Gross income - Uncle Fed's Tax*Board

Gross income
(See also specific subject headings)

Gross income
Exclusions-inclusions
274.1 Acreage and conservation reserve payments;
farmers. Payments and cost-sharng
benefits under the acreage and conservation
reserve programs of the Soil Bank Act are includible
in the gross income of the recipient whether
paid in cash, grain, or reduction of Commodity
Credit Corporation loans. Further, such payments
are includable in the recipient’s net earnings from
self-employment; however, if he does not operate
or materially participate in the operation of his
farm they are not includible. §§1.61-4, 1.451-1,
1.1402(a)-1. (Secs. 61, 451, 1402; ’86 Code.)
Rev. Rul. 60-32, 1960-1 C.B. 23.
274.2 Actors; telecasting of old movies.
Amounts distributed by an actors guild to actors as
a result of the telecasting of certain motion pictures
are includable in the gross income of the
actors in the year received. Such amounts do not
constitute wages for employment tax purposes.
Rev. Rul. 54-225 distinguished. §1.61-1. (Sec.
61, ’86 Code.)
Rev. Rul. 60-89, 1960-1 C.B. 379.
274.3 Adoption of poison pill plans. The adoption
of a “poison pill” plan by a corporation does
not cause any taxpayer to realize gross income.
(Secs. 61, 301, 382, 1001, ’86 Code.)
Rev. Rul. 90-11, 1990-1 C.B. 10.
274.4 Advance payments; security deposits;
coupon clearinghouse. Amounts received by a
coupon clearinghouse as security deposits from its
retail merchant clients to cover losses from invalid
coupons submitted by the merchants are not
includible in gross income. §1.61–1. (Sec. 61, ’86
Code.)
Rev. Rul. 82–28, 1982–1 C.B. 11.
274.5 Advance to investors; development of
oil and gas leases. A group of investors contracted
to sell natural gas from its leases to a gas company
pursuant to an agreement calling for the interestfree
advance of money by the purchaser to develop
the leases. No income is realized by a cash method
member of the group as a result of the loan. (Sec.
61, ’86 Code.)
Charles E. Marsh, 73 T.C. 317, Nonacq., 1980-2
C.B. 2.
274.6 Advances to commission salesmen;
charged off by employer. Advances orginally
intended as loans to commission salesmen, that
are subsequently charged off by the employer are
additional compensation to the salesmen and are
deductible by the employer in the year of the
charge-off. I.T. 2043 superseded. §§1.61–12,
1.162-7. (Secs. 61, 162; ’86 Code.)
Rev. Rul. 69-465, 1969–2 C.B. 27.
274.7 Advances to drug manufacturers for
self-insurance; Swine Flu Program. Funds
advanced by the U.S. to drug manufacturers and
placed in a segregated interest-bearing bank
account to be used to satisfy claims against the
manufacturers in connection with the National
Swine Flu Immunization Program of 1976 are
includable in the income of the drug manufacturers
when withdrawn from the account. The manufacturer
may deduct amounts paid or incurred in satisfaction
of damage recoveries or for expenses
incurred in the investigation, settlement, or
defense of any actual or potential claim or suit.
§§1.61-2, 1.162-1. (Secs. 61, 162; ’86 Code.)
Rev. Rul. 77–120, 1977–1 C.B. 16.
274.8 Advances to organization; year-end
excess. An organization that received, from its
retail florist membership, advertising and operating
advances to be used for predetermined purposes,
any year-end excess of advances over
actual expenses being held by the organization as
the member’s assets, will not have such excess
amounts taxable to it as income. (Sec. 61, ’86
Code.)
Florists’ Transworld Delivery Assoc., 67 T.C.
333, Nonacq., 1978-2 C.B. 3.
274.9 Advertising and promotion by membership
corporation. Amounts received from
franchised automobile dealers and an automobile
manufacturer by a corporation, organized and
operated primarily to advertise and promote the
manufacturer’s automobiles, are includable in the
gross income of the corporation, which is entitled
to all allowable deductions, subject to the rules
relating to deductions by membership organizations
from transactions with its members. The Service
will not follow the contrary decisions in Ford
and Broadcast Measurement Bureau. Rev. Rul.
56-209 superseded. §1.61-1. (Secs. 61, 277; ’86
Code.)
Rev. Rul. 74-318, 1974-2 C.B. 14; Ford Dealers
Advertising Fund, 55 T.C. 761, Nonacq., 1974-2
C.B. 5.
274.10 Advertising and promotion by membership
fund. An advertising fund was established
by franchised dealers for administration by
the franchising manufacturer who would receive
and accumulate the nonrefundable contributions
and spend them exclusively to nationally advertise
the franchised product, accounting for any yearend
balance as a liability to the dealers. Held, the
arrangement created an association taxable as a
corporation and the association, not the manufacturer,
realizes gross income. §§1.61-1,
301.7701-1. (Sec. 22(a), ’39 Code; Secs. 61, 277,
7701, ’86 Code.)
Rev. Rul. 74-319, 1974-2 C.B. 15; Seven-Up
Co., 14 T.C. 965, Acq. in result, 1974-2 C.B. 4.
274.11 Advertising, freight, and promotion
by distributors’ association. Independent distributors,
all of whom were required to pay their
own freight, advertising, and promotion costs,
formed their own association and set up a trust
fund in which their contributions were pooled and
expended for authorized freight, advertising, and
promotional costs. At the end of each year, the
unexpended portion of the contributions was
retained in the fund to redeem promotional tokens
included in the products sold. Held, the amount
retained in the fund does not constitute income to
the association. (Secs. 61, 277; ’86 Code.)
Dri-Powr Distributors Association Trust, 54
T.C. 460, Nonacq., 1974-2 C.B. 5.
274.12 Advertising, freight, and promotion
by distributors’ association. Independent distributors,
all of whom were required to pay their
own freight, advertising, and promotion costs,
formed their own association and set up a trust
fund in which their contributions were pooled and
expended for authorized freight, advertising, and
promotional costs. The trust fund, managed by the
manufacturer of the distributed products, had
excess funds at the tax year’s end. Held, the excess
funds did not constitute taxable income in the
manufacturer. (Sec. 61, ’86 Code.)
Clarence M. Wynn, 54 T.C. 460, Acq., 1974-2
C.B. 4.
274.13 Agreement not to compete; considerations
received. Where a corporation sells its
assets, including goodwill, to an unrelated corporation,
one of the conditions of the sale being an
agreement by the president of the vendor corporation
not to engage in similar business in a stipulated
area for which he is paid a money consideration,
the amount so received by the president does
not constitute a return of capital but is ordinary
income to him in the year of receipt. O.D. 668
superseded. §§1.61–1, 1.1221–1. (Secs. 61, 1221;
’86 Code.)
Rev. Rul. 69-643, 1969-2 C.B. 10.
274.14 Alimony and separate maintenance
payments; remarriage of spouse-payee; payments
continued. Situations illustrate the treatment
of alimony or separate maintenance payments
made after the remarriage of the
spouse-payee and after the legal obligation to
make such payments has ceased. Rev. Rul. 81–8
amplified and superseded. §§1.61–1, 1.71–1,
1.102-1, 1.215–1. (Secs. 61, 71, 102, 215; ’86
Code.)
Rev. Rul. 82-155, 1982-2 C.B. 36.
274.15 Allowances; acquisition and maintenance
of uniforms. Reimbursements or allowances
for the acquisition and maintenance of uniforms
are includible in an employee’s gross
income, and cost to the extent of such reimbursement
is deductible in computing adjusted gross
income; expenses in excess of the reimbursements
or allowances are deductible in computing taxable
income if deductions are itemized; I.T. 3978
superseded. §§1.61–1, 1.62–1. (Secs. 61, 62; ’86
Code.)
Rev. Rul. 72-110, 1972-1 C.B. 24.
274.16 Allowances; military officers. Personal
money allowances received by certain highranking
military officers for discretionary use in
their positions are not excludable from gross
income; however, expenditures of such funds for
their intended purpose of defraying certain
expenses incurred in connection with official
duties are deductible as business expenses when
the reporting, record keeping, and substantiation
requirements are met. §§1.61–1, 1.162–17,
1.274-5. (Secs. 61, 162, 274; ’86 Code.)
Rev. Rul. 77–350, 1977-2 C.B. 21.
274.17 Allowances; Navy physician and medical
personnel assigned to U.S. Capitol. Allowances
paid under the Legislative Branch
Appropriations Acts to the Attending Physician in
the U.S. Capitol and medical personnel assigned
to assist that individual, all of whom are members
of the U.S. Navy who are receiving regular Navy
pay, are includible in their gross incomes under
section 61 and subject to income tax withholding.
The allowances are excepted from employment
for FUTA purposes. Whether the allowances are
wages subject to FICA is to be determined by the
head of the Department of Navy. §1.61–1. (Secs.
61, 3121, 3306, 3402; ’86 Code.)
Rev. Rul. 78-432, 1978-2 C.B. 69.
274.18 Allowances; State court judge;
accounting to employer not required. A State
court judge who receives an expense allowance
for which he does not account to his employer
must submit as a part of his tax return a statement
showing, among other things, the total of all such
allowances received, which total must be included
in gross income, and the amounts of his ordinary
and necessary business expenses paid or incurred.
Only the ordinary and necessary business
expenses which can be substantiated are deductible.
§§1.61–1, 1.162–17, 1.274–5. (Secs. 61, 162,
274; ’86 Code.)
Rev. Rul. 66-217, 1966–2 C.B. 107.
274.19 Allowances; transporting children to
school. Payments made by a school board to parents
or other persons not engaged in the business
of transporting children to school, for transporting
children to school where bus service is not available,
are not includible in the gross income of the
recipient. Automobile expenses incurred in connection
with such transportation are nondeductible
personal expenses. Rev. Rul. 60-280 modifying
Rev. Rul. 57-60. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 57–60, 1957–1 C.B. 25; Rev. Rul.
60-280, 1960-2 C.B. 12.
274.20 Amounts withheld from teacher’s
salary to pay substitute teacher. A teacher is not
in constructive receipt of income in the amount by
which his regular salary is reduced in order to pay
a substitute teacher during his extended illness.
§§1.61-1, 1.451-2. (Secs. 61, 451; ’86 Code.)
Rev. Rul. 71-71, 1971-1 C.B. 28.

274.21 Annual adjustments due to change in
accounting method. The sole proprietor of a retail
store who obtained permission to effect a change
in accounting method, agreeing to ratably account
over a 10-year period for the adjustments required
under section 481 and to include in income any
unaccounted for adjustments upon ceasing to
engage in the trade or business, and who three
years later incorporated the business is no longer
engaged in that particular trade or business and
must include such unaccounted for adjustments in
income. Rev. Rul. 66-206 distinguished.
§1.481-1. (Sec. 481; ’86 Code.)
Rev. Rul. 77-264, 1977-2 C.B. 187.
274.22 Annuity insurance premiums; independent
contractor. Premiums paid by a hospital
on an annuity insurance policy for a radiologistbeneficiary
while performing services for the hospital
as an independent contractor are includable in
his gross income for the taxable year in which they
are paid. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 70-136, 1970-1 C.B. 12.
274.23 Anti-poverty program payments.
Amounts received by certain low-income families
under an experimental anti-poverty program
funded by the Office of Economic Opportunity are
excludable from gross income. §1.61–1. (Sec. 61,
’86 Code.)
Rev. Rul. 73-87, 1973-1 C.B. 39.
274.24 Armed Forces; dislocation or trailer
allowances. The dislocation or trailer allowance
received by a member of the uniformed services in
connection with a change in duty station is includible
in the gross income of the recipient under section
82. However, such allowances are excepted
from wages for purposes of income tax withholding
unless the employer at the time of payment has
reason to believe a corresponding deduction is not
allowable under section 217. Rev. Rul. 64–153
superseded and Rev. Rul. 65–158 modified.
§§1.82-1, 1.217-2. (Secs. 82, 217, 3401; ’86
Code.)
Rev. Rul. 75-362, 1975-2 C.B. 413.
274.25 Armed Forces; participation in scholarship
programs. Rev. Ruls. 76-99,76-518, and
76-519 are modified to remove the implication
that all regular pay and allowances received by
military participants in certain health, medical,
dental, and veterinary scholastic programs are
includible in gross income. §§1.61-2, 1.117-4.
(Secs. 61, 117; ’86 Code.)
Rev. Rul. 77-438, 1977-2 C.B. 49.
274.26 Armed Forces; reimbursement of loss
on sale of personal residence. Reimbursements
received by Federal civilian employees or members
of the Armed Forces from the Government for
losses sustained on the private sale of personal residences,
or the excess of the selling price received
over the fair market value at the time of the sale
resulting from Government purchases of the residences,
as the result of the closing of a military
base are includable in gross income as compensation
for services under section 82 and, as such, are
not considered a part of the selling price of the personal
residences for purposes of the nonrecognition
provisions of section 1034. §§1.82-1,
1.1034-1. (Secs. 82, 1034, 3121, 3122, 3401; ’86
Code.)
Rev. Rul. 76-342, 1976–2 C.B. 22.
274.27 Athletic scholarships. The value of athletic
scholarships which may not exceed expenses
for tuition, fees, room, board, and necessary supplies,
awarded to students by a university that
expects but does not require the students to participate
in a particular sport, requires no particular
activity in lieu of participation, and does not cancel
the scholarship if the student cannot participate
is excludable from the recipient’s gross income
under section 117. §§1.61–1, 1.117-4. (Secs. 61,
117; ’86 Code.)
Rev. Rul. 77–263, 1977-2 C.B. 47.
274.28 Audience measurement by membership
corporation. A nonprofit corporation,
whose members were radio stations and networks,
collected fees from its members to conduct a study
to provide a uniform reliable standard for radio
audience measurement. The fees remaining after
the first study was conducted were to be either
refunded or allowed as a credit on future studies.
Held, the fees were not income but constituted a
trust fund to be used for a specific purpose or
returned. (Sec. 22(a), ’39 Code; Secs. 61, 277; ’86
Code.)
Broadcast Measurement Bureau, 16 T.C. 988,
Nonacq., 1974-2 C.B. 4.
274.29 Automobile rebates. Rebates paid by an
automobile manufacturer to qualifying retail customers
who purchase or lease a new automobile,
or who purchase a new automobile and trade in a
specified type of vehicle, are not includable in the
gross income of the customer, require a downward
adjustment to the customer’s basis, and are ordinary
and necessary business expenses of the
manufacturer. §§1.61–2, 1.162–1, 1.1012–1,
1.1016-2. (Secs. 61, 162, 1012, 1016; ’86 Code.)
Rev. Rul. 76–96, 1976-1 C.B. 23.
274.30 Automobile; won as a prize. The cost
of an automobile given away as a prize to a customer
is deductible as a business expense. The fair
market value of the automobile at the date of its
acquisition is includable in the customer’s gross
income. I.T. 1667 superseded. §§1.74-1, 1.162–1.
(Secs. 74, 162; ’86 Code.)
Rev. Rul. 69-510, 1969-2 C.B. 23.
274.31 Awards; annual payments measured
by age or retirement income. An award in the
form of annual payments measured by the age or
retirement income of the recipient is excludable
from gross income under section 74(b) as long as
the award is made in recognition of achievement
in one of the categories listed. §1.74–1. (Sec. 74,
’86 Code.)
Rev. Rul. 84-9, 1984-1 C.B. 22.
274.32 Awards; National Aeronautics and
Space Act. Awards granted under the provisions
of section 306 of the National Aeronautics and
Space Act of 1958, for scientific or technical contributions
are includible in the gross income of the
recipients. Such amounts are subject to income tax
withholding or reporting on information returns.
§§1.61-2, 1.74-1. (Secs. 61, 74; ’86 Code.)
Rev. Rul. 69-129, 1969-1 C.B. 35.
274.33 Awards; service longevity. An award
paid by a labor union to its members who complete
25 years of service with a particular company is
includable in the gross income of the recipient but
does not constitute wages subject to income tax
withholding. §1.74-1. (Sec. 74, ’86 Code.)
Rev. Rul. 58-277, 1958-1 C.B. 41.
274.34 Bank deposit; funds used to purchase
bonds in taxpayer’s name. A large sum of money
deposited in the taxpayer’s bank account by his
brother for their mother was determined by the
Commissioner to be gross income to the taxpayer
rather than his mother’s funds due to inferences by
the brothers to State taxing authorities that their
mother had limited means. Held, their mother was
in fact wealthy and the money was received and
applied solely for her use by the taxpayer acting as
agent in managing her financial affairs. (Sec. 61,
’86 Code.)
Robert M. Brittingham, 57 T.C. 91, Acq.,
1971-2 C.B. 2.
274.35 Bargain purchase; house for less than
construction costs. Increased labor costs,
“extras” requested by the taxpayers, and errors in
Gross income
construction resulted in the construction cost and
fair market value of the taxpayer’s house materially
exceeding the contract price. The contractor,
who had been employed by and had been referred
business by the taxpayer’s father-in-law, took the
loss in hopes of future business with the father-inlaw.
Held, taxpayers did not receive income attributable
to the value received exceeding the sum
paid. (Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)
Fred L. Pellar, 25 T.C. 299, Acq., 1956–1 C.B.
5.
274.36 Barter club transactions; value of services.
The value of services exchanged by members
of a barter club is includible in each member’s
gross income for the taxable year in which
received. Also, these exchanges are reportable by
the barter club pursuant to section 6045. §§1.61–2,
1.451-1, 1.6045–1. (Secs. 61, 451, 6045; ’86
Code.)
Rev. Rul. 83-163, 1983-2 C.B. 26.
274.37 Barter transactions. Certain members
of barter clubs must include in income the fair
market value of services received in exchange for
services rendered. Likewise, the owner of an
apartment building who receives a work of art
created by a professional artist in return for the
rent-free use of an apartment must include in
income the fair market value of the work of art, and
the artist must include the fair rental value of the
apartment. §1.61–2. (Sec. 61, ’86 Code.)
Rev. Rul. 79–24, 1979–1 C.B. 60.
274.38 Beauty contest winner. The winner of a
national beauty contest and pageant contracts with
the corporation conducting the contest to furnish
her services to the corporation for one year. Prizes
and awards she receives from the corporation,
including a scholarship, amounts paid for personal
appearances, and cash allowances are compensation
for services subject to withholding, except to
the extent that such amounts qualify as reimbursements
for traveling expenses or business expenses
of the corporation. Further, items received from
various manufacturers (not related to her contract
with the corporation) are includable in gross
income. §§1.61–2, 1.74–1, 1.117–4. (Secs. 61, 74,
117; ’86 Code.)
Rev. Rul. 68-20, 1968–1 C.B. 55.
274.39 Benefit payments to blind; Pennsylvania.
A benefit payment to a blind person under the
Public Assistance Law of Pennsylvania is not
includible in the recipient’s gross income. (Sec.
61, ’86 Code.)
Rev. Rul. 57–102, 1957-1 C.B. 26.
274.40 Benefits; firefighters’ and police officers’
beneficiaries; Los Angeles. Benefits
received by beneficiaries of deceased members of
the Los Angeles fire or police departments under
Los Angeles, California, Charter Art. XVII, section
183, are excludable from gross income under
section 104(a)(1) of the Code if the recipient can
establish either (1) that the benefits are received
under the service-connected death provision, or
(2) that the benefits are received under the retirement
provisions and that the employee on account
of whose death the benefits are paid was retired
under the service-connected disability provisions
of the Charter at the time of that employee’s death.
§1.104-1. (Sec. 104, ’86 Code.)
Rev. Rul. 80-84, 1980-1 C.B. 35.
274.41 Books received by book reviewer;
donated to charity. The value of books received
and accepted without charge by a book reviewer
during his employment with a newspaper, which
he donated to a charitable organization and
claimed a contribution deduction for their value,
is includible in his gross income. Rev. Rul. 70-330
superseded. §1.61–1. (Sec. 61; ’86 Code.)
Rev. Rul. 70-498, 1970-2 C.B. 6.
274.42 Bottom hole contribution. A “bottom
hole” contribution is includible in the recipient’s

