Council Ruling [Cost of Living Council Ruling 1972–88] TURAL PRO RAW AGRICULTURAL PRODUCTS

FOR PROD

Facts. Company A is a wholesaler of is a paraw agricultural products. It purchases corporatiese products from farmers and farmand oper's cooperatives and resells the goods to hout tores. A Company does not process the duce products or change their physical form. crating had purchased certain products prior crop. Clo June 29, 1972 and now intends to sell olesale hem.

its go Issue. Will the special rule of Economic atives Stabilization Regulation § 101.32(a), 37 stores. F.R. 12961 (1972) exempt A's sales of te has raw agricultural products purchased becers anfore June 29, 1972?

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Ruling. The exemption applies only to up be the first sale by a producer or grower of es of the a product that is of a type sold for ultibilization imate consumption in its original physical R. 12961 form. The special rule does not exempt mption pr sales of those products by a distributor Conomic & unless the distributor is also the pro1.32(a), ducer or grower of the product. Coverto raw agi age of distributors' sales begins on the relate to effective date of the regulation and covTherefor erage is not conditioned on the time of re making purchase of the goods sold.

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This ruling has been approved by the General Counsel of the Cost of Living en approved Council.

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[Cost of Living Council Ruling 1972-89] DEFINITION OF ANNUAL SALES OR REVENUES

Facts. X is a real estate management firm which collects over $75 million annually in rents for clients who own various rental real estate properties, for which X receives 10 percent of the gross rents collected. In addition, X collects over $30 million in rents on rental properties which it owns and manages in its own behalf.

Issue. What are the "annual sales or revenues" of X?

Ruling. "Annual sales or revenues" means the total gross receipts of a firm during its most recent fiscal year, from whatever source derived, * * "". Ecoduct being nomic Stabilization Regulation, 6 CFR Old for 101.2 (1972). However, annual sales or ginal p revenues do not include those funds er intends to an agency relationship and which are

is exemp

pproved by

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which are collected by a firm pursuant

a liability to the collecting firm. Receipt by the agent is receipt by the principal. (See Rev. Rul. 58-220, 1958-1, C.B. 26.) Accordingly, the annual sales or revenues

of X are $37.5 million ($7.5 million in commissions and $30 million from rents collected on its own behalf).

This ruling has been approved by the General Counsel of the Cost of Living Council.

[37 F.R. 15011, July 27, 1972]

[Cost of Living Council Ruling 1972–90] SMALL BUSINESS EXEMPTION; FIRM

EMPLOYEES

Facts. Three companies, which are owned and directly controlled by the same individual, have employees, who work for all three companies and are paid by each of the companies for the services rendered to it. For example, one bookkeeper maintains the books and records of all three companies and is paid a monthly salary by each company.

Issue. In order to determine eligibility for the small business exemption under Economic Stabilization Regulations, 6 CFR 101.51 (1972), how are the number of employees of the three companies determined?

Ruling. Section 101.51 exempts from Economic Stabilization coverage all pay and price adjustments (except rent) for any firm with an average of 60 employees or less. "Firm" as defined in 6 CFR 101.2 (1972), includes one or more corporations controlled directly or indirectly by an individual and certain members of his family.

No distinction is made between casual, part-time, or full-time employees, with all being included for purposes of determining eligibility for the small business exemption. However, since all controlled companies are considered as one firm, an individual employee, who may work for more than one company, is counted only once in arriving at the average number of employees of the companies for exemption purposes.

This ruling has been approved by the General Counsel of the Cost of Living Council.

[37 F.R. 15011, July 27, 1972]

[Cost of Living Council Ruling 1972-91] SMALL BUSINESS EXEMPTION; PRIOR DENIAL OF EXCEPTION

Facts. A contract settlement covering | 43 employees of a firm was submitted to IRS prior to the effective date of the small business exemption regulations on May 2, 1972, Economic Stabilization Regulations, 6 CFR 101.51 (1972), in sup

port of a request for an exception, which was denied. The firm is a separate and independent business organization, which is not a subsidiary of another corporation, nor do the 43 employees comprise a unit of a larger employee unit. The employer is now exempt under the small business exemption in § 101.51.

Issue. Is the denial of an exception still binding or can the terms of the contract take effect as of May 2, 1972?

Ruling. In order to qualify for the small business exemption under § 101.51, a firm must have an average of 60 or fewer employees as of certain specified dates. The exemption operates prospectively only, according to § 101.51 (c). Thus, the firm, as an independent business organization, not controlled by another corporation as a subsidiary and not a unit of any larger organization and having 60 or less employees, is considered exempt as of May 2, 1972, and the contract may take effect as to wages and other benefits due employees from that day forward.

