who were to be notified of meetings and have the right to attend and participate and make recommendations. Periodic reports are to be made, open to the City and bondholders. All funds used for the acquistion of the water system will be borrowed through the issuance of the corporation's long-term first mortgage revenue bonds. At the same time additional bonds will be issued for extension and improvements of the water system. The bonds will be callable prior to maturity. The indenture which secures the bond provides that all monies received by the corporation for the sale of water to its customers shall be used by the corporation, first, to pay reasonable and proper operating expenses, second, to pay the interest on and the principal of the bonds, and, third, to establish the reserves required under the indenture securing the bonds. So long as these payments are current, surplus receipts are to be paid to the general fund of the City of N. Title to the system shall vest in the City of N free of all liens, claims, and encumbrances at the time the bonds and the accrued interest thereon have been paid in full. No part of the net earnings or other assets of the corporation shall inure to the benefit of any private shareholder or individual. The commission council of the City of N, by resolution approved by the mayor, stated its intention 494287-59- -2 |