Gross income
gross income and must be treated as a capital
expenditure by the payor. §§1.61–1, 1.263(a)-1,
1.612-4. (Secs. 61, 263, 612; ’86 Code.)
Rev. Rul. 80-153, 1980-1 C.B. 10.
274.43 Broker-dealer; order errors and security
differences; treatment. The treatment of certain
gains, losses, and expenses resulting from
order errors or security differences incurred by a
broker-dealer is explained. §§1.61-1, 1.162-1,
1.165-1, 1.451-1, 1.461–1, 1.1236-1. (Secs. 61,
162, 165, 451, 461, 1236; ’86 Code.)
Rev. Rul. 79–80, 1979–1 C.B. 86.
274.44 Cancellation of indebtedness; corporate
indebtedness to corporate shareholder;
insolvency. Pursuant to a bankruptcy reorganization,
a parent corporation that was also a creditor
of its subsidiary, discharged the subsidiary’s debt
by canceling a note with accrued interest which
had been deducted in prior year. Held, the discharge
of indebtedness constituted a contribution
to capital, and neither the parent or subsidiary realized
income. (Sec. 22(a), ’39 Code; Sec. 61, ’86
Code.)
Utilities & Industries Corp., 41 T.C. 888, Acq.
in result 1973–2 C.B. 4.
274.45 Cancellation of indebtedness; disaster
loan. The treatment is set forth for payments
received by casualty victims under the Disaster
Relief Acts of 1969 and 1970 where part of a disaster
loan is cancelled in the year subsequent to the
casualty for which a loss deduction had been
claimed. Distinguished by Rev. Rul. 73-408.
§§1.61-1, 1.111-1, 1.165-1. (Secs. 61, 111, 165;
’86 Code.)
Rev. Rul. 71–160, 1971–1 C.B. 75.
274.46 Cancellation of indebtedness; farmer’s
F.H.A. loan. The cancelled portion of an
emergency loan granted by the Farmers Home
Administration to a farmer who, as a result of a
drought, sustained an uninsured loss in his growing
crops for which he had no adjusted basis at the
time of the loss is includable in his gross income.
Rev. Rul. 71-160 distinguished. Amplified by
Rev. Rul. 76-500. §§1.61-4, 1.165–1. (Secs. 61,
165; ’86 Code.)
Rev. Rul. 73-408, 1973–2 C.B. 15.
274.47 Cemetery organization; perpetual
care funds. A cemetery company or corporation
operated for profit shall not be required to include
in gross income that portion of the contract sale
price of burial lots or mausoleums which, by
requirement of state law or its own bylaws and/or
contracts, it is obligated irrevocably to set aside in
trust solely for perpetual care and maintenance of
the cemetery, burial lots, or mausoleums to the
extent that such portion is so set aside. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 58–190, 1958–1 C.B. 15.
274.48 Charity-payee; compensation from
contributed services. Payment made to a charitable
organization by a third party for services rendered
by an individual to the third party is income
to the individual, unless his contract of employment
with the organization is made in good faith
and for purposes other than tax avoidance, and his
availability for services to the third party is without
his participation in, or right to receive money
under, the contract making his services available.
§29.22(a)-2. (Sec. 22(a), ’39 Code; Sec. 61, ’86
Code.)
Rev. Rul. 71, 1953–1 C.B. 18.
274.49 Charity-payee; industry fund-raising
plan. Earnings for services donated by employees
for charitable purposes under an industry-wide
fund-raising plan are includible in the gross
income of the employees and are subject to
income tax withholding, even though such income
is paid directly to the charitable organizations by
the employers. §1.61–2. (Sec. 61, ’86 Code.)
Rev. Rul. 58-495, 1958-2 C.B. 27.
274.50 Charity-payee; religious order; members’
outside earnings remitted to order.
Amounts received by members of an exempt
religious order, not acting as agents of the order,
for work performed outside the religious community
and paid over, in full or part, to the order at its
direction, are includible in the gross income of the
members and are wages subject to the FICA and
income tax withholding. However, the individual
members are entitled to charitable contribution
deductions for amounts remitted to the order.
§§1.61-2, 1.170A-1. (Secs. 61, 170, 3121, 3401;
’86 Code.)
Rev. Rul. 76-323, 1976-2 C.B. 18.
274.51 Charity-payee; religious order or
organization; members outside earnings
remitted to order or organization. A member of
a religious order or organization who has taken a
vow of poverty and is instructed by superiors to
obtain outside employment must include the
remuneration remitted to the order or organization
in gross income. Another member who has taken
a vow of poverty and is instructed to perform services
in the business offices of the supervising
church is not required to include the remuneration
remitted to the order or organization in gross
income. O.D. 119 superseded and Rev. Rul.
76-323 clarified. §§61-2, 1.501(d)-1, 1.511-1.
(Secs. 61, 501, 511, 3121, 3401; ’86 Code.)
Rev. Rul. 77-290, 1977-2 C.B, 26; Rev. Rul.
79-132, 1979-1 C.B. 62; Rev. Rul. 80-332,
1980-2 C.B. 34.
274.52 Charity-payee; service of registered
nurse. Amounts received from a hospital by a registered
nurse who is a member of an exempt
religious organization are excludable from her
gross income and are not wages subject to income
tax withholding, where she performed services in
the hospital as agent of the organization to which
she remitted the amounts. Clarified by Rev. Ruls.
77-290 and 83-127. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 68-123, 1968-1 C.B. 35.
274.53 Charity-payee; service of volunteer
workers. Payments made by a hospital to a
religious organization for services performed at
the hospital by volunteer unpaid workers assigned
by the organization to render such services are not
“wages” and are not taxable to the volunteer
workers. (Sec. 61, ’86 Code.)
Rev. Rul. 57-135, 1957-1 C.B. 307.
274.54 Charity-payee; telethon fund-raising
program. Amounts collected by a television
broadcasting station during a “telethon” fundraising
program for the benefit of a charitable
organization, which are paid to the organization
without reduction for any expenses incurred, are
not income to the broadcasting station. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 58-276, 1958–1 C.B. 23.
274.55 Child allotment payments; disabled
policeman or fireman. Child allotment payments
received by a disabled policeman or fireman under
a municipal ordinance providing that such payments
by the city are voluntary and terminable at
will are not excludable from gross income as
workmen’s compensation or as gifts. §§1.61–1,
1.102-1, 1.104-1. (Secs. 61, 102, 104; ’86 Code.)
Rev. Rul. 73-346, 1973–2 C.B. 24.
274.56 Child Care Food Program payments.
Payments received from a sponsoring charitable
organization pursuant to the Child Care Food Program
are excludable from a day care home operator’s
gross income to the extent that such payments
do not exceed expenses incurred in feeding children
eligible for assistance under the program.
Any portion of the payment that compensates the
operator for services is includible in income. Outof-pocket
expenses in excess of reimbursement
are deductible under section 170 where no profit
motive exists and under section 162 where such
motive does exist. §§1.61–1, 1.162–1, 1.170A-1.
(Secs. 61, 162, 170; ’86 Code.)
Rev. Rul. 79-142, 1979-1 C.B. 58.
274.57 Child care services in own home. Factual
situations illustrate the tax treatment of
amounts received and amounts expended by individuals
providing child care services in their own
homes. Rev. Rul. 56-70 superseded. §§1.61-1,
1.62–1, 1.162-1, 1.170–2, 1.1401–1. (Secs. 61,
62, 162, 170, 1401; ’86 Code.)
Rev. Rul. 77-279, 1977-2 C.B. 12.
274.58 Christmas fund distributed to
employees by club. Amounts distributed to
employees of a club from a Christmas fund made
up of contributions by members of the club constitute
compensation which is includable in the gross
income of the recipients. Such amounts are not
tips, but rather constitute wages for purposes of
employment taxes and income tax withholding.
The provisions relating to employment taxes and
withholding will be applied only to distributions
made on or after October 1, 1963. S.S.T. 261
revoked. §1.61–2. (Secs. 61, 3121, 3306, 3401;
’86 Code.)
Rev. Rul. 64-40, 1964-1 (Part 1) C.B. 68.
274.59 Citizen in foreign country; U.S. sponsored
project. Compensation received by a U.S.
citizen for services performed in a foreign country,
under a contract with the foreign government
which required him to render advisory services for
a period of two years, is not an amount paid by the
U.S. or any agency thereof, even though the project
on which he worked was financed in part by an
agency of the U.S. Therefore, such compensation
is excludable from the gross income of the taxpayer.
§1.911-2. (Sec. 911, ’86 Code.)
Rev. Rul. 67-87, 1967-1 C.B. 186.
274.60 Claim of right; overpayments; truck
rental contract. Taxpayer, on the cash basis,
received an overpayment of truck rental income in
1956 and 1957. He agreed to repay the overpayment
upon its discovery in 1957. Held, the overpayment
received in 1957 should be excluded
from gross income. (Sec. 61, ’86 Code.)
J.W. Gaddy, 38 T.C. 943, Acq., 1969-2 C.B.
xxiv.
274.61 Collateral; pledged; collateral agreement.
Subordinated debentures issued under
collateral and cash agreements by member organizations
of the New York Stock Exchange to
maintain the required debt-to-capital ratio constitute
valid indebtedness. The amounts, other than
principal, paid under the cash agreements and the
interest paid on the indebtedness are deductible by
the organizations under section 163. Amounts
paid to the lender for the use of the collateral are
deductible under section 162. Income from the
pledged collateral is includible in the lender-owner’s
gross income and sale of the collateralized
securities results in a recognized gain or loss. Distinguished
by Rev. Rul. 83-98. §§1.61–1, 1.162–1,
1.163-1, 1.302-1. (Secs. 61, 162, 163, 302; ’86
Code.)
Rev. Rul. 73–122, 1973-1 C.B. 66.
274.62 Combat pay; accrued leave payments.
Accrued leave payments, attributable to active
service in a combat zone, paid to members of the
Armed Forces at the time of their discharge from
the service are excludable from gross income.
Rev. Rul. 71–343 amplified. §1.112–1. (Sec. 112,
’86 Code.)
Rev. Rul. 73-187, 1973-1 C.B. 51.
274.63 Combat pay; compensation other
than active duty pay. Compensation other than
active duty pay received by members of the
Armed Forces may qualify as excludable com-

pensation for active service in a combat zone. The
inapplicability of income tax withholding on the
gross income of a commissioned officer serving in
a combat zone is not limited by the $500 exclusion
provision of section 112. Amplified by Rev. Rul.
73-187. §1.112-1. (Sec. 112, ’86 Code.)
Rev. Rul. 71–343, 1971–2 C.B. 92.
274.64 Combat pay; member of Armed
Forces detailed to another agency. A member of
the Armed Forces serving in a combat zone while
on detail to the Agency for International Development
continues in an active service status during
the period of his detail and is entitled to the combat
pay exclusion and is excepted from income tax
withholding. §1.112–1. (Sec. 112, ’86 Code.)
Rev. Rul. 69-353, 1969-1 C.B. 49.
274.65 Combat pay; temporary commissioned
officers. Enlisted men and warrant officers
who serve in the temporary rank of a commissioned
officer in a combat zone are entitled to
exclude from gross income (1) the entire amount
of their active service compensation attributable
to their service below the grade of commissioned
officer, and (2) that portion of their active service
compensation attributable to their service as a
temporary commissioned officer which does not
exceed $500 per month. §1.112–1. (Sec. 112, ’86
Code.)
Rev. Rul. 68-11, 1968-1 C.B. 54.
274.66 Combat pay; U.S. merchant marine
members. A member of the U.S. merchant marine
is not a member of the Armed Forces of the U.S.
and is not entitled to a combat pay exclusion.
§§1.112-1, 301.7701-8. (Secs. 112, 7701; ’86
Code.)
Rev. Rul. 70-537, 1970-2 C.B. 17.
274.67 Commodity Credit Corporation
loans; wheat pledged as collateral. A cash
method wheat farmer obtained a loan from the
Commodity Credit Corporation pledging that
year’s crop as collateral. The farmer elected under
section 77 to include the loan proceeds in gross
income. The next year the loan was repaid and the
crop pledged as collateral was redeemed. Thirteen
months later, the redeemed crop was sold at a price
that exceeded the amount of the loan. The crop
was not a capital asset, and the excess sale price for
the crop over its basis, as adjusted under section
1016(a)(8), is includable in the farmer’s gross
income as ordinary income. §§1.61-4, 1.77–1,
1.1016-5, 1.1221–1. (Secs. 61, 77, 1016, 1221;
’86 Code.)
Rev. Rul. 80-19, 1980-1 C.B. 185.
274.68 Condominium management assessments.
Excess assessments by a condominium
management corporation over and above the
amounts used for the operation of the condominium
property that are returned to the stockholderowners
or applied to the following year’s assessments
are not gross income to the corporation.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 70-604, 1970-2 C.B. 9.
274.69 Condominium management assessments;
personal property. Special assessments
for the replacement of personal property, collected
by a nonexempt condominium management corporation
from its unit owner-shareholders and
accumulated in a separate bank account, are contributions
to capital. §§1.61–1, 1.118–1. (Secs. 61,
118; ’86 Code.)
Rev. Rul. 75–371, 1975–2 C.B. 52.
274.70 Condominium management assessments;
realty improvements. Special assessments
collected by a nonexempt condominium
management corporation from its unit ownerstockholders
and accumulated in a separate bank
account for replacement of the roof and elevators
in the condominium are not includible in the corporation’s
gross income. §1.61-1. (Sec. 61, ’86
Code.)
Rev. Rul. 75–370, 1975-2 C.B. 25.
274.71 Contest prize; television set purchased
at nominal price. A television set that an
individual purchased for a nominal price, as a
result of winning a contest, is a prize and he must
include in gross income the difference between the
fair market value of the television set and the price
he paid. §1.74-1. (Sec. 74, ’86 Code.)
Rev. Rul. 67-40, 1967-1 C.B. 19.
274.72 Corporate assets distributed;
accounting method. Neither the market value of
an unharvested crop and land preparation made for
later planting nor the expenses incurred in producing
the unharvested crop and preparing the land
are includible in the income of a corporation,
under section 446(b), in the year of its liquidation
to which section 336 applies. (Secs. 446, 482; ’86
Code.)
South Lake Farms, Inc., 36 T.C. 1027, Nonacq.,
1977-1 C.B. 2.
274.73 Corporate assets distributed; recovery
of previously deducted amounts. A subsidiary
corporation liquidated into its parent corporation
in a nontaxable transaction under sections 332
and 334(b)(2), to which section 336 also applies,
is required under the “tax-benefit rule” to include
in its gross income in the year liquidated the allocated
value of incidental supplies it distributed to
its parent for which a deduction had been taken in
the previous year resulting in a full tax benefit.
Similar treatment applies to similar distributions
in full or partial liquidations governed by sections
331, 333, and 346 but not to acquisitions under
section 381(a)(1). §§1.61–1, 1.111–1, 1.331–1,
1.332-1, 1.333-1, 1.334-1, 1.336-1, 1.346-1,
1.381(a)-1. (Secs. 61, 111, 331, 332, 333, 334,
336, 346, 381; ’86 Code.)
Rev. Rul. 74-396, 1974–2 C.B. 106.
274.74 Corporate assets distributed; recovery
of previously deducted amounts. The tax
benefit rule described in Rev. Rul. 74–396 is applicable
to liquidations under section 336; the position
of the Service with respect to South Lake
Farms, Inc. is explained. §§1.111-1, 1.334-1.
(Secs. 111, 334; ’86 Code.)
Rev. Rul. 77-67, 1977-1 C.B. 33.
274.75 Corporate assets distributed in liquidation;
recovery of previously deducted
amounts. A corporation does recognize income
with respect to the distribution of expensed assets
on liquidation. §§1.164-7, 1.336-1. (Secs. 164,
336; ’86 Code.)
Hillsboro National Bank, 460 U.S.--, Ct. D.
2015, 1983-1 C.B. 50.
274.76 Corporate assets sold; recovery of
previously deducted amounts. Where a corporation,
under a plan of complete liquidation, sold to
a single buyer all of its assets, including certain
items from which the taxpayer derived full tax
benefits through deductions in prior taxable years,
that portion of the proceeds representing recovery
of previously deducted items is ordinary income to
the corporation and not proceeds of a nontaxable
sale. §§1.61–1, 1.337–1. (Secs. 61, 337; ’86
Code.)
Rev. Rul. 61-214, 1961-2 C.B. 60.
274.77 Corporate-beneficiary; life insurance
contracts sold officers. A corporate-beneficiary
on life insurance contracts carried on its officers
that later sells the contracts to the officers at less
than the nondeductible premiums paid is not
required to include the amount received from the
sale in gross income. O.D. 724 superseded.
§§1.61-1, 1.264-1. (Secs. 61, 264; ’86 Code.)
Rev. Rul. 70-38, 1970-1 C.B. 11.
Gross income
274.78 Corporate contributions; charities
designated by employees. Amounts paid by a
corporation to qualified religious, charitable, and
educational organizations designated by its
employees pursuant to a charitable designation
plan are deductible by the corporation; the
employees are not in receipt of gross income with
respect to these contributions. §§1.61–1, 1.170-1.
(Secs. 61, 170; ’86 Code.)
Rev. Rul. 67-137, 1967-1 C.B. 63.
274.79 Corporate liquidation sale of LIFO
valued inventory; “tax benefit rule.” A corporation
which, in a bulk sale to one person pursuant
to a plan of complete liquidation under section
337, sold appreciated inventory accounted for
under the LIFO dollar-value method is not
required under the “tax benefit rule” to include
such appreciation in income. §§1.337–1, 1.472–8.
(Secs. 337, 472; ’86 Code.)
Rev. Rul. 74-431, 1974–2 C.B. 107.
274.80 Corporation; sale of homes purchased
from employees under relocation plan. Homes
purchased under a home-buying plan by a corporation
to assist relocating employees in the sale of
their personal residences, when sold by the corporation,
are capital assets within the meaning of section
1221. §§1.61-1, 1.165-1, 1.1211-1,
1.1221-1, 301.7805–1. (Secs. 61, 165, 1211, 1221,
7805; ’86 Code.)
Rev. Rul. 82–204, 1982–2 C.B. 192.
274.81 Cost-of-living allowances; differentials;
Government employees overseas. Territorial
cost-of-living allowances paid to certain civilian
employees of the U.S. Government stationed
in territories and possessions of the U.S. are
excludable from gross income. Clarified to identify
various overseas allowances and differentials
as taxable or nontaxable types. Rev. Rul. 237 distinguished
by Rev. Ruls. 57–591 and 57–592, and
Rev. Rul. 59-407 distinguished by Rev. Rul.
65-125. and modified by Rev. Rul. 76-210.
§§39.116-4, 1.61-1, 1.912-1, 1.931-1. (Sec. 116,
’39 Code; Secs. 61, 912, 931, ’86 Code.)
Rev. Rul. 237, 1953–2 C.B. 52; Rev. Rul.
59-407, 1959-2 C.B. 19.
274.82 Cost-of-living allowances; Government
employees; Alaska. The cost-of-living
allowances received by certain civilian employees
of the U.S. Government under the jurisdiction of
the Director of Nonappropriated Funds at Elmendorf
Air Force Base, Alaska, are exempt from tax.
Rev. Ruls. 57–591 and 59-407 modified.
§1.912-1. (Sec. 912, ’86 Code.)
Rev. Rul. 76-210, 1976-1 C.B. 202.
274.83 Cost-of-living allowances; Government
employees; Republic of Panama; differentials.
The Overseas Tropical Differential
(OTD) paid to civilian employees of a United
States government agency living and working in
the Republic of Panama is not excludable from the
gross income of such employees under section
912. §1.912-1. (Sec. 912, ’86 Code.)
Rev. Rul. 84-19, 1984-1 C.B. 179.
274.84 Cost-of-living allowances; Government
employees on Santa Barbara islands.
Cost-of-living allowances received by U.S. Government
employees stationed on California’s
Santa Barbara group of islands are not excludable
from gross income. §1.912-1. (Sec. 912, ’86
Code.)
Rev. Rul. 71–303, 1971–2 C.B. 272.
274.85 Cost-of-living allowances; Government
employees overseas. Cost-of-living allowances
paid to civilian employees from nonappropriated
funds of instrumentalities of the U.S. under
the jurisdiction of the Armed Forces at installations
of the Defense Department in territories and
possessions of the U.S. and those paid from Federal
appropriated funds to National Guard civilian
employees stationed in the territories of the U.S.,

Gross income
whose basic compensation is fixed by administrative
order and not by statute, are includible in gross
income. Rev. Rul. 237 distinguished. Rev. Rul.
57-591 modified by Rev. Rul. 76-210. §1.912-1.
(Sec. 912, ’86 Code.)
Rev. Rul. 57–591, 1957–2 C.B. 460; Rev. Rul.
57-592, 1957-2 C.B. 459.
274.86 Cost-of-living allowances; Government
employees overseas. Amounts paid to Government
employees stationed outside the continental
U.S. which, before conversion of their
positions under the Classification Act of 1949, as
amended, were designated as territorial cost-ofliving
allowances, but which by administrative
order became part of their basic compensation,
must be included in gross income. Further, such
amounts are wages and are subject to the income
tax withholding. §§1.61-1, 1.912–1. (Secs. 61,
912; ’86 Code.)
Rev. Rul. 58-503, 1958-2 C.B. 390.
274.87 Cost-of-living allowances; Joint Federal-State
Land Use Planning Commission for
Alaska. The regulation providing for cost-of-living
allowances for employees of the Joint Federal-
State Land Use Planning Commission for Alaska
has been approved retroactively and such allowances
are excludable from gross income.
§1.912-1. (Sec. 912, ’86 Code.)
E.O. 11744, 1973-2 C.B. 292.
274.88 Cost-of-living allowances; paid by foreign
government; U.S. Armed Forces. The
housing and cost-of-living allowance received by
a member of the U.S. Armed Forces, to defray the
excess cost of quarters and subsistence while on
permanent duty at a post outside the U.S. is not
includible in the recipient’s gross income irrespective
of whether the allowance is paid by the U.S.
Government or, by agreement, is paid by the government
of the foreign country in which the serviceman
is stationed. §1.61–2. (Sec. 61, ’86
Code.)
Rev. Rul. 61-5, 1961-1 C.B. 8.
274.89 Cost-of-living allowances; Peace
Corps volunteer; paid by foreign government.
The amounts received from the government of a
foreign country by a Peace Corps volunteer while
stationed in that country in lieu of living allowances
ordinarily paid by the U.S. Peace Corps are
excludable from gross income to the extent that
they are noncompensatory. §§1.61–2, 1.912–1.
(Secs. 61, 912; ’86 Code.)
Rev. Rul. 70-154, 1970-1 C.B. 162.
274.90 Cost-of-living allowances; Red Cross
staff members. Cost-of-living allowances paid by
the Red Cross to members of its staff stationed outside
the continental U.S. are not excludable from
gross income. §1.912-1. (Sec. 912, ’86 Code.)
Rev. Rul. 70-500, 1970-2 C.B. 155.
274.91 Crop insurance proceeds; section
451(d). In the circumstances described in this
notice, the Service will permit a taxpayer to elect
to defer crop insurance proceeds under section
451(d) without requiring the taxpayer to also defer
federal disaster payments.
Notice 90-28, 1990-1 C.B. 339.
274.92 Damages; back pay; unpaid life and
health insurance premiums. Payments made to
an individual as court-awarded damages for back
pay, unpaid life insurance premiums and unpaid
health insurance premiums are includible in the
individual’s gross income. Rev. Rul. 61–146 distinguished.
§§1.61–1, 1.79–1, 1.106–1. (Secs. 61,
79, 106; ’86 Code.)
Rev. Rul. 85-44; 1985–1 C.B. 22.
274.93 Death benefits; Armed Forces. The
allowance equal to six months’ pay paid by the
Government because of the death of an officer or
enlisted member of the Armed Forces does not
constitute property of the decedent for estate tax
purposes and is not includable in the gross income
of the recipients for income tax purposes. (Sec. 61,
’86 Code.)
Rev. Rul. 55-581, 1955-2 C.B. 381.
274.94 Death benefits; bonuses awarded
before and after death. Where bonuses awarded
to a decedent before his death but payable thereafter
and bonuses awarded after his death were forfeitable
immediately before his death, the aggregate
amount of such bonuses (not in excess of
$5,000) is excludable from the gross income of the
beneficiaries or the estate of the decedent. Any
amount in excess of $5,000, together with all nonforfeitable
amounts, is includable as income in
respect of a decedent subject to income tax. Rev.
Rul. 65-217 amplified. §§1.101-2, 1.691(a)-1.
(Secs. 101, 691; ’86 Code.)
Rev. Rul. 68–124, 1968-1 C.B. 44.
274.95 Death benefits; Civil Service annuity.
If no election is made by a disabled federal
employee to treat disability retirement income as
annuity income, the payments received by the
spouse under a joint and survivor annuity upon the
death of the employee before age 65 qualify for the
death benefit exclusion. If the election is made, the
payments received by the employee constitute
annuity income and the amounts received by the
spouse do not qualify for the death benefit exclusion.
Rev. Rul. 61–161 superseded. §§1.72–15,
1.101–2, 1.105-1. (Secs. 72, 101, 105; ’86 Code.)
Rev. Rul. 81–121, 1981-1 C.B. 43.
274.96 Death benefits; employee pension
plans. Taxpayer’s husband had fully vested rights
under a qualified employees’ pension plan that he
would have forfeited had he been fired for conviction
of a felony, or for certain other reasons. Held,
his rights in the plan were forfeitable and payments
made by the trust upon his death were paid
by reason of the death of an employee and qualified
for the $5,000 exclusion. (Sec. 22(b), ’39
Code; Sec. 101, ’86 Code.)
Hazel W. Polhrow, 35 T.C. 715, Acq., 1961-2
C.B. 5.
274.97 Death benefits; employee’s deferred
compensation plan; payment to widow. The balance
of an unfunded compensation account, not
exceeding $5,000, paid to the widow of a deceased
retired employee is excludable from her gross
income where the deceased employee’s rights to
receive the deferred compensation were forfeitable
while he was living. §1.101–2. (Sec. 101, ’86
Code.)
Rev. Rul. 71–361, 1971-2 C.B. 90.
274.98 Death benefits; employee’s life insurance
policy transferred to pension trust. An
agreement between an employee, the employer,
and a trust, provided for the employer’s purchase
of an existing insurance policy from the employee
for its cash surrender value and transfer to the
trustee as part of the employer’s required contribution
under a qualified pension plan providing incidental
death benefits. The employee died and the
insurance proceeds were paid to the trustee who
turned them over to the insured’s widow, the beneficiary.
Held, the proceeds in excess of the cash
value of the policy at the time of the employee’s
death is excludable from the widow’s gross
income under section 101(a) but that portion of the
remaining amount in excess of premiums or other
consideration deemed paid by the decedent is
includible. Premiums paid by the trustee after
transfer of the policy to the trust that represent the
cost of life insurance protection and premiums
paid by the employer before its transfer are includible
in the employee’s gross income under regs.
1.72–16(a) and 1.61–2(d)(2)(ii)(a), respectively.
§§1.61-2, 1.72-16, 1.101-1, 1.402(a)-1. (Secs.
61, 72, 101, 402; ’86 Code.)
Rev. Rul. 73–338, 1973–2 C.B. 20.
274.99 Death benefits; employee’s life insurance
policy transferred to pension trust. The
transfer of a participating employee’s life insurance
contract to a trust under a profit-sharing plan
permitting the assignment of such a policy with a
cash surrender value in lieu of voluntary cash contributions
and providing that the cash surrender
value would be payable to the employee upon
retirement or earlier termination of employment
and that the insurance proceeds continue to be
payable to his beneficiary is not a “transfer for
valuable consideration”. §§1.72–16, 1.101–1.
(Secs. 72, 101; ’86 Code.)
Rev. Rul. 74-76, 1974-1 C.B. 30.
274.100 Death benefits; employees’ plans.
Where the right of the employees of a corporation
to receive pension benefits is contingent upon
whether they withdraw their contributions to the
employees’ plan upon leaving the service of the
corporation, the beneficial interest of the
employees in the contributions made by the corporation
are forfeitable. Consequently, aggregate
amounts, not exceeding $5,000, paid to a beneficiary
by reason of the death of an employee whose
interest in such amounts was forfeitable are
excludable from gross income. §1.101–2. (Sec.
101, ’86 Code.)
Rev. Rul. 59-255, 1959-2 C.B. 36.
274.101 Death benefits; employees’ retirement
plan. Where, in addition to providing pensions
for employees, a retirement plan provides
survivor benefits and neither the contributions
which an employee makes nor the monthly pension
which he is to receive upon retirement are
affected by the presence or absence of the possibility
of the survivor benefits and there is no fixed
obligation, prior to the employee’s death, to make
any payment after his death, not even a guaranteed
return of the employee’s contributions, such benefits
are not amounts received under a joint and survivor
annuity or amounts to which the employee
had a nonforfeitable right to receive while living.
Accordingly, amounts, not in excess of $5,000,
paid to survivors may be excluded from gross
income as death benefits. §1.101–2. (Sec. 101, ’86
Code.)
Rev. Rul. 64-229, 1964-2 C.B. 21.
274.102 Death benefits; employment relationship.
Where a common law employer-employee
relationship exists, for employment tax
purposes, such relationship will be considered to
exist for purposes of section 22(b)(1)(B) of the ’39
Code, dealing with death benefits.
§39.22(b)(1)-2. (Sec. 22(b), ’39 Code; Sec. 61,
’86 Code.)
Rev. Rul. 54-547, 1954–2 C.B. 57.
274.103 Death benefits; group annuity contracts.
Amounts not in excess of $5,000, paid
under a group annuity contract by an insurance
company on behalf of an employer to beneficiaries
of deceased employees, are excludable from the
gross income of the beneficiaries, if under the
terms of the contract with the employee or the provisions
of the plan providing for such payments,
the payment is specifically designated and
intended as a death payment made only by reason
of the employee’s death. §§39.22(b)(1)–2,
39.22(b)(2)–2. (Sec. 22(b), ’39 Code; Secs. 61, 72,
’86 Code.)
Rev. Rul. 55-74, 1955-1 C.B. 230.
274.104 Death benefits; installment payments.
Where survivor benefit payments are
received over a period of years, pursuant to a noncontributory
plan of an employer, the amount
excludable is $5,000 and this amount is treated as
consideration paid by the employee; the entire
amount of each installment shall be excluded from
gross income until there has been received and
excluded an amount not in excess of $5,000, after
which all amounts received are includable in gross