This ruling has been approved by the General Counsel of the Cost of Living Council.

[37 F.R. 15011, July 27, 1972]

[Cost of Living Council Ruling 1972–92] SMALL BUSINESS EXEMPTION

COMPUTATION

Facts. Company X was established on February 1, 1972. It had 40 employees on March 31, 1972. For the quarter ending on June 30, 1972, Company X will have 75 employees.

Issue. Does Company X permanently lose the small business exemption?

Ruling. Yes. Economic Stabilization Regulations, 6 CFR 101.51(b) (2) (vi) (1972), states that any firm coming into existence on or after January 1, 1972, will be deemed to have lost the small business exemption if it has an average of more than 60 employees in any calendar quarter in its first four calendar quarters after March 31, 1972. The average number of employees for firms coming into existence on or after January 1, 1972, for the first calendar quarter after March 31, 1972, is computed as follows:

*** the average number of employees shall be deemed to be 60 or fewer until such time as the number of employees in the first calendar quarter after March 31, 1972, exceeds 60. (Economic Stabilization Regulations, 6 CFR 101.51 (b) (8) (1) (1972)).

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Facts. Company A owns 60 percent the stock of Company B, a subsidiary re A, Company B is controlled by Compar A. The companies do not prepare co solidated accounting statements or fed consolidated income tax returns. In last fiscal year ending December 31 1971, Company A had sales of $90 mil fo lion. Company B's most recent fiscal year a ended June 30, 1972, at which time t had sales of $7 million; in its fiscal year ended June 30, 1971, it had annual sales of $11 million.

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Issue. Is Company A a "price category! firm" for purposes of the Economic 18 Stabilization Regulations?

Ruling. Company A is a "price category I firm" within the Economic Stabiliza tion Regulations, and it must prenotify the Price Commission of its proposed price adjustments.

The regulations provide that firms with annual sales or revenues of $100 million or more are included as price category I firms; 6 CFR 101.11 (1972). A "firm" includes any entity that is part of or is directly or indirectly controlled by the firm, and "annual sales or revenues" means the total gross receipts of & firm during its most recent fiscal year from whatever source derived; Economic Stabilization Regulations 6 CFR 1011 (1972).

For purposes of determining "firm" under the Cost of Living Council Regu lations, 6 CFR 101.2, Company A includes Company B, because A controls B.

While Company B has completed a fiscal year since the end of the most recent fiscal year of Company A, the annual sales and revenues which it is deemed to contribute towards the firm's annual sales or revenues are those of the fiscal year completed during Company A's last fiscal year. This is because the definition of annual sales and revenues includes the

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er of em Quarter 1 lose the ce the annual sales of Company B beens fiscal year ending June 30, 1972, of the not be determined as of the close most recent fiscal year (ending DeDer 31, 1971), its annual sales or reve7,1972) for purposes of determining the anuncil a sales or revenues of the firm shall be AND R of its most recent fiscal year endprior to the end of the firm's most ISCAL nt fiscal year. Therefore Company A owns "price category I firm" within the my Ballations.

had sales.

-ntrolled Company A's total gross receipts for do not pr fiscal year ending December 31, 1972 g statenot equal or exceed $93 million, it will e tax ret longer be a "price category I firm" nding Dause its "annual sales or revenues" its most recent fiscal year, when led to those of Company B will not be most recent 00 million or more (Economic Stabili72, at whi ion Regulations, 6 CFR 101.11 (1972)). lion; in its i 1, it had This ruling has been approved by the neral Counsel of the Cost of Living uncil.

y A a "price es of the lations?

7 F.R. 15524, Aug. 3, 1972]

[Cost of Living Council Ruling 1972-94]
SMALL BUSINESS EXEMPTION

A is a "price Economic nd it must! Facts. A union, which has traditionally ion of it egotiated on a master contract basis, as changed its negotiating procedures provide thince the publication of the small busirevenues of less exemption regulations on May 3, luded as pr972. Economic Stabilization RegulaR 101.11 ions, 6 CFR 101.51 (1972). Since that entity that late, the union is now negotiating its Indirectly contracts with individual firms in an nual sales effort to avoid § 101.51(a) (2) (iv). 1 gross rece Issue. Can the benefits of the small recent fibusiness exemption be obtained by use of derived; the individually negotiated contract, if ions 6 Cemployees of the firm were previously covered by a master contract which covtermining ered more than 60 employees? No. The provisions of ng Council Ruling. mpany Am§ 101.51(a) (2) (iv) specify that a firm controls B which was in existence on or before

5 completed

December 31, 1971, does not qualify for

the most the small business exemption if the pay A, the adjustments applicable to 50 percent or

• firm's

it is deem more of its employees immediately preose of the tion were set by a master employment or ompany A similar contract covering more than 60 Se the defin employees. The firm would therefore be ues includes disqualified for both pay and price ad

ceding the effective date of the regula

Ruling

justments. A subsequent change in collective bargaining practices will not change this result.