Gross income
income. Rev. Rul. 57-483 revoked. §§1.72–2,
1.101-2. (Secs. 72, 101; ’86 Code.)
Rev. Rul. 58-153, 1958-1 C.B. 43.
274.105 Death benefits; nonresident citizen
widow. Amounts paid, under an employees’ survivor
benefit plan, to the spouse of a U.S. citizen
employed abroad as a resident of a foreign country
are not amounts received for personal services
rendered by the survivor but represent death benefits
accruing under the plan. They do not qualify
for exemption as earned income from sources
without the U.S. (Sec. 911, ’86 Code.)
Rev. Rul. 56-524, 1956-2 C.B. 504.
274.106 Death benefits; nontrusteed group
life insurance and annuity plan. Life insurance
premiums paid by an employer under a nontrusteed
combination group term life insurance
and group annuity contract are deductible by the
employer and excludable by the employee. Insurance
benefits paid to beneficiaries by reason of the
death of an employee are not taxable. Annuity
benefits paid on the employee’s death prior to
retirement are taxable to the beneficiary; however,
amounts paid as a death benefit in excess of that in
which the employee had a nonforfeitable interest
is excluded from the beneficiary’s gross income
subject to the $5,000 limitation. §§39.22(a)–3,
39.22(b)(1)–1, 39.22(b)(2)–5, 39.23(a)-1. (Secs.
22(a), 22(b), 23(a), ’39 Code; Secs. 61, 72, 162,
’86 Code.)
Rev. Rul. 55-193, 1955-1 C.B. 266.
274.107 Death benefits; paid in installments.
In determining the annuity reportable under section
72, the exclusion under section 101(b) applies
to installments payable to a deceased employee’s
beneficiary under a qualified, noncontributory
pension plan that exceeds the employee’s nonforfeitable
interest. Rev. Rul. 55–64 superseded.
§§1.72-13, 1.101-2, 1.402(a)-1. (Secs. 72, 101,
402; ’86 Code.)
Rev. Rul. 71-146, 1971-1 C.B. 34.
274.108 Death benefits; payments to
deceased employee’s widow or estate. Payments
made by a corporation to its decedent president’s
estate or widow representing the salary that would
have been earned from the date of death to the end
of the year (Foote), the equivalent of two years
salary (Lurztz), or an amount equal to the decedent’s
customary annual bonus (Maycann), were
gifts, not dividends or compensation for services
rendered. (Sec. 22(b), ’39 Code; Sec. 102, ’86
Code.)
Frank J. Foote, 28 T.C. 547, Florence S. Luntz,
29 T.C, 647, and John A. Maycann, Sr., 29 T.C. 81,
Acqs., 1972-2 C.B. 2.
274.109 Death benefits; payments to spouse
of deceased employee. The Service will no longer
contend that section 101(b) applies to limit to
$5,000 the exclusion from gross income of an
amount paid to the widow of a deceased employee,
where the payment otherwise qualifies as a gift
under section 102(a). However, in extending section
101(b) to noncontractual payments, the Service,
although abandoning its former contention in
view of adverse court decisions, will continue to
argue that widow’s payments generally are not
gifts. Rev. Rul. 60–326, which held that the Reed
decision will not be followed as a precedent in the
disposition of similar cases pending further development
on the issue, is modified. §§1.101–2,
1.102-1. (Secs. 101, 102; ’86 Code.)
Rev. Rul. 62–102, C.B. 1962-2, 37.
274.110 Death benefits; payments to spouse
of deceased employee. Pursuant to a commission
agreement, the decedent’s employer made commission
payments to his spouse for five years after
his death. Upon the expiration of the agreement,
the Board of Directors voted to provide her with
additional annual payments. Held, the first $5,000
of the otherwise taxable gift was an excludable
death benefit. (Sec. 101, ’86 Code.)
Irving S. Wright, 39 T.C. 597, Nonacq., 1966-2
C.B. 8.
274.111 Death benefits; railroad retirement.
Lump sum payments, received by individuals
under section 5(f) of the Railroad Retirement Act
commonly known as the insurance lump sum payment
and the residual payment, are not includible
in the recipients’ gross income. I.T. 3662 superseded.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 74-561, 1974-2 C.B. 24.
274.112 Death benefits; recovery of investment
in contract; unequal benefits. Computation
of the amounts to be excluded from income by
a widow and children receiving different yearly
payments under a pension plan as beneficiaries of
a deceased employee whose cost will be recovered
within three years. §§1.72-13, 1.101–2,
1.402(a)-1. (Secs. 72, 101, 402; ’86 Code.)
Rev. Rul. 72-555, 1972-2 C.B. 44.
274.113 Death benefits; surviving spouse
beneficiary; remarriage. A surviving spouse’s
exclusion of life insurance proceeds from gross
income under section 101(d)(l)(B) is not affected
by her remarriage. §1.101-4. (Sec. 104, ’86
Code.)
Rev. Rul. 72-164, 1972-1 C.B. 28.
274.114 Death benefits; survivor benefit
plan. Amounts, not in excess of $5,000 paid by an
employer under an established survivorship benefit
plan to the beneficiaries of employees dying
while employed and prior to retirement are
excludable from the gross income of the beneficiaries.
§39.22(b)(1)–2. (Sec. 22(b), ’39 Code; Sec.
61, ’86 Code.)
Rev. Rul. 55-228, 1955-1 C.B. 231.
274.115 Death benefits; variable life insurance
contracts. Variable life insurance death
benefits that may increase or decrease, but not
below a guaranteed minimum amount, on each
policy anniversary depending on the investment
experience of the separate account of the prior
year’s net premiums, are entirely excludable from
the beneficiary’s gross income under section
101(a). §1.101-1. (Sec. 101, ’86 Code.)
Rev. Rul. 79–87, 1979-1 C.B. 73.
274.116 Death benefits; wife and child of
deceased annuitant. The limited death benefit
exclusion does not apply to amounts received by
a widow under a qualified pension plan of a retired
employee who died after retirement but before
receiving the first annuity payment. Such amounts
were received by the widow as a surviving annuitant
under a joint and survivor’s annuity contract
after the annuity starting date. However, the exclusion
applies to amounts received by the deceased
employee’s child since they were paid by or on
behalf of the employer and by reason of the death
of the employee. §§ 1.72-4, 1.101–2, 1.402(a)-1.
(Secs. 72, 101, 402; ’86 Code.)
Rev. Rul. 72-313, 1972-1 C.B. 27.
274.117 Death gratuity payment; authorized
by Congress. A death gratuity specifically authorized
by Congress or at any time made out of the
contingent fund of the House of Representatives
or of the Senate is a gift excludable from gross
income of the recipient. §39.22(b)(3)-1. (Sec.
22(b)(3), ’39 Code; Sec. 102, ’86 Code.)
Rev. Rul. 55-609, 1955-2 C.B. 34.
274.118 Death gratuity payment; stock
exchange. In 1876 the Philadelphia-Baltimore
Stock Exchange established a Gratuity Fund.
Since its establishment the Fund has been maintamed
exclusively to provide benefits upon the
death of members of the Exchange. During 1950
and 1954 the Fund paid benefits to beneficiaries of
deceased members. Held, the payments received
constituted amounts received under life insurance
contracts, paid by reason of the death of the
insured, and consequently, were excludable from
the gross income of the recipients. (Sec. 22(b), ’39
Code; Sec. 101, ’86 Code.)
Clarence L. Moyer, 32 T.C. 515, Acq., 1960-2
C.B. 6.
274.119 Dependent care assistance payments;
exclusion limit under a cafeteria plan.
Guidance is provided under section 129(a), as
amended by the Tax Reform Act of 1986, regarding
the exclusion limit on dependent care assistance
payments that are provided under a cafeteria
plan.
Notice 88-3, 1988-1 C.B. 474.
274.120 Disability benefits; police officer;
New York City. A disabled police officer
employed by the City of New York may not
exclude from gross income under section
104(a)(1) any payments received under the terms
of a union contract between the City and the
Patrolmen’s Benevolent Association. §1.61-2,
1.104-1. (Secs. 61, 104; ’86 Code.)
Rev. Rul. 83–77, 1983-1 C.B. 37.
274.121 Discharge of indebtedness; certain
nonrecognition transactions. This notice clarifies
the discussion in the preamble to proposed
section 1.108–2 concerning the scope of regulations
to be issued on discharge of indebtedness
income in certain nonrecognition transactions.
Notice 91-15, 1991–1 C.B. 319.
274.122 Discharge of indebtedness; prepayment
of mortgage note at discount. An individual
taxpayer realizes discharge of indebtedness
income under section 61(a)(12) upon the discounted
prepayment to a lender of all or a portion
of mortgage indebtedness. The amount of the discount
is includable whether the mortgage note is
recourse or nonrecourse. §§1.61–12, 1.108(a)-1.
(Secs. 61, 108; ’86 Code.)
Rev. Rul. 82–202, 1982–2 C.B. 35.
274.123 Dividends and premiums received;
farm production credit association; life insurance.
Insurance premiums from borrowers and
dividends from the insurance company received
by a farm production credit association administering
group credit life insurance for its memberborrowers
in accordance with requirements of the
Federal Farm Credit Association are not includable
in the association’s gross income and the
association is not entitled to a deduction for its
annual premium payment. Rev. Rul. 69-96 superseded.
§§1.61–1, 1.162–1. (Secs. 61, 162: ’86
Code.)
Rev. Rul. 74-321, 1974–2 C.B. 16.
274.124 Domestic minerals purchase program.
Payments received as the purchase price of
domestic manganese ore under the Domestic
Manganese Purchase Program administered by
the General Services Administration, or other
minerals or ores and concentrates under similar
domestic purchase programs, may not be excluded
from gross income. §1.621-1. (Sec. 621, ’86
Code.)
Rev. Rul. 60-305, 1960-2 C.B. 199.
274.125 Donations refunded; previously
deducted. Cash donations to a charitable organization
over a period of years that are repaid to a
taxpayer and redonated to another charitable organization
in the same year are, to the extent a tax
benefit was derived from deductions claimed in
prior years, includable in gross income in the year
of recovery under section 111. However, the
repaid funds donated to the other organization are
considered a charitable contribution. §§1.61–1,
1.111-1, 1.170A-1. (Secs. 61, 111, 170; ’86 Code.)
Rev. Rul. 76-150, 1976-1 C.B. 38.
274.126 Earnings of reciprocal insurance
investment fund. An annual premium deposit

Gross income
paid to a reciprocal flood insurance exchange, the
total of which made over a number of years will
equal the amount of insurance coverage desired,
represents a nondeductible contingent deposit to
the extent that it is withdrawable by the taxpayer.
Amounts representing earnings from investment
of the funds are income to the taxpayer in the taxable
year such amounts are applied to the taxpayer’s
annual premium deposit or become with
drawable. The Weber Paper Co. decision holding
that premium deposits made with a reciprocal
flood insurance exchange were deductible business
expenses will not be followed. §§1.61–1,
1.162-1. (Sec. 61, 162; ’86 Code.)
Rev. Rul. 60–275, 1960–2 C.B. 43; Rev. Rul.
64-72, 1964-1 (Part 1) C.B. 85.
274.127 Educational assistance programs.
Guidance is provided regarding the proper tax
treatment of educational assistance received by an
employee in 1988 under an employer provided
educational assistance program described in section
127 of the Code.
Notice 89-33, 1989–1 C.B. 674.
274.128 Educational assistance programs.
Recent tax law changes affect the tax treatment of
educational assistance provided under employerprovided
educational assistance plans.
Notice 93–48, 1993–2 C.B. 335.
274.129 Educational expenses; employee;
tuition paid by employer. Tuition fees paid by an
employer on behalf of employees who have at
least three months continuous service, enroll in
courses that are not required to be job related or
leading to a degree, are not committed to continue
as employees either during the course of study or
for any length of time after the tuition is paid, and
are required to produce grade “C” or better to be
eligible for further aid, are not excludable from the
employees’ gross income as scholarships or fellowship
grants. However, the educational
expenses may be deductible if they meet the
requirements of section 1.162-5. Rev. Ruls.
76-62, 76-65, and 76-71 distinguished. Amplified
by Rev. Rul. 78-184. §§1.61-1, 1.117-4.
(Secs. 61, 117; ’86 Code.)
Rev. Rul. 76-352, 1976-2 C.B. 37.
274.130 Educational expenses; employer
payments of employee tuition fees. Tuition fees
paid by an employer on behalf of employees that
are not excludable from gross income as scholarship
or fellowship grants under section 117, but are
compensatory and includable in the employees’
gross income, constitute wages for purposes of the
FICA, FUTA, and income tax withholding. Rev.
Rul. 76-352 amplified. §§1.61–1, 1.117-4. (Secs.
61, 117, 3121, 3306, 3401; ’86 Code.)
Rev. Rul. 78-184, 1978–1 C.B. 304.
274.131 Educational expenses; Internal Revenue
Service Scholarship Program. The Internal
Revenue Service Scholarship Program is a workstudy
program for internal revenue agent trainees
that usually selects disadvantaged high school
seniors who intend to major in accounting at a college
or university and who agree to work for the
Service for at least two years after graduation. The
amounts the Service pays for the educational
expenses of the participants in the program,
including travel and per diem, are not excludable
from their gross incomes either as unemployment
benefits or as scholarships or fellowship grants
and are not deductible by the participants as
educational expenses. §§1.61-1, 1.117-4
1.162-5. (Secs. 61, 117, 162, 3402; ’86 Code.)
Rev. Rul. 76-230, 1976-1 C.B. 19.
274.132 Educational expenses paid by
employer; job-related law courses. Amounts a
government agency pays to a correspondence
school for employees’ job-related law courses,
leading to a degree but not entitling them to sit for
any State Bar Examination, are noncompensatory
business expenses for the agency and are not
includable in the employees’ gross income. However,
amounts paid to reimburse employees for
expenses incurred in taking job-related evening
law school courses, the completion of which with
other courses not job-related leads to a degree and
entitles them to sit for bar examinations, are
includible in the employees’ gross income. Distinguished
by Rev. Rul. 76-352. §§1.61-1, 1.117-4,
1.162-5. (Secs. 61, 117, 162; ’86 Code.)
Rev. Rul. 76-62, 1976–1 C.B. 12.
274.133 Educational leave; payments to
employees. Monthly payments a state public welfare
department makes to its employees while on
educational leave to pursue job-related training,
with the employees obligated to return to the public
welfare program for a minimum period of service,
are not excludable from gross income as
scholarships. However, tuition fees the department
pays directly to a university for the
employees are not includable in gross income and
the employees may deduct amounts paid for
books, travel, and incidental expenses related to
the education. Distinguished by Rev. Rul. 76–352.
§§1.61-1, 1.117-4, 1.162-5. (Secs. 61, 117, 162;
’86 Code.)
Rev. Rul. 76-65, 1976-1 C.B. 46.
274.134 Emergency shelter payments to foster
parents. Payments by a department of public
welfare of a state to foster parents who make available
emergency shelter care facilities are gross
income to the recipients. Information returns on
Forms 1099 and 1096 must be made with respect
to such payments aggregating $600 or more to any
person in a calendar year. §§1.61-1, 1.6041-1.
(Secs. 61, 6041; ’86 Code.)
Rev. Rul. 68-97, 1968-1 C.B. 34.
274.135 Employee contributions to state or
municipal plan. Where state law or municipal
ordinance sets up an employee pension plan, the
employee’s contributions deducted from his
salary are includable in his gross income if participation
in the plan is voluntary and he forfeits his
own contributions upon termination of service
prior to retirement or death, or participation in the
plan is compulsory and the plan contains refund
provisions in the event of separation prior to retirement
or death. (Sec. 61, ’86 Code.)
Rev. Rul. 57-326, 1957-2 C.B. 42.
274.136 Employee stock option; disposition
of stock; U.S. citizen; foreign resident. Treatment
of amounts received by a U.S. citizen, a bona
fide resident of a foreign country, on the disposition
of stock obtained upon the exercise of an
option granted pursuant to an employee stock purchase
plan. §§1.61–2, 1.421–5, 1.423–1, 1.911-1,
1.911-2. (Secs. 61, 421, 423, 911; ’86 Code.)
Rev. Rul. 69-118, 1969-1 C.B. 135.
274.137 Employees of Naval cafeteria
association. Remuneration for services performed
in the employ of a cafeteria association,
organized and operated under Navy Department
regulations for the purpose of providing in-plant
feeding services for civilian employees of a Naval
shore establishment, is includible in gross income.
Further, the association is an instrumentality
wholly-owned by the U.S. and services performed
in its employ are excepted from employment for
FUTA purposes. §1.61-2. (Secs. 61, 3306; ’86
Code.)
Rev. Rul. 58-527, 1958-2 C.B. 741.
274.138 Employer contributions; nonoccupational
disability benefits; New York.
Employer contributions to a fund to provide for
nonoccupational disability benefits for employees
pursuant to Article 9 of the New York Workmen’s
Compensation Law are contributions to an accident
or health plan excludable from the
employees’ gross income and are not wages subject
to income tax withholding; however, they are
deductible by the employer as business expenses.
Employees must include any nonoccupational disability
benefits in their gross income unless the
payments qualify for exclusion as amounts
received under a wage continuation plan. I.T.s
4010, 4060, 4075 and Rev. Ruls. 130, 257 superseded.
Amplified by Rev. Rul. 75-499. Modified
by Rev. Rul. 81-192. Distinguished by Rev. Rul.
82-95. §§1.61-1, 1.104-1, 1.105-1, 1.106-1,
1.162–10. (Secs. 61, 104, 105, 106, 162, 3402; ’86
Code.)
Rev. Rul. 72-191, 1972-1 C.B. 45.
274.139 Employment agency fees; paid by
employer. An employment agency fee paid by an
employer under a contract with an agency providing
that a job applicant will incur no liability for
the fee to either the employer or the agency does
not constitute wages for FICA, FUTA, or income
tax withholding purposes and is not includable in
the employee’s gross income. Rev. Rul. 66-41 distinguished.
§1.61–1. (Secs. 61, 3121, 3306, 3401;
’86 Code.)
Rev. Rul. 73-351, 1973–2 C.B. 323.
274.140 Employment agency fees; reimbursed
by employer. An amount equal to an
employment agency fee previously paid by an
employee which is reimbursed by the employer to
the employee after he has completed a specified
period of satisfactory service is includable in gross
income and is additional wages to the employee
subject to employment taxes. Distinguished by
Rev. Rul. 73–351. §1.61-1. (Secs. 61, 3121, 3306,
3401; ’86 Code.)
Rev. Rul. 66-41, 1966-1 C.B. 233.
274.141 Equipment; unrelated owner; no
economic benefit. A corporation that contracts to
construct and operate equipment on its own premises
solely for the benefit of the unrelated owner of
the equipment realizes income only with respect to
amounts received or accrued for construction and
operation. §§1.48-1, 1.61-1, 1.162-1,
1.167(a)-2. (Secs. 48, 61, 162, 167; ’86 Code.)
Rev. Rul. 79-264, 1979-2 C.B. 92.
274.142 Excess compensation restored.
Examples illustrate the treatment of amounts
advanced to an employee in excess of remuneration
earned where such excess is repaid by the
employee, under an employment contract, upon
termination of the employer-employee relationship.
S.S.T. 316 superseded. §§1.61–1, 1.162–17,
1.451-1, 1.461-1. (Secs. 61, 162, 451, 461, 3121,
3306, 3401, 6413; ’86 Code.)
Rev. Rul. 79–311, 1979–2 C.B. 25.
274.143 Evacuation allowances; Guantanamo
Naval Base. Special allowances paid to, or
on behalf of, civilian employees and military personnel
of the U.S. and their families incident to the
evacuation of the U.S. Naval Base at Guantanamo,
Cuba, are not includable in the recipient’s gross
income. No deduction is allowable for any personal
expenses incurred in excess of the allowances
received. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 63–258, 1963–2 C.B. 22.
274.144 Excess compensation restored;
promissory note. A cash method taxpayer
entered into an agreement with the corporation of
which he was president and principal shareholder
limiting his compensation to the amount allowable
by the Commissioner as a deduction. He gave
the corporation a promissory note for the excess
compensation already received that year. Held, the
amount repaid by the promissory note is not
includible in the taxpayer’s income for that year.
(Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)
Willis W. Clark, 11 T.C. 672, Acq., 1953-1 C.B.
3.
274.145 Excess indemnification under medical
insurance policies or plans. That portion of
excess indemnification received from medical
insurance policies or plans attributable to the tax-

payer’s contributions is not includable in gross
income, but that portion attributable to an employer’s
contributions is includible. §§1.104-1,
1.105-1. (Secs. 104, 105; ’86 Code.)
Rev. Rul. 69-154, 1969-1 C.B. 46.
274.146 Fair market value of tour. The fair
market value of a tour, furnished taxpayer free of
charge by a travel agency for which he organized
a group of tourists, is includable in his gross
income. Expenses incurred by him while acting as
an unpaid leader of the group at the request of the
other tourists are not deductible from his gross
income as business expenses. §§1.61–2, 1.162–2,
1.262-1. (Secs. 61, 162, 262; ’86 Code.)
Rev. Rul. 64-154, 1964-1 (Part 1) C.B. 72.
274.147 Federal employee; compensation for
injury. An explanation is presented of the treatment
of amounts received by a federal employee
for sick leave that were later repaid so that the
recipient could be placed in leave without pay status
and receive benefits under the Federal
Employees Compensation Act for that period.
§§1.61-1, 1.104-1, 1.165-1, 1.451-1, 1.461-1,
1.1341-1. (Secs. 61, 104, 165, 451, 461, 1341; ’86
Code.)
Rev. Rul. 79-322, 1979-2 C.B. 76.
274.148 Federal Housing Administration
refund. Distributions received by an original, successor,
or assignee mortgagor from the F.H.A. are
gross income to the mortgagor to the extent that
the aggregate amount of such distributions
exceeds the total premium or premiums paid on
the F.H.A. mortgage insurance. However, where
the taxpayer was entitled to deduct the premiums
paid as a business expense, the entire distribution
received is required to be included in gross
income. Rev. Rul. 58–380 amplifying Rev. Rul.
56-302. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 58-380, 1958-2 C.B. 14.
274.149 Fee waived by state inheritance tax
appraiser. Where apart of the fee imposed by statute
for the services of a state inheritance tax
appraiser is waived by agreement, the amount so
waived is not includible in his gross income.
§1.61-2. (Sec. 61. ’86 Code.)
Rev. Rul. 66-157, 1966-1 C.B. 20.
274.150 Fees; Legal Aid attorneys. Statutory
legal fees received by salaried Legal Aid attorneys
for representing indigent defendants in the criminal
courts are not includible in the gross income of
the attorneys when their employment contract
requires them to turn the fees over to their
employer, The Legal Aid Society. §1.61–2. (Sec.
61, ’86 Code.)
Rev. Rul. 65-282, 1965-2 C.B. 21.
274.151 Fees; physician required to assign to
hospital foundation. Physician-members of a
nonprofit research and educational foundation
formed by a hospital’s medical staff, all of whom
are required to be members of the foundation, are
not required to include in their gross incomes fees
from certain patients, known as teaching cases,
that they are required to assign to the foundation.
§1.61-2. (Sec. 61, ’86 Code.)
Rev. Rul. 76-479, 1976-2 C.B. 20.
274.152 Fees; received by law school’s faculty
members and students. A university’s law school
attorney-faculty members and students are not
required to include in their gross income amounts
received and turned over to the university for their
court appointed representation of indigent defendants
while participating in the university’s clinical
program that is part of its regular teaching curriculum.
§1.61–2. (Sec. 61, ’86 Code.)
Rev. Rul. 74-581, 1974-2 C.B. 25.
274.153 Fees; received by salaried faculty
physician of medical school. Faculty physicians
of a medical school who provide medical services
to indigent patients at a hospital are not required to
include in their gross income fees collected and
remitted to the university in accordance with university
policy and agreement. §1.61–2. (Sec. 61,
’86 Code.)
Rev. Rul. 69-274, 1969-1 C.B. 36.
274.154 Fees; received for hospital; salaried
physicians. The amount of the checks received by
a physician from patients he has treated in the hospital
by which he is employed full time, which
checks he is required to endorse over to the hospital,
is not includible in his gross income. §1.61–2.
(Sec. 61, ’86 Code.)
Rev. Rul. 58-220, 1958-1 C.B. 26.
274.155 Fees; remitted to hospital; staff physicians.
Staff physicians of a hospital must include
in their gross income fees received from insurance
for treatment of patients admitted to the hospital
without a physician’s recommendation even
though they voluntarily turn the fees over to the
hospital. However, they are entitled to a charitable
contribution deduction for the amounts turned
over to the hospital. Amplified to provide that
medicare fees collected by a charitable organization
are includable in the gross income of the physician
performing the services for which the fees
were paid; such fees are not deductible by the individual
physician as business expenses, but are
deductible as charitable contributions. Rev. Rul.
66-377 distinguished. §§1.61-2, 1.162-1,
1.170-1. (Secs. 61, 162, 170; ’86 Code.)
Rev. Rul. 69–275, 1969–1 C.B. 36; Rev. Rul.
70-161, 1970-1 C.B. 15.
274.156 Fees; remitted to medical school; faculty
member. Fees received by a medical school
faculty member from his private professional
practice are includable in his gross income even
though, under the terms of his contract of employment
with the school, all or a part of such fees must
be turned over to the school. Those fees actually
turned over to the school may be deducted as ordinary
and necessary business expenses. Distinguished
by Rev. Rul. 69–275. O.D. 1009 superseded.
§1.61–2. (Sec. 61, ’86 Code.)
Rev. Rul. 66-377, 1966-2 C.B. 21.
274.157 Floor stock refund; retail tire dealer.
The reimbursement should be treated as a reduction
of the cost of the tires to which it relates if the
tires are in ending inventory. To the extent the cost
of the tires is not in ending inventory, the reimbursement
should be treated as an item of gross
income. §§1.61–1, 1.61–14, 1.451–1, 1.471–3.
(Secs. 61, 451, 471, 472, 4071, 6512; ’86 Code.)
Rev. Rul. 85–30, 1985–1 C.B. 20.
274.158 Foreign earned income; revocation
of elections. A qualified individual’s claiming of
a foreign tax credit with respect to foreign earned
income eligible for exclusion under section 911 of
the Code and that the taxpayer has elected to
exclude is inconsistent with the previously made
election or elections and generally will result in
the revocation of one or both elections. §1.911–7.
(Sec. 911, ’86 Code.)
Rev. Rul. 90-77, 1990-2 C.B. 183.
274.159 Foreign income; employees of
Armed Forces exchanges, etc. Compensation
received by U.S. citizens performing personal services
abroad for post exchanges, officers’ messes,
motion picture services, and similar organizations
operated by the U.S. Army, Navy, or Air Force, is
derived from sources within the U.S. and is includible
in gross income. §§39.1161, 39.251(a)-1.
(Secs. 116, 251(a), ’39 Code; Secs. 911, 931, ’86
Code.)
Rev. Rul. 54-612, 1954-2 C.B. 169.
274.160 Fringe benefits; SIFL; aircraft valuation
formula. For purposes of section
1.61–2T(g) of the temporary regulations, relating
to the role for valuing noncommercial flights on
Gross income
employer-provided aircraft, the Standard Industry
Fare Level (SIFL) cents-per-mile rates and the terminal
charges in effect on June 30, 1988, and for
prior periods are set forth. Rev. Rul. 88-40 superseded.
§1.61–2T. (Sec. 61, ’86 Code.)
Rev. Rul. 88–71, 1988-2 C.B. 29.
274.161 Fringe benefits; SIFL; aircraft valuation
formula. For purposes of section
1.61–21(g) of the regulations, relating to the rule
for valuing noncommercial flights on employerprovided
aircraft, the Standard Industry Fare
Level (SIFL) cents-per-mile rates and the terminal
charges in effect for 1989 are listed. Rev. Rul.
88-71 modified. §1.61-21. (Sec. 61, ’86 Code.)
Rev. Rul. 90-4, 1990-1 C.B. 13.
274.162 Fringe benefits; SIFL; aircraft valuation
formula. For purposes of section
1.61–21(g) of the regulations, relating to the rule
for valuing noncommercial flights on employerprovided
aircraft, the Standard Industry Fare
Level (SIFL) cents-per-mile rates and the terminal
charge in effect for flights taken during the first six
months of 1990 are listed. Rev. Rul. 90-4 modified.
§1.61–21. (Sec. 61, ’86 Code.)
Rev. Rul. 90-43, 1990-1 C.B. 13.
274.163 Fringe benefits; SIFL; aircraft valuation
formula. For purposes of section
1.61–21(g) of the regulations, relating to the rule
for valuing noncommercial flights on employerprovided
aircraft, the Standard Industry Fare
Level (SIFL) cents-per-mile rates and the terminal
charges in effect for 1990 are listed. Rev. Rul.
90-43 modified. §1.61-21. (Sec. 61, ’86 Code.)
Rev. Rul. 90-104, 1990–2 C.B. 33.
274.164 Fringe benefits; SIFL; aircraft valuation
formula. For purposes of reg. 1.61–21(g),
relating to the rule for valuing noncommercial
flights on employer-provided aircraft, the Standard
Industry Fare Level (SIFL) cents-per-mile
rates and the terminal charges in effect for 1991
are set forth. Rev. Rul. 90–104 modified.
§1.61-21. (Sec. 61, ’86 Code.)
Rev. Rul. 91-64, 1991–2 C.B. 18.
274.165 Fringe benefits; SIFL; aircraft valuation
formula, 1992. For purposes of reg.
1.61–21(g), relating to the rule for valuing noncommercial
flights on employer-provided aircraft,
the Standard Industry Fare Level (SIFL)
cents-per-mile rates and the terminal charges in
effect for 1992 are set forth. Rev. Rul. 91–64 modified.
§1.61-21. (Sec. 61, ’86 Code.)
Rev. Rul. 92–35, 1992-1 C.B. 16.
274.166 Fringe benefits; SIFL; aircraft valuation
formula. For purposes of reg. 1.61–21(g),
relating to the rule for valuing noncommercial
flights on employer-provided aircraft, the Standard
Industry Fare Level (SIFL) cents-per-mile
rates and the terminal charges in effect for 1992
are set forth. Rev. Rul. 92–35 modified. §1.61–21.
(Sec. 61, ’86 Code,).
Rev Rul. 92-83, 1992-2 C.B. 36.
274.167 Fringe benefits; SIFL; aircraft valuation
formula; 1993. For purposes of section
1.61–21(g) of the regs., relating to the rule for valuing
non-commercial flights on employer-provided
aircraft, the Standard Industry Fare Level
(SIFL), cents-per-mile rates and terminal charges
in effect for 1993 are set forth. Rev. Rul. 92–83
modified. §1.61–21. (Sec. 61, ’86 Code.)
Rev. Rul. 93-35, 1993–1 C.B. 12.
274.168 Fringe benefits; SIFL; aircraft valuation
formula; 1993. For purposes of section
1.61–21(g) of the regs., relating to the rule for valuing
non-commercial flights on employer-provided
aircraft, the Standard Industry Fare Level
(SIFL), cents-per-mile rates and terminal charges
in effect for 1993 are set forth. Rev. Rul. 93–35
modified. §1.61–21. (Sec. 61, ’86 Code.)
Rev. Rul. 93–65, 1993–2 C.B. 12.

Gross income
274.169 Gift of manuscript and gratuitous
services. A taxpayer who conveys all his right,
title and interest in a manuscript containing his
memoirs to a foundation and gratuitously assists in
preparing the manuscript for publication does not
realize income from the foundation’s use or disposition
of the memoirs or from the services rendered
by him. §1.61-2. (Sec. 61, ’86 Code.)
Rev. Rul. 71-33, 1971-1 C.B. 30.
274.170 Gift of manuscript and gratuitous
services. A taxpayer’s gift to a private foundation
of a manuscript containing taxpayer’s memoirs
together with gratuitous assistance in its preparation
for publication by the foundation of which
taxpayer and taxpayer’s spouse were sole trustees
followed by the appointment of an additional
trustee, not a disqualified person, to have sole
authority with respect to the manuscript and its
publication, does not result in gross income to the
taxpayer. §1.61-2. (Sec.161, ’86 Code.)
Rev. Rul. 76-20,1976-1 C.B. 22.
274.171 GOSI; benefit cancellation payments.
Guidance is provided for taxpayers to
determine the taxability of benefit cancellation
payments received from the Saudi Arabian social
security system. §§1.61–1, 1.72–1. (Secs. 61, 72,
’86 Code.)
Rev. Rul. 89-104, 1989-2 C.B. 4.
274.172 Grants; administrator of research
program. The entire amount of a grant made to an
individual as principal investigator and administrator
of a research program, which he expended
as required by the grantor to cover the costs connected
with the investigations, and from which he
received no salary or other economic benefit, is
not includible in his gross income. (Sec. 61, ’86
Code.)
Rev. Rul. 59-92, 1959–1 C.B. 11.
274.173 Group life insurance; excess premiums;
retroactive rate credits; trust income.
A trust, created to provide group life insurance to
association members, received funds from members
for premium payments and trust expenses and
from retroactive rate increases refunded by the
insurer. The trust was authorized to pay all premiums,
expenses, and refunds to the insurees at
the trustee’s discretion. To absorb any rate
increases, the trustee funded a reserve with portions
of the rate credits. Held, neither the amounts
paid in by the members nor the rate credit refunds
are taxable to the trust. (Sec. 61, ’86 Code.)
New York State Association of Real Estate
Boards Group Insurance Fund, 54 T.C. 1325, Nonacq.,
1974–2 C.B. 5.
274.174 Health and accident insurance premiums;
paid by employer; retired employee.
Amounts paid by a company under a health and
accident plan as its share of the cost of providing
hospital, medical and surgical insurance coverage
for the retired employees, as well as its active
employees, are excludable from the retired
employees’ gross income. §1.106-1. (Sec. 106,
’86 Code.)
Rev. Rul. 62–199, 1962–2 C.B. 38.
274.175 Health and accident insurance premiums;
paid by employer; retired employee.
Payments for a retired employee’s continued participation
in the employer’s union-negotiated hospital,
surgical, and medical group insurance plan,
which provides that upon retirement the employee
may receive a cash payment for accumulated sick
leave or have the payment applied to the cost of
insurance, are includable in the employee’s gross
income and are deductible as medical expenses.
Similar payments made under a plan with no
option to receive a cash payment are excludable
from gross income and not deductible. §§1.61-1,
1.106-1, 1.213-1, 1.451-1. (Secs. 61, 106, 213,
451; ’86 Code.)
Rev. Rul. 75-539, 1975-2 C.B. 45.
274.176 Health and welfare payments made
to employees. Amounts employees received
directly from a government contractor, in satisfaction
of the Service Contract Act requirement that
health and welfare benefits or cash in lieu thereof
be provided on a parity with those benefits prevailing
in the locality, are includable in their gross
income. Rev. Rul. 61-146 distinguished.
§1.106-1. (Secs. 106, 3121, 3306, 3401; ’86
Code.)
Rev. Rul. 75-241, 1975-1 C.B. 316.
274.177 Homeowners association; special
assessment. A special assessment collected by an
incorporated homeowners’ association from its
members and set aside in a special bank account
for paving a community parking area constitutes
a contribution to the capital of the nonexempt
association. §§1.61-1 , 1.118–1. (Secs. 61, 118;
’86 Code.)
Rev. Rul. 74-563, 1974-2 C.B. 38.
274.178 Homestead and tenants’ property
tax rebate; New Jersey. The New Jersey homestead
tax rebate paid to a qualifying taxpayer is
includible in gross income only to the extent it
exceeds the property tax actually paid whether or
not the taxpayer itemizes deductions. A taxpayer
itemizing deductions must reduce the deduction
for property tax paid by the amount of the rebate.
The New Jersey tenants’ property tax rebate is a
refund of nondeductible rent and is not includable
in gross income. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 78–194, 1978-1 C.B. 24.
274.179 Honorarium; payable to elected federal
official; transferred to charitable organization.
The amount of an honorarium payable to
an elected federal official, but transferred at the
official’s request to an educational organization
selected by the payer from a list of five charitable
organizations provided by the official, is includible
in gross income under section 61, even though
treated as not being accepted by the official for
purposes of 2 U.S.C. 441i. However, the amount
is deductible as a charitable contribution subject to
the limitations of section 170. §§1.61-2,
1.170A-1. (Secs. 61, 170; ’86 Code.)
Rev. Rul. 79-121, 1979-1 C.B. 61.
274.180 Hospital and medical insurance premiums
reimbursed by employer. Amounts paid
by an employer to his employees in reimbursement
for his share of premiums actually paid by
the employees to an insurer for hospital and medical
insurance constitutes contributions by the
employer to accident or health plans for his
employees and are excludable from the
employees’ gross income. Rev. Rul. 57–33 distinguished.
Distinguished by Rev. Rul. 75-241.
§1.106-1. (Secs. 61, 106; ’86 Code.)
Rev. Rul. 61-146, 1961–2 C.B. 25.
274.181 Income from investment of damage
award. Income realized from the investment of a
lump sum payment, representing the discounted
present value of a damage award for personal injuries,
is not excludable from gross income.
§§1.61-1, 1.104-1. (Secs. 61, 104; ’86 Code.)
Rev. Rul. 65-29, 1965-1 C.B. 59.
274.182 Income from Puerto Rico; residence
changed to U.S. A bona fide resident of Puerto
Rico who changes his residence to the U.S. may
exclude from gross income, for the taxable year in
which his residence is changed, any income
derived from sources within Puerto Rico attributable
to his period of residence in Puerto Rico.
§1.933-1. (Sec. 933, ’86 Code.)
Rev. Rul. 68-7, 1968–1 C.B. 345.
274.183 Income from spend thrift trust; beneficiary.
An individual who makes a clear and irrevocable
disclaimer, effective under Pennsylvania
law, of her right to income which she is entitled to
receive from a simple Pennsylvania spendthrift
trust, is not required to include in gross income the
income accruing to the trust subsequent to her disclaimer.
§1.652(a)-1. (Sec. 652, ’86 Code.)
Rev. Rul. 64-62, 1964-1 (Part 1) C.B. 221.
274.184 Inheritance; relinquishment of right.
The entire amount received by a taxpayer from the
sale of his interest in an expected inheritance from
a person who was living and had not made a will
at the time of the sale is includable in gross income.
I.T. 1466 superseded. §1.61-1. (Sec. 61, ’86
Code.)
Rev. Rul. 70-60, 1970-1 C.B. 11.
274.185 Insurance premiums; additional
group-term life; employer’s portion. The
employer’s portion of premiums paid for additional
insurance in excess of the maximum coverage
of $50,000 under a group-term life insurance
plan is includible in the insured employee’s gross
income notwithstanding the employee’s irrevocable
assignment of his rights under the policy.
§§1.61-2, 1.79-1. (Secs. 61, 79; ’86 Code.)
Rev. Rul. 73-174, 1973-1 C.B. 43.
274.186 Insurance premiums; advances or
prepayments. Increments in value of advance or
prepaid premiums or premium deposit funds
which are applied to the payment of life insurance
and annuity premium or made available for withdrawal
are reportable as income when earned.
Increments so treated are to be reported on
information returns by the insurance company and
are to be included in determining the aggregate
premium or consideration paid by the policyholder
for the contract. This ruling applies beginning
with increments credited or made available
for withdrawal on the first premium date falling
after July 31, 1965. I.T. 3513 and Rev. Rul. 65–24
revoked. Amplified to illustrate how and when to
report these increments. §§1.61–1, 1.6049-1.
(Secs. 61, 6049; ’86 Code.)
Rev. Rul. 65-199, 1965-2 C.B. 20; Rev. Rul.
66-120, 1966-1 C.B. 14.
274.187 Insurance premiums; discounts and
rebates. A general insurance agent who discounted
or rebated premiums to his customers in
violation of state law and retained a correspondingly
lesser amount as his commission, remitting
the full net premium to the insurance company,
properly reported as gross income the reduced
commission retained. (Sec. 61, ’86 Code.)
Allen Schiffman, 47 T.C. 537, Nonacq., 1977-1
C.B. 2.
274.188 Insurance premiums; group health;
retired lives reserve transferred to trust. The
“retired lives reserve” maintained by an insurance
company under an accrual-basis corporation’s
group insurance program for both active and
retired employees and attributable to premiums
previously deducted, transferred at the corporation’s
request to an exempt trust to provide insurance
coverage for retired employees, is includible
in the corporation’s gross income. Further, the corporation’s
annual contributions to the trust after
the transfer are deductible in the taxable year paid
or incurred only to the extent that they are actuarially
determined and made on a level basis. Modified
by Rev. Rul. 77-92. §§1.61-1, 1.162-10.
(Secs. 61, 162; ’86 Code.)
Rev. Rul. 73–599, 1973–2 C.B. 40.
274.189 Insurance premiums; group hospitalization
and life; commission salesmen. Group
term life and hospitalization insurance premiums
paid on behalf of commission salesmen are taxable
to salesmen who are not employees, but are
exempt to those who are employees; premiums on