This ruling has been approved by the General Counsel of the Cost of Living Council.

[37 F.R. 15524, Aug. 3, 1972]

[Cost of Living Council Ruling 1972–97]

EFFECTIVE CONTROL

Facts. P Corporation owns 45 percent of the stock of S Corporation, the remaining stock being held by numerous other persons, and nominees of P presently constitute a majority of the Board of Directors of S Corporation. On the basis of these facts, the Securities and Exchange Commission has ruled that S Corporation must specify in its proxy solicitation and other shareholder information that it is controlled by P Corporation.

Issue. Is the S Corporation considered to be controlled by the P Corporation for purposes of the reporting classifications of the Economic Stabilization Regulations?

Ruling. The S Corporation is considered to be controlled by the P Corporation, and its sales must be added to those of the P Corporation in determining the reporting category into which the P Corporation falls.

The Economic Stabilization Regulations provide that firms with annual sales and revenues from $50 million to $100 million are generally price category II or "reporting" firms and those with annual sales and revenues of $100 million or more are price category I or "prenotification" firms; 6 CFR 101.11 and 101.13 (1972). Firms with annual sales and revenues of less than $50 million generally need not report or prenotify: 6 CFR 101.15 (1972). A "firm" includes a corporation and also includes any entity that is part of or is directly or indirectly controlled by the firm; 6 CFR 101.2 (1972).

Although the P Corporation owns less than 50 percent of the stock of S Corporation, it is clear from the above provisions that stock ownership is not the exclusive standard by which control is determined. "Whether or not one firm controls another is a question of fact." Cost of Living Council Ruling 1972-51 (Price Commission Ruling 1972-179), 37 F.R. 10962 (1972). "Among other things, ownership of more than (a) 50 percent

(stock) interest meets the test of control." Cost of Living Council Ruling 1972-51.

One of the "other things" upon which a finding of "control" will be based is ownership of a sufficient interest in a corporation or other entity to dictate the pricing policies of that entity. On the basis of these facts, ownership of 45 percent of the stock of S Corporation, while the remaining 55 percent of the stock is dispersed has enabled P Corporation to have so many of its nominees elected to the Board of Directors of S that they constitute a majority. Moreover, the reality of their control has been recognized by the Securities and Exchange Commission in its evaluation of S Corporation's proxy materials.

Therefore, for purposes of determining its reporting obligations under the Economic Stabilization Program, Corporation P must include the annual sales and revenues of S Corporation in its own annual sales and revenues.

This ruling has been approved by the General Counsel of the Cost of Living Council.

[37 F.R. 16025, Aug. 9, 1972]

[Cost of Living Council Ruling 1972-98] ATTRIBUTION OF INDIRECT INTERESTS

IN RENTAL UNITS

Facts. A owns four single-family dwelling units which he leases as residences to others. A's wife, B, is the sole beneficiary of a testamentary trust which owns four other single-family dwelling units which it also leases as residences.

Issue. Which of the above units are exempt from the Economic Stabilization Regulations?

Ruling. The four units owned by A are not exempt; the four units owned by the testamentary trust of which B is the sole beneficiary are exempt.

The Economic Stabilization Regulations exempt single-family dwelling units and rental units in multifamily dwellings, provided the owner of such units and members of his family (as defined in section 318 of the Internal Revenue Code of 1954, as amended) do not own or have an interest, directly or indirectly, in more than an aggregate of four such rental units; 6 CFR 101.33 (a) (2) (iv) (1972).

As sole beneficiary of a trust which owns four rental units, B has an indirect interest in those four rental units. A directly owns four rental units. Since

B is a member of A's family (as in section 318 of the Internal Re Code of 1954, as amended), the which she has an indirect interes: be added to the units which A oc rectly in order to determine whethe units are exempt. Since the num units which A owns directly, pl number of those in which A's wi an indirect interest, exceeds four units owned by A are not exempt.