group permanent life insurance are taxable to all
salesmen. (Secs. 61, 106, 162; ’86 Code.)
Rev. Rul. 56-400, 1956-2 C.B. 116.
274.190 Insurance premiums; group life;
retired lives reserve transferred to second
insurer. A corporation that transfers a “retired
lives reserve” from the insurance company maintaining
its group insurance program to another
insurance company in accordance with an insurance
contract, which provides an option to make
such transfer or to have the reserve returned to it,
must include in its gross income the portion of the
reserve accumulated out of premiums paid or
incurred in taxable years ended on or before June
17, 1969, for which it received deductions, plus
the interest attributable to those years. The portion
of the reserve accumulated in taxable years after
that date, for which premiums were not deducted,
is not includable except for the interest. Rev. Rul.
73-599 modified. §1.61-1, 1.162-10. (Secs. 61,
162; ’86 Code.)
Rev. Rul. 77-92, 1977–1 C.B. 41.
274.191 Insurance premiums; paid by bank;
indemnification for officers. Premiums paid by
a bank for group liability insurance policies, one
indemnifying it for corporate liability resulting
from wrongful acts committed, or alleged to have
been committed, by its directors and officers
within the scope of their employment, and one
reimbursing such officers for their expenses arising
from such acts, are deductible as ordinary and
necessary business expenses. No income results to
the officers and directors from such premiums.
§§1.61-1, 1.162-1. (Secs. 61, 162; ’86 Code.)
Rev. Rul. 69-491, 1969–2 C.B. 22.
274.192 Insurance premiums; paid to
employees. Amounts paid directly to employees,
pursuant to a union contract of employment, to be
used exclusively for the purchase of individual
hospitalization and surgical insurance coverage,
constitute “wages”, and are includable in the gross
income of the employees. I.T. 3738 distinguished.
Distinguished by Rev. Rul. 61-146. §1.61-1.
(Secs. 61, 3121, 3306, 3401; ’86 Code.)
Rev. Rul. 57–33, 1957–1 C.B. 303.
274.193 Insurance premiums; split-dollar
life. The tax consequences of “split-dollar” life
insurance arrangements are explained for situations
in which the owner of the insurance policy is
an individual other than the employee or former
employee whose life is insured. Rev. Ruls.
64-328, 66-110, and 67-154 amplified. §1.61-1.
(Secs. 61, 2501, 2511; ’86 Code.)
Rev. Rul. 78-420, 1978–2 C.B. 67.
274.194 Insurance proceeds; change in
method of receipt; surviving spouse. A surviving
spouse who elects to leave life insurance proceeds,
payable by reason of the death of her
spouse, with the insurer and receive only interest
payments thereon which are includible in her
gross income, is not precluded from obtaining the
benefit of the exclusions provided by section
101(d) if she elects at a later date to receive future
payments under another mode of settlement which
would have qualified for such exclusions had such
an election been made in the first instance.
§1.61-1, 1.101-1. (Secs. 61, 101; ’86 Code.)
Rev. Rul. 65–284, 1965-2 C.B. 28.
274.195 Insurance proceeds; missing in
action. The recipient beneficiary may exclude
from gross income the proceeds of a life insurance
policy upon which the insured was a Missing in
Action member of the U.S. uniformed services for
whom no official finding of death has been made
by the Department of Defense. Rev. Rul. 76-468
clarified. §§1.61–1, 1.101–1, 1.451–2. (Secs. 61,
101, 451; ’86 Code.)
Rev. Rul. 78–372, 1978-2 C.B. 93.
274.196 Insurance proceeds; policy transferred
subject to indebtedness. Taxpayer transferred
to his wife a life insurance policy subject to
indebtedness. The wife paid the indebtedness in
the following year and paid all premiums subsequent
to the transfer. Held, theprocecds paid to the
wife at the taxpayer’s death are excludable under
section 101. Section 101(a)(2), limiting the exclusion
for transferees to the value of the consideration
and the premiums paid, is not applicable
because the wife acquired the policy in part for a
valuable consideration and in part by gift. Section
101(a)(2)(A) makes the limitation inapplicable to
the transferee whose basis is determined in whole
or in part, by reference to the transferor’s basis.
§1.101-1. (Sec. 101, ’86 Code.)
Rev. Rul. 69-187, 1969–1 C.B. 45.
274.197 Interest; deficiency; paid by another.
The interest on an overassessment is includable in
full in the gross income of the taxpayer, even
though a portion thereof is used to pay the deficiency
interest of another person. The interest on
the deficiency is deductible only by the person
whose liability such payment represents, irrespective
of whether made on his behalf as a loan or as
a gift to him. (Secs. 61, 163; ’86 Code.)
Rev. Rul. 57-481, 1957–2 C.B. 48.
274.198 Interest; insured loans; Agricultural
Credit Insurance Fund. Interest on insured loans
sold out of the Agricultural Credit Insurance Fund
after December 31, 1970, is includible in gross
income. Rev. Rul. 58-452 modified. §1.103–1.
(Sec. 103, ’86 Code.)
Rev. Rul. 71-594, 1971-2 C.B. 91.
274.199 Interest on bonds; bridge commission.
The interest on bonds to be issued by a bridge
commission created by Congress to construct a
bridge between two neighboring States is not
excludable from the gross income of the recipient.
§1.103-1. (Sec. 103, ’86 Code.)
Rev. Rul. 68-41, 1968-1 C.B. 47.
274.200 Interest on certain loans used to
acquire employer securities. A corporation’s
actions as an underwriter in the sale of notes evidencing
a securities acquisition loan will not
adversely affect the status, under section 133, of
interest received or accrued on such notes. A qualified
lender will be entitled to the partial interest
exclusion of section 133 without regard to whether
each previous holder of the note was a qualified
lender. §1.133-1T. (Sec. 133, ’86 Code.)
Rev. Rul. 89-76, 1989-1 C.B. 24.
274.201 Interest on refunds; Canadian Special
Refundable Tax. The Special Refundable
Tax on certain corporations and trusts imposed by
Canada is neither allowable as a foreign tax credit
nor deductible in computing taxable income.
Refunds of the tax are not includible in gross
income, but interest received thereon must be
included. §§1.61–1, 1.164-1, 1.901–1. (Secs. 61,
164, 901; ’86 Code.)
Rev. Rul. 67-187, 1967–1 C.B. 185.
274.202 Job training allowances. Weekly
allowances in excess of allowances provided
under the Manpower Development Training Act,
received by construction union members from a
tax-exempt trust fund established under a collective
bargaining agreement financed by contractor
contributions to provide training in construction
skills, are not excludable from the gross incomes
of the recipients as scholarships or fellowship
grants. §§1.61-2, 1.117-4. (Secs. 61, 117; ’86
Code.)
Rev. Rul. 77-177, 1977–1 C.B. 34.
Gross income
274.203 “Key man” life insurance proceeds;
note repaid. A subchapter S corporation received
proceeds of an insurance policy it owned on a business
keyman who died in a plane crash. The policy
was settled in a lawsuit with the decedent’s corporation
and estate contesting rights to the claim.
The decedent’s corporation and the stock held
therein by the estate were excused from further
liability to the subchapters corporation on the balance
of a note co-signed by the decedent. Held, the
subchapter S corporation had an insurable interest
in the keyman and received excludable insurance
proceeds, not income from a lawsuit settlement or
income from the discounted note collection, as the
decedent’s corporation had no “interest in the
policy” to assign as consideration for cancellation
of its indebtedness. (Acq. in result as to the “interest
in the policy”; Acq. to the other issues.) (Secs.
61, 101; ’86 Code.)
M. Lucile Harrison, 59 T.C. 578, Acq., 1973-2
C.B. 2.
274.204 Lease security deposit; repayment
obligation released. The entire amount realized
by a lessor from the release of his obligation to
repay a security deposit as consideration for cancellation
of the lease is includable in his gross
income in the year of the release. The Service will
not follow the decisions in Warren Service Corp.
and Bradford Hotel Operating Co. §1.61–8. (Sec.
61, ’86 Code.)
Rev. Rul. 68-19, 1968–1 C.B. 42.
274.205 Leave-sharing plan; paid by
employer. Amounts paid by an employer pursuant
to a leave-sharing plan are includable in the gross
income of the recipient as compensation for services
provided by the recipient to the employer
and are wages for employment tax purposes.
§1.61-2. (Sec. 61, ’86 Code.)
Rev. Rul. 90-29, 1990-1 C.B. 11.
274.206 Legal expenses and interest;
awarded with back pay and interest. Legal fees,
interest, and back pay awarded by a court in connection
with a claim against an individual’s
employer are includable in gross income. Likewise,
back pay paid to union members out of a
court-approved settlement between a union and a
company involving a breach of a collective bargaining
agreement is includable in the member’s
gross income. The portion of the total settlement
that is used by the union to pay legal fees incurred
in enforcing the agreement is not includable in the
members’ gross income and is not deductible by
them as a business expense. §§1.61–1, 1.162–1.
(Secs. 61, 162, 3121, 3306, 3401; ’86 Code.)
Rev. Rul. 80-364, 1980-2 C.B. 294.
274.207 Legal expenses of official paid by
organization. A committee composed of officers
of an organization paid the personal legal
expenses of an official of the organization. The
committee’s professed aim was to aid the organization
in general through exoneration of the taxpayer;
the unused funds were turned over to the
organization. Under the circumstances, the payments
for legal expenses constitute gross income
to the official rather than non-taxable gifts.
§§1.61-1, 1.102-1. (Secs. 61, 102; ’86 Code.)
Rev. Rul. 60-14, 1960-1 C.B. 16.
274.208 Lump-sum payment; accrued leave;
Federal employees. Lump-sum payments
received by a Federal Government employee for
accumulated and current accrued annual or vacation
leave upon separation from government service,
irrespective of whether such individual
resigns or retires and receives a disability annuity
are not payments for personal injuries or sickness
under a wage continuation plan excludable from
gross income. Rev. Rul. 35–85 distinguished.
(Sec. 105, ’86 Code.)
Rev. Rul. 58–178, 1958–1 C.B. 51.
274.209 Lump-sum payment; mineral rights;
royalty interest retained. A lump-sum payment
received by the owner of land purportedly for fee
simple title to all minerals in and under the land,
but in conjunction with which he retained a royalty
interest in any minerals produced from the land, is
ordinary income and not proceeds from the sale of

Gross income
a capital asset. G.C.M. 27322 superseded.
§§1.61-1, 1.1231-1. (Secs. 61, 1231; ’86 Code.)
Rev. Rul. 69–352, 1969–1 C.B. 34.
274.210 Lump-sum payment; mineral rights;
royalty interest retained. The lump sum payment
received for a 65 percent interest in the minerals in
place is not subject to a depletion allowance under
section 611. The payment is for the sale of a capital
asset defined in section 1221 and entitled to capital
gain treatment. §§1.611-1, 1.1221-1. (Secs. 611,
1221; ’86 Code.)
Rev. Rul. 82-221, 1982-2 C.B. 113.
274.211 Maintenance of residence by estate.
Amounts spent by trustees under the terms of a testamentary
trust to maintain a residence for a beneficiary
of the testator are not income to the beneficiary.
(Sec. 219(b)(2), Revenue Acts of 1924 and
1926; Sec.612(b), Revenue Act of 1928; Sec. 662,
’86 Code.)
Henry B. Plant, 30 B.T.A. 133, Acq., 1976-1
C.B. 1.
274.212 Meal allowances furnished state
troopers. Cash meal allowance payments
received by state troopers for their use in obtaining
mid-shift meals are additional compensation to
the troopers and are not excludable under section
119. (Secs. 61, 119; ’86 Code.)
Kowalski, 434 U.S. 77, Ct. D. 1987, 1978-1
C.B. 15.
274.213 Meal and subsistence allowances;
state police officers. Procedures are set forth for
state police officers to follow in making the election
provided by section 3 of Pub. L. 95-427, relating
to their statutory subsistence allowances or
subsistence allowances negotiated in accordance
with state law. §1.119–1. (Secs. 601.105, 601.602,
S.P.R.; Sec. 119, ’86 Code.)
Rev. Proc. 79–13, 1979–1 C.B. 493; Rev. Proc.
81-26, 1981-2 C.B. 547.
274.214 Medicare benefits. Basic medicare
benefits under part A of title XVIII of the Social
Security Act are not includible in gross income or
the limitation on retirement income credit but are
includable in support computation as the contribution
of the person for whom it was paid. Supplementary
medicare benefits under part B are not
includable in gross income, support computation,
or in the limitation on retirement income credit.
§§1.37-4, 1.61-1, 1.152-1. (Secs. 37, 61, 152; ’86
Code.)
Rev. Rul. 70-341, 1970–2 C.B. 31.
274.215 Member of Congress; salary
returned to Treasury. The salary of a member of
Congress is gross income; however, any portion
which he returns to the U.S. Treasury is deductible
as a charitable contribution. (Secs. 61, 170; ’86
Code.)
Rev. Rul. 56-126, 1956-1 C.B. 56.
274.216 Members of Congress; allowances;
expenses in discharge of official duties. The tax
treatment of allowances and reimbursements
made under the Regulations and Accounting Procedures
for Allowances and Expenses of Committees,
Members and Employees of the United
States House of Representatives for use in the discharge
of official and representational duties is set
forth. §§1.61-1, 1.162–17, 1.274–5. (Secs. 61,
162, 274; ’86 Code.)
Rev. Rul. 77-323, 1977-2 C.B. 18.
274.217 Membership dries (premiums); shipowners
mutual association. The return of
excess dues (premiums) by a fishing vessel owners’
association to its members, from a fund
created to reimburse them for sums which they
become liable to pay in respect of personal injuries
growing out of the use of the fishing vessels, is not
an inurement of earnings to the members and,
therefore, the dues paid to the association by members
need not be included in it gross income. (Sec.
526, ’86 Code.)
Rev. Rul. 70-566, 1970- C.B. 128.
274.218 Membership fees; refundable less
delinquent dues. A swimming school operator
collects membership fees from members in order
to build a new pool. If any member defaults in the
payment of his dues, such amount is deducted
from his membership fee. The membership fee,
minus any deductions, is to be refunded to each
member within five years after the pool is put into
use. The membership fee arrangement is considered
to be a loan since the owner had an obligation
to refund. However, any amount deducted from
the fee for delinquent dues is gross income derived
from business. Distinguished by Rev. Rul.
66-347. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 58–17, 1958-1 C.B. 11.
274.219 Ministers; taxes paid by church.
Amounts paid by a church toward its minister’s
personal tax obligations are includible in his gross
income for income and self-employment tax purposes;
further, voluntary plans for withholding
income tax from a minister’s salary cannot be
approved by the Revenue Service. §§1.61–1,
1.1401-1. (Secs. 61, 1401; ’86 Code.)
Rev. Rul. 68-507, 1968-2 C.B. 485.
274.220 Missionaries; contributions for support.
Voluntary contributions made directly to and
for the support of employee-missionaries performing
services to further the purposes and
objectives of an exempt mission are deemed paid
on behalf of the mission and in consideration for
services rendered by the missionaries and, as such,
are includible in the gross income of the missionaries.
§§1.61–2, 1.102–1. (Secs. 61, 102; ’86
Code.)
Rev. Rul. 68–67, 1968–1 C.B. 38.
274.221 Money judgment; exchange for
stock. Minority shareholders successfully sued
the corporation and its majority shareholders then
formed a corporation, surrendering their minority
stock for stock in the new corporation, and entered
an amended decree on settlement substituting as
plantiff the new corporation which surrendered
the minority stock for property and a money judgment.
Held, the cash constituted a return of capital,
not taxable income. (Sec. 22(a), ’39 Code; Sec. 61,
’86 Code.)
Nevada Oil Co., 22 T.C. 630, Acq., 19542 C.B.
5.
274.222 Mortgage discount and price differential
payments to FNMA. The basis of mortgages
acquired by the Federal National Mortgage
Association (FNMA) through the Government
National Mortgage Association (GNMA) is the
amount paid by FNMA less any payment received
from GNMA in recovery of the “market discount”
or “price differential” sustained by
FNMA in acquiring the mortgage. Such payments
to FNMA are not includable in its gross income
and reduce the basis of the mortgages to which
they relate as of receipt of the “price differential”
payment or, if earlier, disposition of the mortgage
giving rise” to the “market discount” payment.
§§1.61-1, 1.1012-1. (Secs. 61, 1012; ’86 Code.)
Rev. Rul. 73-559, 1973-2 C.B. 299.
274.223 Motor vehicles invoice price; dealers’
holdback charge. A holdback charge
included in the manufacturer’s invoice price of
motor vehicles to dealers is not includable in the
manufacturer’s gross income; the dealer may not
include it in cost of goods sold or claim it as a
deduction. §§1.61-1, 1.61-3, 1.162-1. (Secs. 61,
162; ’86 Code.)
Rev. Rul. 72-326, 1972-2 C.B. 30.
274.224 NLRB award. A NLRB award for pay
lost due to an illegal discharge caused by a labor
organization is includable in the recipient’s gross
income even though such award does not constitute
wages for employment tax purposes. Rev.
Rul. 57–55 relating to the treatment of such award
as wages for employment tax purposes is amplified.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 75-64, 1975-1 C.B. 16.
274.225 Nonoccupational disability benefits;
Hawaii. Benefits received by an unemployed
individual under the Temporary Disability Insurance
Law of Hawaii, as a result of temporary disability
due to nonoccupational sickness or accident,
are in the nature of unemployment
compensation and excludable from the recipient’s
gross income and benefits received by an
employee under provisions of the Law are
amounts paid pursuant to a wage continuation
plan. §§1.104-1, 1.105-1. (Secs. 104, 105; ’86
Code.)
Rev. Rul. 75-479, 1975-2 C.B. 44.
274.226 Nonresident alien married to U.S.
citizen. An election to file a joint return under section
6013(g) is not a waiver of the privileges provided
by section 893(a) of the Code and section
247(b) of the Immigration and Nationality Act that
affects the tax exempt status of the income of a
nonresident alien married to a U.S. citizen.
§§1.893-1, 301.6013-1. (Secs. 893, 6013; ’86
Code.)
Rev. Rul. 79-246, 1979-2 C.B. 392.
274.227 Nutrition Program for the Elderly;
employees. Cash remuneration paid to employees
under the Nutrition Program for the Elderly is
includible in gross income. Food benefits received
by employees under the program are not includible
in gross income. §1.61–1. (Secs. 61, 3121,
3401; ’86 Code.)
Rev. Rul. 79-342, 1979-2 C.B. 28.
274.228 Passive activity losses and credits;
Alaska Permanent Fund Dividends. Alaska Permanent
Fund Dividends do not constitute either
investment income under section 163(d)(4)(B) of
the Code or passive activity gross income under
section 1.469–2T(c) of the temporary regulations.
Rev. Rul. 85-39 amplified. §§1.316-1, 1.469-2T.
(Secs. 163, 316, 469; ’86 Code.)
Rev. Rul. 90-56, 1990-2 C.B. 102.
274.229 Payment of employee’s FICA tax.
Amounts paid by a state under an agreement with
H.E.W. or by a domestic corporation under an
agreement with the Service extending social security
coverage to state employees or to employees
of a foreign subsidiary of the domestic corporation,
which are equivalent to the FICA tax that
would have been imposed on the employees under
section 3101, are includible in the employees’
gross income and are wages subject to income tax
withholding. §1.61–1. (Secs. 61, 3121, 3402; ’86
Code.)
Rev. Rul. 79-49, 1979-1 C.B. 57.
274.230 Payments by Crime Victims Compensation
Board of New York. Awards made by
the Crime Victims Compensation Board of the
State of New York to victims of crime or to their
surviving spouses or dependents are not includable
in the gross income of the recipients. Medical
expenses incurred by a recipient that are compensated
for by such award are not deductible; further,
an award for medical expenses previously
deducted must be included in income in the taxable
year of receipt to the extent that the expenses
resulted in a tax benefit in the prior taxable year.
§§1.61-1, 1.213-1. (Secs. 61, 213; ’86 Code.)
Rev. Rul. 74-74, 1974-1 C.B. 18.
274.231 Payments for lost time; railroad
employee. Payment made to an employee by a
railroad company for lost time following his dismissal
without cause is includible in the
employee’s gross income in the taxable year
received and is wages subject to income tax withholding.
Further, the amount paid is compensation

Gross income
subject to taxes imposed by the Railroad Retirement
Tax Act. O.D. 512 superseded. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 70-404, 1970-2 C.B. 5.
274.232 Payments to dependents of former
employees in Armed Forces. Payments made to
dependents of a corporation’s former employees
who are in the Armed Forces represent taxable
income constructively received by the former
employees. Payments aggregating $600 or more
made during a calendar year must be reported on
information returns by the corporation in the
names of the former employees, and such amounts
are deductible by the corporation. I.T. 3602 superseded.
§§1.61-1, 1.161-1, 1.6041-1. (Secs. 6l,
161, 6041; ’86 Code.)
Rev. Rul. 69-104, 1969-1 C.B. 33.
274.233 Payments to foster parents. Factual
situations illustrate the tax treatment of amounts
received and amounts expended by individuals
providing foster care to children. I.T. 4068 superseded.
§§1.61–1, 1.62–1, 1.151–2, 1.162–1,
1.170-2, 1.1401-1, 1.6041–1. (Secs. 61, 62, 151,
162, 170, 280A, 1401, 3121, 3306, 3401, 6041;
’86 Code.)
Rev. Rul. 77-280, 1977-2 C.B. 14.
274.234 Payments to probationers; city
work-training programs. Stipends paid by a city
to unemployed or underemployed probationers
who are participants in a project established for the
purpose of reducing their recidivism to crime and
aiding them in acquiring training and skills to
enhance their opportunities for gainful employment
are not includible in gross income. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 72-340, 1972-2 C.B. 31.
274.235 Payments to reduce cost of winter
energy consumption; Ohio. Payments made
under the laws of the State of Ohio directly or indirectly
to qualified individuals to reduce their cost
of winter energy consumption are not includible in
gross income. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 78–170, 1978-1 C.B. 24.
274.236 Payments under Alaska dividend
program. “Dividend payments” made by the
State of Alaska pursuant to Alaska Statutes section
43.23 are includible in gross income. §§1.61-1,
1.102–1. (Secs. 61, 102; ’86 Code.)
Rev. Rul. 85–39, 1985-1 C.B. 21.
274.237 Payments under Alaska Longevity
Bonus Act. Monthly benefit payments received
under the Alaska Longevity Bonus Act by persons
65 years of age and over who have maintained a
continuous domocile in Alaska for 25 years, paid
by the State regardless of financial status, health,
educational background, or employment status,
are includible in the gross income of the recipients.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 76-131, 1976-1 C.B. 16.
274.238 Payments under Area Redevelopment
Act; Manpower Development and Training
Act. Benefit payments received by individuals
undergoing training or retraining under the Area
Redevelopment Act or the Manpower Development
and Training Act of 1962 are not includible
in the recipient’s gross income. Distinguished by
Rev. Rul. 74-413. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 63–136, 1963–2 C.B. 19.
274.239 Payments under Comprehensive
Employment and Training Act. Payments
received by a trainee, in a program under titles I
and II of the Comprehensive Employment and
Training Act, for services performed during onthe-job
training for a private construction company
or for work experience in a city clinic are
includable in gross income. However, allowances
received for participation in a program, or to
enable the trainee to participate, and not for the
performance of services are excludable from gross
income. §1.61–1. (Secs. 61, 3121, 3306, 3401; ’86
Code.)
Rev. Rul. 75-246, 1975-1 C.B. 24.
274.240 Payments under Disaster Relief Act
of 1974. A grant received under section 408 of the
Disaster Relief Act of 1974 is in the interest of the
general welfare and not includible in the recipient’s
gross income under section 61. Casualty
losses and medical expenses incurred by a recipient
to the extent compensated for by a grant
received under the Act are not deductible under
sections 165 and 213. §§1.61–1, 1.165–1,
1.213-1. (Secs. 61, 165, 213; ’86 Code.)
Rev. Rul. 76-144, 1976-1 C.B. 17.
274.241 Payments under Domestic Volunteer
Service Act. Payments for supportive services or
reimbursements of out-of-pocket expenses made
to volunteers serving in programs pursuant to titles
II and III of the Domestic Volunteer Service Act of
1973 are not includible in gross income. Amplified
by Rev. Rul. 78–80. §1.61-1. (Secs. 61, 3121,
3401; ’86 Code.)
Rev. Rul. 74-322, 1974-2 C.B. 17.
274.242 Payments under Domestic Volunteer
Service Act; Foster Grandparent Program.
Supplemental stipends paid by sponsoring state
agencies to volunteers in the Foster Grandparent
Program in addition to the monthly stipend paid
from Federal funds for the volunteers’ services,
both of which are authorized pursuant to title II of
the Domestic Volunteer Service Act of 1973, are
not includible in the recipients’ gross income. Rev.
Rul. 74-322 amplified. §1.61-1. (Secs. 61, 3121,
3401; ’86 Code.)
Rev. Rul. 78-80, 1978-1 C.B. 22.
274.243 Payments under forestry incentives
program. The excludable portion of cost-sharing
payments received under the Forestry Incentives
Program (F.I.P.) is excludable from gross income,
and the total costs of reforestation less the excludable
portion are to be capitalized as a cost of timber.
Under the election not to have section 126
apply to the F.I.P. payment, the entire payment is
includable in gross income, and the total costs of
reforestation (not reduced by any portion of the
F.I.P. payment) are to be capitalized as a cost of
timber. Rev. Rul. 766 modified and superseded.
§§1.61-1, 16A.126-1, 16A.126-2, 1.194-1,
1.611-3. (Secs. 61, 126, 194, 611; ’86 Code.)
Rev. Rul. 84-67, 1984-1 C.B. 28.
274.244 Payments under National Historic
Preservation Act of 1966. Payments received
prior to December 12, 1980, under the National
Historic preservation Act of 1966, are includable
in gross income. Rev. Rul. 80-330 obsoleted
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 82-195, 1982-2 C.B. 34.
274.245 Payments under National Housing
Act. Mortgage assistance payments that are in
substance interest subsidies paid under section
235 of the National Housing Act for the benefit of
cash basis calendar year taxpayers are in the nature
of general welfare and not includible in their gross
income. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 75-271, 1975-2 C.B. 23.
274.246 Payments under National Housing
Act. Interest reduction payments made under section
236 of the National Housing Act to a mortgagee
on behalf of a limited-profit corporation
formed to acquire and lease apartments in a lower
income rental housing project are includible in the
corporation’s gross income and the corporation is
entitled to deduct the full amount of interest paid
under the mortgage. §§1.61–1, 1.163–1. (Secs. 61,
163; ’86 Code.)
Rev. Rul. 76-75, 1976-1 C.B. 14.
274.247 Payments under State welfare
agency adoption program. Maryland State
Department of Social Services payments to adoptive
parents who use the payments for support and
maintenance of their adoptive child are not includible
in income but must be considered in determining
who furnished the child’s principal support for
purposes of claiming the dependency exemption.
§§1.61-1, 1.152-1. (Secs. 61, 152; ’86 Code.)
Rev. Rul. 74-153, 1974-1 C.B. 20.
274.248 Payments under State welfare
agency work relief program. Payments to welfare
recipients by a State welfare agency, under its
work relief program, equal to the number of hours
actually worked times the applicable hourly rate
are compensation for services rendered. Such payments
are includible in gross income and are
wages subject to income tax withholding even
though the recipient would not receive a smaller
amount if he were unable to work or work were not
available. Cash or payments in kind, such as food
or other items, not directly attributable to services
performed, are not includable in gross income or
subject to withholding. Modified by Rev. Rul.
71-425. §1.61-2. (Sec. 61, ’86 Code.)
Rev. Rul. 67–144, 1967–1 C.B. 12.
274.249 Payments under State welfare
agency work training program. Payments made
by a State welfare agency to participants in worktraining
programs, such as a program under title V
of the Economic Oportunity Act of 1964, that are
equal to and in lieu of welfare payments the participant
would otherwise receive are neither includible
in gross income nor considered wages for
FICA or income tax withholding purposes. If such
payments exceed the amount that would have been
received without working the entire amount will
be considered as taxable gross income and wages,
except to the extent that it can be shown that the
amount received exceeds the fair market value of
the services. Rev. Rul. 67–144 modified to the
extent it holds that payments received under the
facts therein are includible in gross income.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 71-425, 1971–2 C.B. 76.
274.250 Payments under State work program
funded under Manpower Development
and Training Act. Payments to participants in a
State program, established to provide short-term
employment in disaster relief activities for unemployed
individuals and funded under the Manpower
Development and Training Act of 1962, are
compensation for services rendered includible in
the participants’ gross income. Rev. Rul. 63–136
distinguished. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 74-413, 1974–2 C.B. 333.
274.251 Payments under State youth opportunity
program. Summer employees of a railroad
company under a State youth opportunity program
who as a condition of their employment are
required to consent that a portion of their remuneration
be withheld and paid to the State are not
required to include these amounts withheld in their
gross income. Such amounts are not wages for
purposes of income tax withholding or compensation
for purposes of RRTA. §1.61–2. (Secs. 61,
3231, 3401; ’86 Code.)
Rev. Rul. 74-50, 1974-1 C.B. 22.
274.252 Payments under supplemental lease;
expenditures for new machinery. Monthly payments
received by a lessor under a supplemental
lease agreement, in addition to specified rent, until
they total one-half of the sum expended for the
purchase and installation of machinery and equipment,
constitute rental income. I.T. 2229 superseded.
§1.61–8. (Sec. 61, ’86 Code.)
Rev. Rul. 70-146, 1970–1 C.B. 18.
274.253 Payments under work-study program;
Economic Opportunity Act. Payments
made by a college to student-employees who participate
in a work-study program established

Gross income
under title I-C of the Economic Opportunity Act
of 1964, and to individuals who are employed full
time by the college during the summer vacation
period are compensation for services which are
includable in gross income and subject to income
tax withholding. §1.61–2. (Sec. 61, ’86 Code.)
Rev. Rul. 66-285, 1966-2 C.B. 455.
274.254 Payments under work-training program;
Economic Opportunity Act. Payments
made to enrollees in work-training program established
under title I-B of the Economic Opportunity
Act of 1964 are compensation for services which
are includible in the gross income of the enrollees
and are subject to the withholding of income tax.
Clarified to indicate that this rule is applicable
irrespective of who employs a participant in a
work-training program. §1.61–1. (Sec. 61, ’86
Code.)
Rev. Rul. 65–139, 1965–1 C.B. 31; Rev. Rul.
66-240, 1966-2 C.B. 19.
274.255 Penalties deducted from schoolteachers’
salaries after illegal strike. The penalties
imposed by state law and deducted from the
county schoolteachers’ salaries after their illegal
strike are includible in the teachers’ gross income
and are not deductible as business expenses.
§§1.61-1, 1.162-21. (Secs. 61, 162, 3401; ’86
Code.)
Rev. Rul. 76-130, 1976-1 C.B. 16.
274.256 Pension; Canadian Government;
resident alien. Pension payments received from
the Canadian Government under the Old Age
Security Act of Canada by Canadian citizens
residing in the U.S. are includible in the gross
income of the recipients. §1.61–11. (Sec. 61, ’86
Code.)
Rev. Rul. 62-179, 1962-2 C.B. 20.
274.257 Pension; contributions withheld;
forfeitable. Amounts withheld from an
employee’s pay and contributed to a nonqualified
employees’ pension trust are not currently includible
in the employee’s gross income, where participation
in the trust is compulsory and the contributions
are forfeitable upon termination of services
prior to normal retirement age or death. If upon
completion of a stated period of service such contributions
are no longer subject to a substantial risk
of forfeiture, at that time the accumulated contributions
are includable in gross income to the
extent provided in sections 83 and 402(b). Section
83 is applicable to contributions made after
August 1, 1969. Rev. Rul. 56-473 clarified.
§§1.61-2, 1.402(b)-1. (Secs. 61, 83, 402; ’86
Code.)
Rev. Rul. 72-94, 1972-1 C.B. 23.
274.258 Pension; firefighters. Duty disability
payments paid under a municipal statute to disabled
firefighters prior to their reaching normal
retirement age are excludable from gross income.
If the disabled firefighter dies prior to normal
retirement age, the benefits paid under the statute
to the surviving spouse are also excludable.
§§1.61-2, 1.104-1. (Secs. 61, 104; ’86 Code.)
Rev. Rul. 80-14, 1980-1 C.B. 33.
274.259 Pension; former citizen of Austria.
Payments received by a U.S. resident from the
Federal Republic of Austria as a widow’s pension
under the provisions of Austria’s General Social
Insurance Law are in the nature of reimbursement
for deprivation of civil or personal rights and do
not constitute taxable income to the recipient.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 69–212, 1969–1 C.B. 34.
274.260 Pension; rights settlement. A lumpsum
payment received in settlement of a lawsuit
claiming benefits under a nonqualified, noncontributory
pension plan is includible in the recipient’s
gross income as ordinary income in the year
received. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 76-171, 1976-1 C.B. 18.
274.261 Pension; volunteer firefighter’s
widow. A pension required to be paid by a municipal
ordinance to the widow of a volunteer firefighter
killed in the line of duty is in the nature of
and in lieu of workmen’s compensation and is
excludable from the widow’s gross income.
§1.104-1. (Sec. 104, ’86 Code.)
Rev. Rul. 72-291, 1972-1 C.B. 36.
274.262 Per diem allowance; executive training
program participant; home test. An
employee who participated in a 12-month executive
training program at various offices throughout
the country pending reassignment in a new location
was away from home and could exclude from
gross income a per diem allowance paid by the
employer. §§1.162–1, 1.274-5. (Secs. 162, 274,
3401; ’86 Code.)
Rev. Rul. 80-212, 1980-2 C.B. 58.
274.263 Performers; gratuitous services for
political organization. No amount is includible in
a performer’s gross income as a result of professional
services rendered gratuitously in entertainment
programs promoted by a political fund-raising
organization. §1.61-2. (Sec. 61, ’86 Code.)
Rev. Rul. 68–503, 1968-2 C.B. 44.
274.264 Personal injuries; settlement. In
settlement of claims against his former employer
for breach of contract and personal injury caused
by adverse publicity accompanying the termination
of his employment, taxpayer received
$105,0000f which $45,000 was allocated to compensation
for personal injury. Held, taxability of a
settlement payment depends on the nature of the
claim settled, not on the claim’s validity and the
$45,000 is excludable from gross income under
section 104(a)(2) of the Code. (Secs. 61, 104; ’86
Code.)
Dudley G. Seay, 58 T.C. 32, Acq., 1972-2 C.B.
3.
274.265 Police officer; assigned light duty.
Payments made by a municipality to a disabled
police officer who has returned to work, but is
assigned light duty because the injury keeps the
officer from performing regular police duties, are
not excludable from gross income. §§1.61–2,
1.104-1. (Secs. 61, 1041 ’86 Code.)
Rev. Rul. 80-137, 1980-1 C.B. 36.
274.266 Police officer; outside employment.
Compensation received by a police officer from
employment in private industry in the performance
of his duties as an employee of the police
department, and remitted by him to the Police Pension
Fund, is not includable in his gross income.
§1.61-2. (Sec. 61, ’86 Code.)
Rev. Rul. 58-515, 1958-2 C.B. 28.
274.267 Political contributions; service
promised contributor. Payments to a political
campaign specified by a candidate or officeholder
in exchange for his promise, not of a traditional
and legitimate political nature, to perform a service
for the contributor do not qualify as excludible
political expense contributions and must be
included in the gross income of the political candidate
or officeholder. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 75-103, 1975-1 C.B. 17.
274.268 Political officeholder; surplus campaign
funds transferred to office account. Surplus
campaign funds transferred to an officeholder’s
office account are includable in gross income
for the year the funds are transferred. Amounts
disbursed from the office account for ordinary and
necessary expenses of serving as an officeholder
are deductible provided the expenses otherwise
qualify and are not reimbursable. §§1.61-1,
1.162-1. (Secs. 61, 162, 527; ’86 Code.)
Rev. Rul. 80-331, 1980-2 C.B. 29.
274.269 Post differentials and quarters
allowances; university staff member overseas.
Post differentials and quarters allowances paid by
an agency of the U.S. Government to staff members
of a state university participating in a teacher
training program in a foreign country are includible
in gross income. §§1.61–1, 1.912–1. (Secs.
61, 912; ’86 Code.)
Rev. Rul. 66-279, 1966-2 C.B. 282.
274.270 Premium on mortgage; property
sold in bankruptcy. The taxpayer secured non-interest
bearing notes with a first mortgage on real
property. The borrower, after partially reducing
the principal, defaulted and was forced into involuntary
bankruptcy where the property was sold
subject to the mortgage. Held, the principal balance
was not received and is not includable in the
taxpayer’s income. (Sec. 61, ’86 Code.)
Edna Morris, 59 T.C. 21, Acq., 1973–1 C.B. 3.
274.271 “Principal representative” of U.S.
Government serving in foreign country. The
value of lodging furnished to a U.S. Government
employee who is a “principal representative” of
the U.S. serving in a foreign country is excludable
from the representative’s gross income. However,
amounts deducted from the salary of the principal
representative to pay for usual household
expenses that must be borne personally by the representative
are not excludable from gross income.
Rev. Rul. 84-86 modified and superseded.
§1.119-1. (Secs. 61, 119, 262, 912; ’86 Code.)
Rev. Rul. 90-64, 1990-2 C.B. 35.
274.272 Public Health and National Health
Service Corps Scholarship Training Program.
Tuition payments and monthly stipends received
during calendar years 1973, 1974, and 1975 by
participants in the Public Health and National
Health Service Corps Scholarship Training Program
are excludable from the recipient’s gross
income as scholarships. However, in the absence
of further legislation, all amounts received after
1975 will be includible. §§1.61–2, 1.117-4. (Secs.
61, 117; ’86 Code.)
Rev. Rul. 76-183, 1976-1 C.B. 43.
274.273 Public utility subsidy; renewable
energy source property. A taxpayer who purchases
renewable energy source property and
receives a subsidy from a public utility that is acting
under the provisions of the Energy Security
Act is entitled to the residential energy credit
based on the full expenditure if the funds for the
subsidy come entirely from the public utility’s revenues
or are borrowed at market rates. Also, the
subsidy is not includible in the taxpayer’s gross
income. §§1.44C-3, 1.61–1. (Secs. 44C, 61; ’86
Code.)
Rev. Rul. 83-145, 1983-2 C.B. 14.
274.274 Public utility; unclaimed refunds.
Unclaimed refund amounts resulting from a tentative
rate increase collected under bond that a public
utility, in compliance with a State public service
commission order, spends in its rural
construction program, are not contributions to
capital. Since no consent to basis adjustment prescribed
by regulations under section 1017 was
filed, the utility must report gross income in the
year the amounts became refundable. It is entitled
to a basis in any assets acquired with the
unclaimed refunds. §§1.61-1, 1.108(a)-1,
1.111-1, 1.118-1, 1.362-1. (Secs. 61, 108, 111,
118, 362; ’86 Code.)
Rev. Rul. 75–300, 1975–2 C.B. 23.
274.275 Qualified accelerated death benefits.
The effective dates, including transition dates, of
regulations under sections 101, 7701 and 7702A
(FI-25-92, Qualified Accelerated Death Benefits)

will not be earlier than the date of publication of
final regulations in the Federal Register. A conformity
period with respect to any new rules is anticipated.
Notice 93-37, 1993-2 C.B. 331.
274.276 Raffled home; sale to charitable
organization. The tax consequences of the sale of
a personal residence through a raffle conducted by
a charitable organization are discussed. §§1.61–1,
1.165-1, 1.170A-1, 1.1001-1. (Secs. 61, 165,
170A, 1001; ’86 Code.)
Rev. Rul. 83-130, 1983-2 C.B.
274.277 Rate reductions and nonrefundable
credits. Rate reductions or nonrefundable credits
received by a customer of an electric utility company
who agrees to participate in energy conservation
programs are not includible in the customer’s
gross income under section 61 of the Code.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 91-36, 1991-2 C.B. 17.
274.278 Recompense for tax consultant’s
error. An amount received from a tax consultant
as recompense for excess taxes paid as the result
of an error committed by the consultant is not
includable in gross income. However, amounts
received as a return of the previously deducted
consultant’s fee and interest on the fee and the over
payment are includible. (Sec. 61, ’86 Code.)
Rev. Rul. 57-4, 1957–1 C.B. 23; Edward H.
Clark, 40 B.T.A. 333, Acq., 1957-1 C.B. 4.
274.279 Recovery; windfall profit tax withheld.
A creditor refund of windfall profit tax that
was used as a tax deduction in a previous year must
be included as income in the current year to the
extent a tax benefit was received as a result of the
deduction. The amount of the credit or refund is
considered income for purposes of the self-employment
tax under section 1402(a) if the oil producer
has a working interest in an oil lease.
§§1.61-1, 1.111-1, 1.164-1, 1.1402(a)-1. (Secs.
61, 111, 164, 280D, 1402, 4986, 6429; ’86 Code.)
Rev. Rul. 83-102, 1983-2 C.B. 238.
274.280 Recovery from contractor for failure
to perform under construction contract. The
payment by a contractor of a sum of money to a
buyer in exchange for a release of the buyer’s
claims against the contractor for failure to fulfill
the contract for construction of a plant constitutes
a return of capital rather than gross in come to the
buyer. The cost basis of the plant is adjusted downward
to reflect the payment. §§1.61–1, 1.1012–1,
1.1016-1. (Secs. 61, 1012, 1016; ’86 Code.)
Rev. Rul. 81-277, 1981-2 C.B. 14.
274.281 Reduced salary; reemployed civil
service annuitant. The salary received by a reemployed
civil service annuitant after an amount
equal to the annuity allocable to the actual
employment period was deducted as prescribed by
law is includible in gross income and is wages for
purposes of income tax withholding. §1.61-2
(Secs. 61, 3401; ’86 Code.)
Rev. Rul. 79–1, 1979–1 C.B. 60.
274.282 Rehabilitation grants; community
development program. Home rehabilitation
grants received by low-income homeowners
residing in a defined area of a city under the city’s
community development program funded under
the Housing and Community Development Act of
1974 are in the nature of general welfare and are
not includable in their gross income. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 76-395, 1976-2 C.B. 16.
274.283 Reimbursed convention expenses
and lost salary; labor union members. Amounts
paid by an international labor union to reimburse
delegates from local chapters for expenses of traveling
away from home to attend the annual convention
are not includible in gross income, and no
deduction is allowable for the reimbursed
expenses even though reimbursement is received
in a later year. Amounts received by the delegates
as reimbursement for lost salary are includible in
gross income. Rev. Rul. 78-209 modified and
superseded. §§1.61–1, 1.162–2. (Secs. 61, 162,
3121, 3306, 3401; ’86 Code.)
Rev. Rul. 80-348, 1980-2 C.B. 31.
274.284 Reimbursed expenses; entertainment;
military attache. Reimbursements
received by military attaches of the U.S. Department
of Defense for expenses of official entertainment
under an arrangement that requires adequate
accounting to the employer need not be included
in gross income to the extent the reimbursements
do not exceed the expenses, and no deduction is
allowable for the corresponding expense to the
extent that reimbursed funds are not reported in
gross income; expenses exceeding the reimbursement
must be substantiated in order to be claimed
as an itemized deduction. §§1.61–1, 1.162–17,
1.274-5. (Secs. 61, 162, 274; ’86 Code.)
Rev. Rul. 77-351, 1977-2 C.B. 23.
274.285 Reimbursed expenses; missionaries;
church missionary fund. Payments made to a
missionary from a church fund as reimbursement
for travel and living expenses incurred in the services
of his church are not includible in the missionary’s
gross income. Contributions to the
church fund by the parent of the missionary are
deductible as charitable contributions if the organization
has full control of the donated funds and
discretion as to their use. The parent may claim the
dependency exemption where the son’s gross
income is less than $600 (excluding the reimbursed
expenses) and amounts furnished directly
by the parent to his son constitute more than onehalf
of his total support for the calendar year.
§§1.61-1, 1.151-2, 1.170-1. (Secs. 61, 151, 170;
’86 Code.)
Rev. Rul. 62-113, 1962-2 C.B. 10.
274.286 Reimbursed expenses; political
fund-raising event; state government
employee. Reimbursement made by a political
organization to an appointed state government
employee for travel expenses incurred in attending
and addressing a political fund-raising event is
not includible in the individual’s gross income to
the extent such reimbursement does not exceed
actual expenses. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 80-99, 1980-1 C.B. 10.
274.287 Reimbursed living expenses; hospital
research project. Where as a requirement of
a children’s hospital research project the taxpayer
and his wife agreed to live away from their residence,
the reimbursements received for the motel
bill and other necessary costs incurred by them are
not includable in their gross income. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 67-407, 1967-2 C.B. 59.
274.288 Reimbursement for cost of pension
plan. Where, pursuant to contract, a shipowner
reimbursed a stevedore contractor for the costs of
a union negotiated qualified pension plan for
employees of the contractor, the amounts paid
constitute a part of the cost of the services rendered,
and are deductible as business expenses by
the shipowner. The contractor must include in
gross income amounts received as reimbursement
for contributions paid by him, and is entitled to a
deduction with respect to the amounts actually
paid. §1.404(a)-1. (Secs. 61, 162, 404; ’86 Code.)
Rev. Rul 57-104, 1957-1 C.B. 166.
274.289 Reimbursement for lost wages. A
payment received by an employee from the
Department of the Air Force as reimbursement for
wages lost incident to his suspension from
employment with a privately owned aircraft company
as a security risk (but now cleared) is gross
Gross income
income to such employee. §1.61–1. (Sec. 61, ’86
Code.)
Rev. Rul. 58-140, 1958–1 C.B. 15.
274.290 Reimbursement for moving
expenses; U.S. citizens employed abroad by
domestic employer. Examples discuss the treatment
of reimbursed moving expenses of a U.S. citizen
who performs services abroad for his domestic
employer, and whose foreign earnings qualify
for exclusion from gross income under section
911(a), and explain the extent to which his moving
expenses are deductible and the extent to which
the reimbursement is includable in his gross
income and subject to tax withholding. The examples
cover moving to the foreign country and moving
back to the U.S. (1) to work for the same
employer, (2) to work for a different employer, and
(3) to retire. Amplified by Rev. Rul. 76-162.
§§1.82-1, 1.217-1, 1.911-2. (Secs. 82, 217, 911,
3401; ’86 Code.)
Rev. Rul. 75–84, 1975–1 C.B. 236.
274.291 Reimbursement to utility rate study
participant. A cash payment received by a participant
in an electricity rate study to reimburse the
participant for the excess costs of electricity under
an alternative rate structure is not includible in
gross income. §1.61-1. (Sec. 61, ’86 Code)
Rev. Rul. 77–145, 1977–1 C.B. 15.
274.292 Religious order member; retirement
income; vow of poverty. Retirement income
received by a member of a religious order who is
under a vow of poverty, and who remits such
income to the order, is not includible in the member’s
gross income where the member is receiving
the retirement income as an agent of the order
§§1.61-2, 1.72-2. (Secs. 61, 72; ’86 Code.)
Rev. Rul. 83-126, 1983–2 C.B. 24.
274.293 Religious order member; trust
income assigned to order. Trust income, the
assignment of which is prohibited by the trust
instrument and state law, is includable in the gross
income of a trust income beneficiary who joined
a religious order, took a vow of poverty, and, pursuant
to the vow, turned over all payments from
the trust to the order. The amount turned over to the
order is deductible as a charitable contribution.
§§1.61-1, 1.170A-1. (Secs. 61, 170; ’86 Code.)
Rev. Rul. 77-436, 1977–2 C.B. 25.
274.294 Religious order member; vow of poverty.
Compensation received by a member of a
religious order under vows of poverty and obedience,
for services performed as a school teacher in
a secular private school that is exempt from
income tax under section 501(c)(3), is includable
in the member’s gross income and subject to
income tax withholding. Rev. Rul. 68–123 clarified
and distinguished. §1.61-2. (Secs. 61, 3401;
’86 Code.)
Rev. Rul. 83-127, 1983-2 C.B. 25.
274.295 Relinquishment of contract rights.
The amount a taxpayer received for early termination
of a heating service supplier’s contract and to
cover the costs of converting from a central to an
individual heating system was not from the sale of
a capital asset and is includable in taxpayer’s gross
income as ordinary income. §§1.61–1, 1.1221–1.
(Secs. 61, 1221; ’86 Code.)
Rev. Rul. 75-527, 1975-2 C.B. 30.
274.296 Relocation assistance benefits.
Relocation assistance benefits required to be paid
to tenants by landlords under a municipal ordinance
are includable in the gross income of the tenants.
§1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 82-106, 1982-1 C.B. 16.
274.297 Relocation payments; Housing and
Community Development Act. Relocation payments
received by individuals under section
105(a)(11) of Title I of the Housing and Community
Development Act of 1974 are in the nature of