Since the trust does not own or an interest, directly or indirectly more than an aggregate of four rental units, and since no persons be related to a legal person, such trust or an estate, so as to be a "ma ber of the family" of the trust or es (as defined in section 318 of the Inter f Revenue Code of 1954, as amende those rental units owned by the trust exempt.

This ruling has been approved by General Counsel of the Cost of Liv Council.

[37 F.R. 16025, Aug. 9, 1972]

[Cost of Living Council Ruling 1972-99] ANNUAL SALES AND REVENUES

FOREIGN SUBSIDIARY

Facts. P is a manufacturing corpor tion. P also controls two foreign sub sidaries A and B. P, A, and B ar classified in the same two-digit classi fication of the Standard Industrial Clas sification Code. Each corporation main tains separate balance sheets and prepares separate financial statements. Thirty percent (30 percent) of the gross receipts of A are derived from transactions with foreign firms. Seventy per cent (70 percent) of the gross receipts of B are derived from transactions with foreign firms.

Issue. Whether the gross receipts of or B are included in the annual sales or revenues of P for purposes of deter mining P's price category?

Ruling. The annual revenues of ? should include the gross receipts of A but not the gross receipts of B.

Section 101.2 defines "annual sales of revenues" as the total gross receipts of a firm during its most recent fiscal year from whatever source derived, except that it does not include gross receipts of or from a wholly or partially owned foreign entity such as a subsidiary, the gross receipts of such foreign entity are derived primarily from transactions with other foreign firms. Economic Sta

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eration Regulations, § 101.2, 37 F.R. 123 (1972). Since annual revenues in

the total gross receipts of the firm ever source derived, the gross res of any subsidiary are included in otal unless expressly excluded by the ition. The only gross receipts exzed are gross receipts from foreign idiaries which derive their revenue marily from transactions with foreign Aas. For the purposes of the Economic 206bilization Regulations "primarily" rans more than half of the gross repts of the foreign subsidiary. Thus, S the present case, the gross receipts subsidiary A are not excluded from the Snual revenues of P, whereas the gross

eipts of subsidiary B are excluded om the annual revenues of P. f134 This ruling has been approved by the eneral Counsel of the Cost of Living ouncil.

s been of the

7 F.R. 16025, Aug. 9, 1972]

[Cost of Living Council Ruling 1972–100]

SMALL BUSINESS EXEMPTION

9, 1972) Council Facts. Prior to the publication of the mall business exemption regulations AND REconomic Stabilization Regulations, 6 SUBSIDI FR 101.51 (1972)), an employer had at east 50 percent of his employees under nufactur master contract covering more than ols two 50 employees. At the present time, this - P, A employer has no employees covered by a me twomaster contract or similar employment dard Ind contract covering more than 60 emh corpo ployees. ance sheets

Enancial percent) of: derived fra

Issue. Can this employer qualify for the small business exemption?

Ruling. No. The provisions of § 101.51 (c) state that the small business exempfirms. Se tion operates prospectively only from the of the gross effective date of the regulation. However, m transact in determining the applicability of the exemption, § 101.51 (a) (2) (iv) clearly gross rece specifies that the exemption is not apthe ann plicable if the firm's pay adjustments immediately preceding the effective date

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of the regulation which applied to or affected 50 percent or more of its employees, were set by a master or similar employment contract covering more than 60 employees.

This ruling has been approved by the General Counsel of the Cost of Living Council.

[37 F.R. 16114, Aug. 10, 1972]

[Cost of Living Council Ruling 1972-101] COST OF LIVING COUNCIL RULINGS UPDATE AS OF JUNE 30, 1972

The purpose of this ruling is to provide guidance as to the current applicability of all Cost of Living Council rulings which were published in the FEDERAL REGISTER on or before June 30, 1972. The effect of the republication of the rent regulations, 37 F.R. 13226 (1972) has been considered.

The ruling indicates the earliest date the result of a particular ruling would be the same (even if prior to the effective date of that ruling and even though different logic would be required in order to reach the same result) and whether a particular ruling can be relied upon for current transactions or, if it cannot, the last date it can be relied upon. A ruling which is only "partly" applicable to current transactions is so indicated. No limiting date is provided if the ruling is still currently applicable in some respects. No attempt has been made to specify in exactly what ways a particular ruling may not be currently applicable. In all cases the "Comments" portion of the ruling should be consulted to ascertain whether subsequent rulings or regulations have affected the ruling.

The number in the citation column of this ruling refers to the page on which a particular ruling was originally published in the FEDERAL REGISTER (Volume 36 for 1971 rulings or, Volume 37 for all other rulings).

24231 Nov. 13, 1971

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