Gross income
general welfare and are not includable in gross
income. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 76-373, 1976-2 C.B. 16.
274.298 Relocation payments; urban renewal
project. Relocation payments received by individuals
and families for their reasonable and necessary
moving expenses and for any actual direct
losses of property resulting from their displacement
from their personal residences by an urban
renewal project are not includible in the gross
income of the recipients to the extent that such
payments are expended for the purpose for which
they are provided. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 60-279, 1960-2 C.B. 11.
274.299 Rental value; governor’s official residence.
The fair rental value of the official residence
furnished a governor by the State is excludible
from the governor’s gross income. §§1.61–1,
1.119-1. (Secs. 61, 119; ’86 Code.)
Rev. Rul. 75-540, 1975-2 C.B. 53.
274.300 Rental value; offset by advances
made by corporate officer. A corporation leased
a house to its president, a stockholder and director,
who made no rental payments but advanced funds
to the corporation prior to its bankruptcy. The
trustee in bankruptcy set-off the advanced funds
against the unpaid rent leaving a net liability for
unpaid rent. Held, only the net unpaid rent spread
ratably over the period of occupancy, represented
income to the president. (Sec. 61, ’86 Code.)
Samuel Towers, 24 T.C. 199, Acq. in result,
1970-2 C.B. xxi.
274.301 Rental value of dwelling furnished
tenant farmer. A tenant farmer is not required to
include any amount in income as a result of his
occupancy of a dwelling furnished by the landowner
under the usual tenant farmer arrangement.
§1.61-2. (Sec. 61, ’86 Code.)
Rev. Rul. 70-72, 1970-1 C.B. 15.
274.302 Replacement housing payments.
Replacement housing payments received by individuals
under the Housing and Urban Development
Act of 1968 are not includable in gross
income. Payments received under that Act, or similar
tax-exempt payments received under the Uniform
Relocation Assistance and Real Property
Acquisitions Policies Act of 1970, used to acquire
a new residence are includable in its basis.
§1.61-1, 1.1012-1. (Secs. 61, 1012; ’86 Code.)
Rev. Rul. 74-205, 1974-1 C.B. 20.
274.303 Representation expenses; Foreign
Service employees. Where Foreign Service officers
and employees incur representation expenses
in one calendar year for which they are wholly or
partially reimbursed in the next year, the reimbursement
is excludable from gross income. Itemized
deductions may be claimed for such expenses
in excess of reimbursements if the Secretary of
State certifies that the expenses were incurred for
the benefit of the U.S. and would be reimbursable
if the State Department had sufficient funds. Distinguished
by Rev. Rul. 65–125. (Sec. 912, ’86
Code.)
Rev. Rul. 57-364, 1957-2 C.B. 458.
274.304 Retained portion of earnings paid to
sick co-worker under union plan. Sick benefits
received by a union member from his employer
that has no sick pay plan for employees but pays
such benefits, in accordance with union rules,
from a percentage of earnings withheld from his
fellow workers is excludable from his gross
income as amounts received under an employees’
accident and health plan. However, the amounts
withheld from contributing employees are not
excludable from their gross income and are not
deductible as medical insurance under section
213. §§1.61–1, 1.104-1, 1.105-4, 1.213-1. (Secs.
61, 104, 105, 213; ’86 Code.)
Rev. Rul. 73-347, 1973-2 C.B. 25.
274.305 Retired volunteer firefighters.
Monthly payments awarded by a county legislature
to retired volunteer firefighters, or to their surviving
spouses, based on length of active service
to county volunteer fire companies are not excludible
from the recipients’ gross incomes as gifts.
§§1.61-2, 1.102-1. (Secs. 61, 102; ’86 Code.)
Rev. Rul. 76-516, 1976-2 C.B. 24.
274.306 Retirement and death benefit;
policemen’s association. Retirement and death
benefits received from a retirement fund established
and maintained for its members by a policemen’s
benevolent and protective association are
not governed by the provisions of section 402.
Although the fund consists of gifts from the public,
proceeds from benefit dances, and earnings
thereon, amounts distributed from the fund are not
considered gifts in the hands of the distributees but
are includible in gross income. §§1.61-1,
1.102-1, 1.402(a)-1. (Secs. 61, 102, 402; ’86
Code.)
Rev. Rul. 68-161, 1968-1 C.B. 173.
274.307 Returnable containers. Taxpayer was
required by a governmental agency to demand
deposits on milk bottles delivered to wholesalers.
He kept a record of deposits in a liability account
and debited refunds as they were made. Held, the
deposits were not sales, and taxpayer cannot be
required to report the deposits as income and
deduct the refunds. (Sec. 22(a), ’39 Code; Sec. 61,
’86 Code.)
Farmers Creamery Co. of Fredericksburg, Va.,
14 T.C. 879, Acq., 1954-1 C.B. 4.
274.308 Salary, maintenance and cure payments;
disabled seamen. Regular salary payments
made to seamen who become disabled by
sickness or injury in the service of their ships
constitute wage continuation payments excludable
from gross income and constitute wages for
employment tax purposes. Maintenance and cure
payments, including cash subsistence payments
while an out-patient, do not constitute compensation
for services, are not taxable income, and do
not constitute wages. I.T. 3977 amplified.
§§1.61-1, 1.105-4. (Secs. 61, 105; ’86 Code.)
Rev. Rul. 60-219, 1960-1 C.B. 383.
274.309 Scholarship programs for military
personnel. Payments received by military personnel
as participants in the Armed Forces Health
Professions Scholarships Program, the Medical,
Dental, and Veterinary Education Program for Air
Force Officers, or the Navy Medical and Osteopathic
Scholarship Program, for educational
expenses are excludible from gross income as
scholarships for years 1973 through 1975, and
similarly, for years 1976 through 1979, by those
participating in the programs in 1976; however,
regular pay and allowances received while on
active duty are includable in gross income, unless
otherwise excluded by law. §§ 1.61–2, 1.117-4.
(Secs. 61, 117; ’86 Code.)
Rev. Rul. 76-99, 1976–1 C.B. 40; Rev. Rul.
76-517, 1976-2 C.B. 38; Rev. Rul. 76-518,
1976-2 C.B. 39; Rev. Rul. 76-519, 1976-2 C.B.
39 Rev. Rul. 77-438, 1977-2 C.B. 49.
274.310 Section 130; designated and qualified
settlement funds. If certain specified
requirements are satisfied, a designated or qualified
settlement fund will be considered “a party to
the suit or agreement” for purposes of section 130.
§1.468B-1. (Sec. 601.105, S.P.R.; Secs. 130,
468B, ’86 Code.)
Rev. Proc. 93-34, 1993-2 C.B. 470.
274.311 Securities exchange; initiation fees.
Initiation fees, paid only once and in addition to
the annual dues, received by a securities exchange
from each new member for the use of the
exchange’s services and facilities constitute gross
income and not contributions to capital. The initiation
fees are to be capitalized by the payers as part
of the cost basis of their memberships. G.C.M.
4015 revoked and Rev. Rul. 72–132 distinguished.
§§1.61-1, 1.118-1, 1.162-1, 1.263(a)-1. (Secs.
61, 118, 162, 263; ’86 Code.)
Rev. Rul. 77-354, 1977-2 C.B. 50.
274.312 Social security and tier 1 railroad
retirement benefits. A series of questions and
answers is set forth regarding the taxability of
social security benefits (including tier 1 railroad
retirement benefits). §1.165-1. (Secs. 86, 165,
6050F; ’86 Code.)
Rev. Rul. 84-173, 1984-2 C.B. 16.
274.313 Social security benefits paid by foreign
governments. Any similarity between the
social security benefits provided by the U.S. and
those provided by a foreign nation is not a valid
basis for excluding from gross income of the
recipient the benefits paid by a foreign nation.
Taxpayers are entitled to recover their cost, if any,
under section 72 and may also be eligible for
retirement income credit. Rev. Rul. 56-135
revoked. §§1.61–11, 1.72–1, 301.7805–1. (Secs.
61, 72, 7805; ’86 Code.)
Rev. Rul. 66-34, 1966-1 C.B. 22.
274.314 Social security benefits paid by
United Kingdom. Social security benefits paid by
the United Kingdom to a resident of the U.S. are
includible in gross income. Recipients, however,
may be entitled to recover their costs, if any, under
section 72 and may be eligible for retirement
income credit. §§1.37–1, 1.61–11, 1.72–1. (Secs.
37, 61, 72; ’86 Code.)
Rev. Rul. 76-121, 1976-1 C.B. 24.
274.315 Social security benefits paid to individuals.
Insurance benefit payments made to individuals
under section 202 of Title 11 of the Social
Security Act are not includible in the gross income
of the recipients. I.T. 3447 superseded. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 70-217, 1970-1 C.B. 12.
274.316 Solar hot water system. A taxpayer
installed an approved solar hot water system, the
cost of which qualified as a renewable energy
source expenditure, and received a grant under a
state residential “Solar Hot Water Initiative Program.”
The grant is includable in gross income,
the taxpayer qualifies for the energy credit provided
by section 44C, and the taxpayer’s basis in
the residence is increased by the cost of the system
reduced by the credit allowed. §§1.61–1,
1.1016-2. (Secs. 44C, 61, 1016; ’86 Code.)
Rev. Rul. 79-356, 1979-2 C.B. 28.
274.317 State income tax rebates; Iowa. The
treatment of rebates of Iowa State individual
income taxes, under House File 693, 68th General
Assembly, approved May 22, 1979, is discussed.
§1.61-1. (Secs. 61, 111; ’86 Code.)
Rev. Rul. 79-315, 1979-2 C.B. 27.
274.318 State income taxes refunded. Examples
illustrate the application of the zero bracket
amount in computing the amount of a state income
tax refund that is excludable from gross income
under the tax benefit rule of section 111. With
respect to refunds received in taxable years beginning
after 1977 that are attributable to amounts
deducted in taxable years beginning after 1976,
Rev. Rul. 56-477 is obsoleted. §1.61-1. (Secs. 61,
111; ’86 Code.)
Rev. Rul. 79-15, 1979–1 C.B. 80.
274.319 State service corpsmen. Treatment of
payments made to individuals performing services
for a state service corps organized under
state law to meet the critical human needs of state
residents, reimbursed expenses received by individuals
who serve as part-time volunteers, and stipends
received by “job service corpsmen”
recruited from school drop outs and the unemployed
to receive training in their efforts to obtain
marketable skills. §1.61–1. (Secs. 61, 3401; ’86
Code.)
Rev. Rul. 68-133, 1968-1 C.B. 36.

274.320 State tax refund; formerly exempt
corporation. A domestic savings and loan
association did not realize taxable income from a
rebate of State property taxes it had paid in and for
years when it was exempt from Federal tax. (Sec.
111, ’86 Code.)
Home Savings and Loan Co., 39 T.C. 368, Acq.
in result, 1963–2 C.B. 4.
274.321 Stock; testamentary disposition.
Intending to bequeath the majority of his stock in
a closely held corporation to his sons, the decedent
placed the stock in escrow to be delivered to them
at his death. The value of the stock was included
in his estate. Held, the transfer was a testamentary
disposition, not a sale, and the value of the stock
was excludable from the sons’ income in the year
of receipt. (Sec. 22(a), ’39 Code; Sec. 61, ’86
Code.)
Thomas W. Tebb, 27 T.C. 671, Acq., 1957-1
C.B. 5.
274.322 Stock as payment of accrued salary.
The stockholder-employees of a corporation must
include in gross income the fair market value of
their corporation’s stock issued them, with such
issuance not affecting their proportionate holdings,
in payment of accrued salaries. The decision
in Daggitt not followed. §§1.61–2, 1.305–1.
(Secs. 61, 305; ’86 Code.)
Rev. Rul. 67-402, 1967-2 C.B. 135; Deloss E.
Daggitt, 23 T.C. 31, Nonacq., 1967-2 C.B. 4.
274.323 Stock for shareholders’ merger vote;
non pro rata exchange. Tax consequences of a
transaction in which the contribution by a majority
shareholder of a portion of his stock to a corporation
prior to its merger into another corporation in
consideration of the minority shareholders voting
for the merger. The transaction is treated as though
the shareholders received in a tax-free reorganization
the number of shares in the acquiring corporaton
to which each would have been entitled upon
the merger without regard to the prior contribution,
and as though the majority shareholder transferred
a portion of his shares to the minority shareholders
after the merger. §§1.61-1, 1.354-1,
1.1001-1. (Secs. 61, 354, 1001; ’86 Code.)
Rev. Rul. 73-233, 1973-1 C.B. 179.
274.324 Stock sold to enable transfer of ship
to foreign registry. If a corporation sells Class B
stock to another corporation to qualify the purchaser
as a related corporation under the “tradeout-and-build”
program of the U.S. Maritime
Administration, thus permitting it to transfer an
American ship to a foreign registry, the proceeds
from the sale which exceed the stock’s nominal
redemption price are ordinary income since, in
substance, they are derived from the transfer of a
privilege or right which is not a capital asset.
§§1.61-1, 1.1221-1. (Secs. 61, 1221; ’86 Code.)
Rev. Rul. 61-18, 1961-1 C.B. 5.
274.325 Stock transferred to corporate
employees. The voluntary transfer of shares of
stock by the majority stockholder of a corporation
to the employees is not a gift where the stockholder
stood to benefit economically by increased
employee initiative and the number of shares
transferred to each employee was dependent on
years of service. Accordingly, the value of the
shares received by each employee is includable in
his gross income. §§1.61–1, 1.102–1. (Secs. 61,
102; ’86 Code.)
Rev. Rul. 69-140, 1969-1 C.B. 46.
274.326 Stock transferred to corporate
employees by controlling shareholders. The tax
consequences are set forth for a transfer of a corporation’s
stock by the corporation’s two shareholders
to three employees in consideration for past
services. §§1.61–2, 1.83–1, 1.1012–1. (Secs. 61,
83, 1012, 2511, 2512; ’86 Code.)
Rev. Rul. 80-196, 1980-2 C.B. 32.
274.327 Stock transferred to corporate
employees by parent’s majority stockholder. A
corporation’s majority stockholder recognizes no
gain or loss on a transfer of stock of the corporation
to an employee of the corporation’s subsidiary,
but must allocate the basis in the transferred
stock to the shares retained. The fair market value
of the stock at the time of transfer is includable in
the employee’s gross income and is subject to
income tax withholding. The subsidiary may
deduct the amount includible in the employee’s
income, but does not recognize gain or loss on the
transfer. Rev. Ruls. 69–368 and 69–369 obsoleted
with respect to transfers occurring after June 30,
1969. Amplified by Rev. Rul. 81-45. §§1.83-6,
1.162-7. (Secs. 83, 162, 3402; ’86 Code.)
Rev. Rul. 80-76, 1980-1 C.B. 15.
274.328 Strike benefits. Benefits paid by a
union to members who are on strike are includible
in gross income in the year of receipt and the union
should file an information return if payments
aggregating $600 or more are made to a member
in one calendar year. Such benefits are not subject
to employment taxes. S.S.T. 247 superseded.
§§1.61-1, 1.6041-1. (Secs. 61, 6041; ’86 Code.)
Rev. Rul. 68-424, 1968-2 C.B. 419.
274.329 Strike benefits. Strike benefits in the
form of food, clothing, and rent vouchers given by
a labor union to members and nonmembers,
depending on their individual need, the unavailability
of unemployment compensation or local
public assistance, and with no condition attached
thereto, are gifts to the recipient excludable from
gross income. §§1.61-1, 1.102-1. (Secs. 61, 102;
’86 Code.)
Kaiser, 363 U.S. 299, Ct. D. 1851, 1960–2 C.B.
33.
274.330 Strike benefits; lockout benefits. In
cases presenting facts substantially like those in
Kaiser, strike benefit payments and lockout benefit
payments made by labor unions will be
regarded as gifts excludable from gross income.
The fact that benefits are paid only to union members
will not, in and of itself, be considered determinative
of whether the benefits are gifts or
income. Rev. Rul. 57–1 (clarifying I.T. 1293 and
distinguishing Rev. Rul. 131) and Rev. Rul.
58-139 are modified to the extent that they hold
that strike benefit payments and lockout benefit
payments, respectively, are includible in the gross
income of the recipient irrespective of the circumstances
under which such payments are made.
Rev. Rul. 61–16 superseded. §§1.61-1, 1.102-1.
(Secs. 61, 102; ’86 Code.)
Rev. Rul. 61-136, 1961-2 C.B. 20.
274.331 Student loan interest subsidy payments.
Student loan interest subsidy payments
made by the Commissioner of Education to lenders
for the interest they agree not to collect from
borrowers under the Higher Education Act of
1965 are scholarships excludable from the borrowers’
gross income, not deductible under section
163, and not reportable on Form 1099, U.S.
Information Return. §§1.61-1, 1.117-3, 1.163-1.
(Secs. 61, 117, 163; ’86 Code.)
Rev. Rul. 75-537, 1975-2 C.B. 32.
274.332 Subscription fees and contributions;
congressman’s newsletters. Subscription fees or
solicited contributions received by a congressman
to be used solely to defray the cost of newsletters,
reports, and questionnaires sent to constituents are
includable in his gross income. Expenses of publishing
and distributing such material are deductible
as business expenses incurred as an employee.
I.T. 4095 superseded. §1.61-1, 1.62-1, 1.102-1,
1.162-1. (Secs. 61, 62, 102, 162; ’86 Code.)
Rev. Rul. 73-356, 1973-2 C.B. 31.
274.333 Subsistence allowance; National
Guard personnel. The value of quarters and subsistence,
or an allowance received in commutation
Gross income
thereof, furnished by the National Guard to officers
and enlisted personnel while on active duty is
not includable in the gross income of the recipients.
§1.61–2. (Sec. 61, ’86 Code.)
Rev. Rul. 60-65, 1960-1 C.B. 21.
274.334 Subsistence allowances; ROTC students.
Amounts received as subsistence allowances
by students participating in advanced
ROTC training are not includable in the gross
income of the recipients. §1.61–2. (Sec. 61, ’86
Code.)
Rev. Rul. 66-3, 1966–1 C.B. 19.
274.335 Subsistence and quarters allowances;
Public Health Service officers overseas.
Subsistence and quarters allowance received by
officers of the Public Health Service detailed overseas
with the Agency for International Development
are excludable from gross income. Further,
the value of quarters in lieu of any portion of such
allowance is excludable. However, no portion of
the basic compensation received by such officers
is excludable. §§1.61–2, 1.912–1. (Secs. 61, 912;
’86 Code.)
Rev. Rul. 63-106, 1963-1 C.B. 12.
274.336 Survivors’ benefits; Public Safety
Officers’ Benefits Act of 1976. The discharge of
the liability for repayment by the recipient of an
interim benefit paid under the Public Safety Officers’
Benefits Act of 1976 in the event no final
benefit is paid is in the nature of general welfare
and does not result in income to the recipient.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 78-46, 1978–1 C.B. 22.
274.337 Tax benefit rule; deduction improperly
taken; statute of limitations. While contesting
its liability for unpaid state sales taxes, an
accrual basis corporation improperly deducted
them in a year before the state court ruled in the
corporation’s favor. Held, application of the tax
benefit role is inappropriate when a deduction has
been improperly claimed and allowed in a year
closed by the statute of limitations, except where
a plea of estoppel has been sustained. (Sec. 22(b),
’39 Code; Sec. 111, ’86 Code.)
Streckfus Streamers, Inc., 19 T.C. 1, Acq.,
1953-1 C.B. 6.
274.338 Tax benefit rule; state personal property
tax on stock refunded from escrow. A corporation
does not recognize income with respect
to amounts repaid to its shareholders for taxes for
which they are liable but that were paid by the corporation.
§§1.164-7, 1.336-1. (Secs. 164, 336;
’86 Code.)
Hillsboro National Bank, 460 U.S.--, Ct. D.
2015, 1983-1 C.B. 50.
274.339 Tropical differential; Panama. The
overseas tropical differential paid under 35 C.F.R.
251.31 and 251.33 (1982) by an agency of the U.S.
government to its civilian employees living and
working in the Republic of Panama is not excludable
from gross income under section 1232(b) of
the Tax Reform Act of 1986. (Sec. 912, ’86 Code.)
Rev. Rul. 89-131, 1989-2 C.B. 133.
274.340 Trust income; payment of grantor’s
life insurance premiums. A grantor proposes to
create an irrevocable trust A for the benefit of her
three children. She also proposed to create a
second trust B with corpus consisting of policies
of insurance on her life which she had taken out,
having the trustee as beneficiary of the policies.
Each child will have one-third interest in the corpus
and income from both trusts. The grantor represented
that each beneficiary of trust A will consent
in writing (revocable at will) to have his share
of the income from trust A applied toward payment
of the premiums on the life insurance policies
in trust B. Held, the grantor will be considered
the owner of the amount of trust income which is
used to pay the premiums on the policies of insurance
on her life. Such amount will be includible in

Gross income
her gross income. §1.677(a)-1. (Sec. 677, ’86
Code.)
Rev. Rul. 66-313, 1966–2 C.B. 245.
274.341 Tuition postponement plan; deferred
payments. Several questions are answered as to
the tax consequences arising out of a tuition postponement
plan established by a university.
§§1.61-1, 1.163-1, 1.262-1. (Secs. 61, 163, 262;
’86 Code.)
Rev. Rul. 72-2, 1972-1 C.B. 19.
274.342 Unearned subscription liability
assumed. A separately stated amount paid by the
seller of a newspaper to the purchaser who
assumed liability for the unearned subscriptions is
includible in the purchaser’s gross income. Rev.
Rul. 68-112 amplified. §1.61-1. (Sec. 61, ’86
Code.)
Rev. Rul. 71-450, 1971–2 C.B. 78.
274.343 Unemployed workers; trade readjustment
allowances; Trade Act of 1974. Trade
readjustment allowances, provided by sections
231 and 232 of the Trade Act of 1974, received by
adversely affected workers who have become
unemployed due to the effect of increased imports
are in the nature of general welfare and are not
includible in the workers’ gross income. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 76-229, 1976-1 C.B. 19.
274.344 Unemployment benefits; Redwood
National Park Expansion Act. Benefits received
as “terminal pay” under the Redwood National
Park Expansion Act are not includable in gross
income. (Sec. 85, ’86 Code.)
Rev. Rul. 80-23, 1980-1 C.B. 17.
274.345 Unemployment compensation. Benefits
and allowances paid to individuals under the
Trade Readjustment Allowance Program, the Airline
Deregulation Benefits and Allowances Program,
and the Disaster Unemployment Assistance
Program are unemployment compensation within
the meaning of section 85(c) for purposes of determining
whether any part of such payments is
includable in gross income. (Sec. 85, ’86 Code.)
Rev. Rul. 79–299, 1979–2 C.B. 32.
274.346 Unincorporated trading exchange;
membership fees; revenues. The amounts paid to
an unincorporated trading exchange acting in an
organized capacity for the purchase of membership
certificates should be treated as contributions
to the capital of a corporation. Interest on hank
deposits and bonds, membership dues, fines for
violations of rules, and transfer fees are includable
in the exchange’s gross income. I.T.s 1280 and
1387 supersesed. “Distinguished by Rev. Rul.
77-354. §§1.61-1, 1.118-1. (Secs. 61, 118; ’86
Code.)
Rev. Rul. 72–132, 1972–1 C.B. 21.
274.347 Unpaid interest forgiven; accrual
method taxpayer. Treatment is provided for
unpaid interest forgiven after being deducted in a
prior year by an accrual method taxpayer. Applicable
to corporations and individuals; however,
where the taxpayer is an individual, section 108(a)
applies only in connection with business property.
Rev. Rul. 67-200 clarified. §§1.61-12,
1.108(a)-1, 1.111-1, 1.1017-1. (Secs. 61, 108,
111, 1017; ’86 Code.)
Rev. Rul. 67–200, 1967–1 C.B. 15; Rev. Rul.
70-406, 1970-2 C.B. 16.
274.348 U.S. silver certificates; gain on sales
and redemption. Gains derived by a taxpayer, not
a dealer, from the sale of U.S. silver certificates,
properly classified as capital assets, at a premium
or redeeming them for bullion and granules sold
later at a profit are includible in gross income;
gains derived on these transactions are taxable as
capital gains. §§1.61–6, 1.1221–1. (Secs. 61,
1221; ’86 Code.)
Rev. Rul. 68-634, 1968-2 C.B. 46.
274.349 Utility company; connection fees. A
connection fee, which includes a construction
charge for the installation of a service line and
water meter, that anew subdivision lot owner must
pay to a public utility to obtain water service is
includable in a public utility’s gross income for
transactions after January 1976. Clarified with
respect to nonretroactivity. Rev. Ruls. 58–555
revoked and 66–353 modified. §§1.61–1,
1.118-1, 301.7805-1. (Secs. 61, 118, 7805; ’86
Code.)
Rev. Rul. 75–557, 1975–2 C.B. 33; Rev. Rul.
76-61, 1976-1 C.B. 12.
274.350 V.A. rehabilitation program.
Amounts received by patients and members in
Veterans Administration’s hospitals and domiciliaries
for service performed under the Administration’s
therapeutic and rehabilitative program are
includible in gross income even though, under
Pub. L. 87–574, 38 U.S.C. 618, these individuals
are not Federal employees. §1.61–2. (Sec. 61, ’86
Code.)
Rev. Rul. 65–18, 1965-1 C.B. 32.
274.351 Vacation trip; contest prize. Where
an individual refuses to accept an all-expense paid
vacation trip which he won as a prize in a contest,
the fair market value of the trip is not includible in
his gross income. §1.74-1. (Sec. 74, ’86 Code.)
Rev. Rul. 57-374, 1957-2 C.B. 69.
274.352 Value of lease above cost; drawing to
select lessee. An amount equal to the difference,
if any, between the fair market value and the cost
of a lease obtained by a taxpayer by means of a
drawing conducted by the Bureau of Land Management
of the Department of the Interior is not a
prize nor includible in the taxpayer’s gross income
when he obtains the lease. §§1.61–1, 1.74–1.
(Secs. 61, 74; ’86 Code.)
Rev. Rul. 67-135, 1967-1 C.B. 20.
274.353 Vessel reconstruction; financing
arrangement between unrelated corporations.
A ship sale and leaseback arrangement between
unrelated corporations to finance the reconstruction
of a vessel with the beneficial ownership
remaining in the seller and legal title held by the
purchaser as security for the lenders constitutes a
financial arrangement for the ship’s reconstruction
and the seller remains the owner for Federal
income tax purposes. The purchaser must include
in gross income lease payments received under a
charterparty contract established in connection
with the financial arrangements exclusive of loan
payments and expenses paid on his behalf by the
seller. §§1.38–1, 1.61–1, 1.162–1, 1.163–1,
1.164-1, 1.167(a)-1. (Secs. 38, 61, 162, 163, 164,
167; ’86 Code.)
Rev. Rul. 72-543, 1972-2 C.B. 87.
274.354 Veterans; State bonuses. So-called
“bonuses” paid by a State to or on behalf of its
qualified veterans of the Spanish-American War,
the Philippine Insurrection, World Wars I and II,
and the Korean and Vietnam conflicts are gifts
and, therefore, are excludable from the gross
income of the recipients. Rev. Rul. 56-610 superseded.
§§1.61–2, 1.102–1. (Secs. 61, 102; ’86
Code.)
Rev. Rul. 68–158, 1968-1 C.B. 47.
274.355 Veterans benefits. Payments of benefits
under any law administered by the Veterans’
Administration are excludable from the recipient’s
gross income. Mim. 4411 superseded.
§1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 72-605, 1972-2 C.B. 35.
274.356 Wages; crew of Government-operated
vessel in foreign waters. A citizen employed
on a vessel owned or operated by the U.S. in foreign
waters is paid wages by a private shipping
line as agent of the U.S. from funds specifically
provided by the U.S. Such compensation is not
excludable from gross income, even though the
employee may meet the requirements of physical
presence in a foreign country for the period to
which such wages are attributable. §1.911–1.
(Sec. 911, ’86 Code.)
Rev. Rul. 58-4, 1958-1 C.B. 268.
274.357 Water company; water lines received
for stock. A water company issued shares of its
stock to a developer in exchange for extending the
company’s lines to a subdivision owned by the
developer. The stock pays no dividends and
attaches irrevocably to the lots in the subdivision.
The water company did not receive the lines in
exchange for stock and must include their fair
market value in income. The developer must add
a portion of the value of the water lines to the basis
of each lot and realizes no gain or loss on receipt
or transfer of the stock. §1.1032–1. (Sec. 1032, ’86
Code.)
Rev. Rul. 81-83, 1981-1 C.B. 434.
274.358 Withdrawal from “stock accounts”;
building and loan association. Section 593(f)
does not apply to a withdrawal from the “stock
accounts” of a State chartered domestic building
and loan association that does not reduce the
accounts below the minimum paid-in capital
required by State law. It is a withdrawal of deposits
and not a distribution of the association’s stock;
therefore, neither the association nor the recipient
realize gross income from this transaction.
§§1.61-1,1.301-1,1.593-10. (Secs. 61, 301, 593;
’86 Code.)
Rev. Rul. 70-122, 1970–1 C.B. 143.
274.359 Work-training programs; removed
air traffic controllers. Payments made by the
Department of Transportation to or on behalf of
individuals, removed from their positions as air
traffic controllers, for expenses incurred, in their
training for other employment are not scholarships,
fellowship grants, or governmental welfare
type payments and are includible in the individual’s
gross income. §1.61–1. (Secs. 61, 3401; ’86
Code.)
Rev. Rul. 75-32, 1975–1 C.B. 14.
To whom
276.1 Assignment of dividends from stock
held in trust. A brother and sister, conveying no
incidents of ownership, delivered their stock to
“trustees” who were to pay all dividends therefrom
to their mother. Held, the “trust” was merely
custodial and the dividends received by the
mother were not taxable to her. (Sec. 671, ’86
Code.)
Margaret G. Dunham, 35 T.C. 705, Acq.,
1961-2 C.B. 4.
276.2 Assignment of radio station license.
Taxpayer retained the F.C.C. license but transferred
all the assets of a radio station to a corporation
for all of its stock. The taxpayer and corporation
later decided to sell the station and received
F.C.C. permission for the simultaneous assignment
of the license to the corporation and reassignment
to the third party purchaser. Held, gain
on the sale was taxable to the corporation, not the
taxpayer. (Sec. 61, ’86 Code.)
Howard R. Ward, 48 T.C. 803, Acq., 1968-1
C.B. 2.
276.3 Bargain purchase of stock by agents of
corporation. Two individuals who acted as
agents, or representatives of certain corporations
existing or to be formed were not liable in their
individual capacity for income arising from the
bargain purchase of stock of one corporation by a
second corporation. (Sec. 22(a), ’39 Code; Sec.
61, ’86 Code.)
Consolidated Premium Iron Ores Ltd., 28 T.C.
127, Nonacq., 1958-2 C.B. 9.

276.4 Beneficiary-executor; estate terminated
by approval of bond; District of Columbia.
Court approval of a special bond filed in the
District of Columbia by an executor, who is the
sole beneficiary of the decedents estate, constitutes
a final distribution of assets and termination
of the estate. Thus in the year of termination the
beneficiary must include in his gross income the
estate’s income for its taxable year ending with or
within his taxable year. However, if the executor
is not the sole beneficiary, the estate is not terminated
until final distribution of the assets to the
other beneficiaries. I.T. 2925 and I.T. 3356 superseded.
§§1.662(a)–1, 1.641(b)-3. (Secs. 641, 662;
’86 Code.)
Rev. Rul. 73-397, 1973-2 C.B. 211.
276.5 Brokerage commissions to stockholder.
For many years a corporation purchased supplies
through a broker earning commissions from its
suppliers. The broker died and the suppliers, at the
suggestion of the corporation president, appointed
a corporation stockholders their broker. Later the
broker represented other suppliers for commission.
Held, commissions received by the stockholder-broker
were not income to the corporation.
(Sec. 61, ’86 Code.)
Alabama-Georgia Syrup Co., 36 T.C. 747, Acq.,
1962-1 C.B. 3.
276.6 Charity-payee; quiz show proceeds.
Money won by an executive director of an exempt
organization engaged to appear as a contestant on
a quiz show, which is paid to the organization, is
gross income to the director and not the organization.
§1.61–2. (Sec. 61, ’86 Code.)
Rev. Rul. 58-235, 1958-1 C.B. 26.
276.7 Company owned by taxpayer’s children.
Each of the taxpayer’s four children had
equal interest in a partnership, later incorporated,
which received income from appraisal fees, insurance
commissions, and abstract and title policy
commissions. The income was from business generated
by the operations of a corporation of which
the taxpayer was an officer able to direct the placement
of such business. Held, the income received
by the children was neither taxable to the taxpayer
nor to the corporation of which he was an officer.
(Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)
Robert P. Crowley, 34 T.C. 333, Acq., 1961-1
C.B. 4.
276.8 Compensation to “owners”; subordinated
accounts; brokerage firm. Compensation
paid by a brokerage firm to “owners,” with
respect to cash and securities subject to a “Subordination
Agreement,” is ordinary income to the
owners and is deductible by the firm as business
expenses. §§1.61–1, 1.162–1. (Secs. 61, 162; ’86
Code.)
Rev. Rul. 69-455, 1969-2 C.B. 9.
276.9 Congressional educational intern program.
Funds solicited by a U.S. Congressman for
his intern program, designed to provide education
and training in governmental functions and legislative
processes to selected individuals who spend
a part of their time in the Congressman’s office
performing the same services as his compensated
staff, are not excludable gifts, but are includable in
his gross income for the year received, and he may
deduct the amounts he pays to the interns under
section 162. The funds received by the interns are
not excludable scholarships or fellowship grants,
but must be included in their gross income as compensation
received for services performed.
§§1.61-1, 1.102-1, 1.117–2, 1.162–1. (Secs. 61,
102, 117, 162; ’86 Code.)
Rev. Rul. 75-146, 1975-1 C.B. 23.
276.10 Conspiracy proceeds. Taxpayer and his
co-conspirator entered into a scheme whereby a
fair price was paid for certain horses that were consigned
and cataloged for sale at auction where
they cross-bid to an excessive price which the coconspirator
paid on behalf of his employer. Taxpayer
received the entire proceeds and disbursed
a share to his co-conspirator. Held, the disbursed
share was not includable in taxpayer’s income.
(Sec. 61, ’86 Code.)
Arnold G. Pessin, 44 T.C. 590. Acq., 1966-1
C.B. 3.
276.11 Contest award won by parent made
payable to child. Where a taxpayer submits a winning
entry in a contest, the terms of which provide
that the prize is payable to his child, the amount of
such prize is includable in the taxpayer’s gross
income. §1.74–1. (Sec. 74, ’86 Code.)
Rev. Rul. 58-127, 1958-1 C.B. 42.
276.12 Contract for benefit of third party. A
taxpayer who stipulated in a sales contract that the
amount representing his gain from the sale of his
property be paid to a third party must include the
gain in his gross income; a cash-method taxpayer
who contracted to perform services under an
arrangement whereby the remuneration for his
services would be paid to a third party must
include the compensation in his gross income.
Mim. 3040 superseded. §§1.61–2, 1.61-6. (Sec.
61, ’86 Code.)
Rev. Rul. 74-32, 1974-1 C.B. 22.
276.13 Corporation business assets leased to
partnership; stockholder-partners. Shareholders
solved their corporation’s problem of inadequate
working capital in relation to credit requirements
by forming a partnership which leased the
corporation’s assets and operated its business, thus
making the partners’ personal assets reachable by
creditors. Held, the transaction was not for the purpose
of tax avoidance, and the profits of the partnership
cannot be attributed to the corporation.
(Sec. 45, ’39 Code; Sec. 482, ’86 Code.)
Meldrum & Fewsmith Inc., 20 T.C. 790, Acq.,
1954-2 C.B. 5.
276.14 Custodial account earnings; investment
annuity policy. A policyholder of an investment
annuity contract issued by a life insurance
company must include in gross income interest
and dividends or other income received by the custodian
of the investment account created in conjunction
with the contract and over which the policyholder
has investment control. An investment
account created under contracts entered into after
March 9, 1977, will not be treated as a segregated
asset account of the insurance company under section
801(g)(1); investment accounts created under
contracts entered into before March 10, 1977, will
be treated as segregated asset accounts subject to
certain conditions. §§1.61–1, 1.72–2, 1.801–8,
1.809-4, 301.7805-1. (Secs. 61, 72, 801, 809,
7805; ’86 Code)
Rev. Rul. 77-85, 1977-1 C.B. 12.
276.15 Dividends; minors’ savings accounts.
Dividends received from a savings and loan
account which legally belongs to a minor are taxable
to him even though the account is in the name
of the parents as trustees. §1.61–1. (Sec. 61, ’86
Code.)
Rev. Rul. 58-65, 1958-1 C.B. 13.
276.16 Dividends assigned prior to payment
date; life income beneficiary. Dividends on stock
owned by an estate and payable to a life income
beneficiary who assigned her interest in the estate
after the declaration of the dividends but before
their payment date are includible in her gross
income. I.T. 4007 superseded. §1.61–9. (Sec. 61,
’86 Code.)
Rev. Rul. 74-562, 1974-2 C.B. 28.
Gross income
276.17 Dividends paid to transferor of stock.
Taxpayer purchased stock from his sister for less
than fair market value with the proviso that he pay
her all dividends issued on the stock for her lifetime.
Held, taxpayer received such dividends as
either a fiduciary for, or an agent of, his sister and
was not required to include them in his income.
(Sec. 61, ’86 Code.)
Willard S. Heminway, 44 T.C. 96, Acq., 1966-1
C.B. 2.
276.18 Dividends received; other than record
owner of stock. The record owner of stock will be
assumed to be the actual owner of (liable for the
tax on) dividends distributed to another person,
unless he files a Form 1087 showing that someone
else is the actual owner. §§1.61–9, 1.6042-1.
(Secs. 61, 6042; ’86 Code.)
Rev. Rul. 62-201, 1962-2 C.B. 298.
276.19 Earnings; wrap-around contracts.
Life insurance companies will not be considered
the owners of mutual fund shares that are held by
the companies in connection with “wrap-around
annuity” contracts sold to policyholders. The policyholder
is the owner and any earnings and gains
from the shares are included in the gross income
of the policyholder. However, the insurance company
is considered to be the owner of mutual fund
shares in a situation in which the investments in
the mutual fund shares are controlled by the insurance
company and the mutual fund shares are only
available through the purchase of an annuity from
the insurance company. Rev. Rul. 76-281 amplified.
Clarified by Rev. Rul. 82-55. §§1.61-1,
1.72-1, 1.403(a)-1, 1.403(b)-1, 1.408-3,
1.801-8, 301.7805-1. (Secs. 61, 72, 403, 408,
801, 7805; ’86 Code.)
Rev. Rul. 81–225, 1981–2 C.B. 12.
276.20 Earnings; wraparound contracts.
Certain provisions of Rev. Rul. 81–225, relating to
the circumstances in which the policyholders of
certain annuity contracts (“wraparound annuities”)
will be treated for federal income tax purposes
as the owners of the mutual fund shares held
by the insurance company in connection with
those annuities, are clarified. §§1.61–1, 1.72–1,
1.403(a)–1, 1.403(b)–1, 1.408–3, 1.801–8. (Secs.
61, 72, 403, 408, 801; ’86 Code.)
Rev. Rul. 82-55, 1982-1 C.B. 12.
276.21 Family partnership. A sole corporate
stockholder and two trusts for the stockholder’s
minor children were partners, organized to sell
articles imported by the corporation. Held, the
partnership was a valid business, separate and distinct
from the corporation. (Secs. 61, 704; ’86
Code.)
Sanford H. Hartman, 43 T.C. 105, Acq., 1965-2
C.B. 5.
276.22 Gift of endowment or annuity contract.
Taxpayer sold an unencumbered life insurance
policy to a charitable organization for an
amount equal to his basis therein donating his
remaining interest to charity. At the same time, he
made a gift of an unencumbered annuity contract
to his son. In the following year, both contracts
matured and were surrendered by the donees.
Held, the donor receives taxable income at the
time the insurance company pays the donees, a gift
of such contract to a charitable organization is a
charitable gift in the year the contract is transferred,
and a gift of the contract to his son is subject
to gift tax for the year of its transfer. §§1.61–1,
1.170-1. (Secs. 61, 170; ’86 Code.)
Rev. Rul. 69-102, 1969-1 C.B. 32.
276.23 Hotel business. Individuals purchased
all the taxpayer’s stock and formed a new corporation
which assumed physical possession and managed
the hotel, holding itself out as owner and
operator and reporting the income from its operations.
The taxpayer was not dissolved, its assets
were not transferred to the new corporation, and,
upon default in the stock purchase agreement, the
taxpayer resumed physical possession and active
management of the hotel 3 years later. Held, the
income belonged to the new corporation, not the

Gross income
taxpayer. (Sec. 22(a), ’39 Code; Sec. 61, ’86
Code.)
Bartell Hotel Co., 32 T.C. 311 , Acq., 1959-2
C.B. 3.
276.24 Insurance commission; corporation v.
stockholders. An insurance business, composed
of two equal partners, was incorporated to provide
business continuity, effect long range investment
plans, and avoid personal liability of the partners
who were the officers and sole shareholders of the
corporation. The operation of the business after
transfer remained substantially the same, and the
earnings were controlled by the corporation. Held,
the corporation was formed for a valid and substantial
business purpose, and the insurance commissions
earned were taxable to the corporation,
rather than the shareholders. (Sec. 61, ’86 Code.)
American Savings Bank, 56 T.C. 828, Acq.,
1972-1 C.B. 1.
276.25 Insurance commission; received by
president of auto dealership. The president of
the taxpayer-automobile dealer, a family-held corporation,
was a licensed insurance agent who
solicited and sold insurance on cars sold by the
taxpayer and other dealers. Taxpayer was not
authorized to act as an agent for any insurance
company. Held, insurance commissions received
by the taxpayer’s president did not constitute
income to the taxpayer. (Sec. 22(a), ’39 Code; Sec.
61, ’86 Code.)
Moke Epstein, Inc., 29 T.C. 1005, Acq., 1958-2
C.B. 6.
276.26 Interest; wrap-around annuity contracts.
Under an agreement between a life insurance
company and a federally insured savings and
loan association, depositors in the savings and
loan association purchase group single premium
retirement annuity contracts from the insurer, and
the insurer invests the proceeds, less certain
expenses, in separate accounts with the savings
and loan association until the annuity starting
dates. The policyholders, and not the insurer, are
the owners of the accounts for federal income tax
purposes prior to the annuity starting dates, and the
interest earned on the accounts is includable in the
policyholders’ gross incomes. §§1.61-1, 1.72-1.
(Secs. 61, 72; ’86 Code.)
Rev. Rul. 80-274, 1980-2 C.B. 27.
276.27 Interest on bonds transferred to trust.
Interest accrued on bonds prior to their transfer to
a trust is includible in the gross income of a cash
basis donor for the taxable year during which such
interest is actually or constructively received by
the trust. However, amounts received representing
interest accruing after the transfer are includable in
the trust’s gross income. I.T.s 3011 and 3097
superseded. §§1.61–1, 1.102–1. (Secs. 61, 102;
’86 Code.)
Rev. Rul. 72-312, 1972-1 C.B. 22.
276.28 Japanese dollar bonds; back-interest
coupons; gift. A gift to a family member of backinterest
coupons on certain Japanese prewar dollar
bonds constitutes an assignment of future income
and amounts subsequently received by the donee
from the sale or redemption thereof are tax able to
the donor as ordinary income in the year the
income is received. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 58–275, 1958-1 C.B. 22.
276.29 Joint venture; family participation.
Three of the taxpayer’s relatives agreed to assume
an interest in the taxpayer’s third of a joint venture.
The taxpayer was not paid for the shares but an
amount representing what should have been paid
was deducted from each relative’s sales proceeds.
Held, the relatives acquired an ownership interest
and gain from sales were properly divided among
the four parties. (Sec. 22(a), ’39 Code; Sec. 61, ’86
Code.)
Morris W. Zack, 25 T.C. 676, Acq., 1957-2 C.B.
7.
276.30 Joint venture v. sale; orthodontia
practice. Taxpayer agreed to take over his
employer’s orthodontia practice in an adjacent
city. The first year, the employer received all
collections, paid expenses, and remitted 40 percent
of receipts to taxpayer; the second year, the
taxpayer remitted 40 percent to the employer,
whose interest ceased at the end of the period.
Held, this was a sale, with all the net income taxable
to the taxpayer. (Sec. 61, ’86 Code.)
Herbert M. LaRue, 37 T.C. 39, Acq., 1962-2
C.B. 5.
276.31 Life estate. Where children, holding fee
simple income producing real property together
with their mother, convey it to the mother for life,
retaining the remainder in themselves, the income
from the property thereafter is taxable to the
mother. (Sec. 61, ’86 Code.)
Rev. Rul. 56-221, 1956-1 C.B. 58.
276.32 Liquidation; distributions; taxability.
A cash-method corporation, owning motion picture
and television rights that were distributed
under contracts with payments based upon the distributor’s
net proceeds during specified accounting
periods, liquidated during an account period,
and distributed its assets to the shareholders who
received the contract payments, none of which
were included in the final corporate return. Held,
the payments were based on net proceeds subject
to significant contingencies before the close of the
relevant accounting periods; therefore, the corporation
had no “fixed and determinable right” to
the income and was not subject to a pro rata inclusion
of the income. (Sec. 446, ’86 Code.)
Judith Schneider, 65 T.C. 18, Acq., 1976-2 C.B.
2.
276.33 Management corporation; ownerprincipal
corporations. Where the aggregate
income derived from the operation of newspapers
by a newspaper publishing corporation, as purported
agent, and by its two corporate owners and
purported principals, is partly attributable to each
of the three corporations, the amount of the
income attributable to each such corporation will
redetermined on the basis of the particular factual
situation of each taxable year. §1.61–1. (Sec. 61,
’86 Code.)
Rev. Rul. 59-247, 1959-2 C.B. 14.
276.34 Mutual fund; annuity contracts. An
insurance company has funded its annuity contracts
through a variable annuity fund. The assets
of the fund are invested in three mutual funds the
shares of which are not sold to the general public.
The policyholders may direct their annuity purchase
payments to be invested in shares of any or
all of the three mutual funds. The insurer, and not
the policyholder, is the owner of the mutual fund
shares for federal income tax purposes. §§1.61–1,
1.72-1, 1.403(a)-1, 1.403(b)-1, 1.408-3,
1.801-8. (Secs. 61; 72, 403, 406, 801; ’86 Code.)
Rev. Rul. 82-54, 1982-1 C.B. 11.
276.35 Nominal agency operated for corporation.
Income and expenses from business transacted
by a corporation through a nominal agency
of one of its officers, acting as purported sole proprietor,
are those of the corporation to be properly
reported in its returns. §39.22(a)-1. (Sec. 22(a),
’39 Code; Sec. 61, ’86 Code.)
Rev. Rul. 55-234, 1955-1 C.B. 217.
276.36 Owner of income; management corporation;
rulings. Whether the amounts received
by a corporation which was organized by 2 newspaper
publishers to operate their respective plants,
make payments and collections, etc., are taxable to
it as a separate entity, or are taxable to the owners
as principles, is a question of fact which cannot be
ruled upon until after the corporation’s return is
filed. §39.22(a)-1. (Sec. 22(a), ’39 Code; Sec. 61,
’86 Code.)
Rev. Rul. 54-596, 1954-2 C.B. 51.
276.37 Partner’s profits shared with wife as
compensation for services. A wife received no
salary for rendering full time managerial services
to the partnership in which the husband owned an
interest, and they agreed that she was entitled to 25
percent of his profit. Held, the allocation of profit
was not an assignment of the husband’s income
but was earned by the wife in a joint venture with
her husband. (Sec. 22(a), ’39 Code; Sec. 61, ’86
Code.)
Harry Klein, 18 T.C. 804, Acq., 1953-1 C.B. 5.
276.38 Partnership; property contributed;
basis. Taxpayer engaged in a partnership to
develop real property into residential lots for sale
and agreed to share the profits equally. Taxpayer
contributed land which was carried on the partnership’s
books at an amount greater than his basis.
Profits from sales were based upon the partnership’s
recorded value. Held, the taxpayer’s basis
must be used as the partnership’s basis but only
half the profits from the sales were taxable to each
partner. (Sec. 182, ’39 Code; Sec. 702, ’86 Code.)
Lewis L. Culley, 29 T.C. 1076, Acq., 1958-2
C.B. 4.
276.39 Partnership contract assigned to partner-owners.
An accrual-method partnership performed
services under a contract providing a
lump-sum payment on termination by the contracting
corporation. The contracting corporation
was acquired by another corporation and the partnership
assigned the contract to its cash-method
partners who agreed to termination of the contract
for 10 unconditional annual installment payments.
The continuing partnership must accrue the total
of the unconditional minimum installments, and
each partner must report his share of that amount,
in the contract termination year. §1.61–1. (Sec. 61,
’86 Code.)
Rev. Rul. 75-113, 1975-1 C.B. 19.
276.40 Partnership transferred to corporation.
Pursuant to a shareholders’ dispute, attorneys
were employed to determine ownership of
income from two partnerships conducted by the
majority shareholders who agreed on December
31, 1946 to transfer the partnerships to the corporation
“as of January 1, 1946.” Held, the 1946
partnership income was taxable to the corporation,
not to the partner-shareholders. (Sec. 22(a), ’39
Code; Sec. 61, ’86 Code.)
Charles K. Bishop, 25 T.C. 969, Acq., 1956-1
C.B. 3.
276.41 Patent rights; assigned to wife. A husband
paid Federal gift taxes on an absolute assignment
to his wife of his right to receive royalties
under a patent sales contract. Held, the transaction
was a transfer of ownership, not an assignment of
income, and the husband was not taxable on the
income received by the wife. (Sec. 22(a), ’39
Code; Sec. 61, ’86 Code.)
Franklin A. Reece, 24 T.C. 187, Acq., 1960-2
C.B. 6.
276.42 Proceeds from preexisting claim;
assets of dissolved corporation. Three years after
all of a theater corporation’s assets were distributed
to its stockholders, the stockholder-transferees
filed suit against certain motion picture distributors
for damages incurred by the corporation.
Held, payments in settlement of the suit were taxable
to the stockholder-transferees, not to the dissolved
corporation. (Sec. 6901, ’86 Code.)
James Poro, 39 T.C. 641, Acq., 1963-2 C.B. 5.
276.43 Property gift to minor; Model Custodian
Act of Colorado. Income from a property
gift to a minor which has been transferred under
the model custodian act of Colorado is includible
in the gross income of the person obligated to support
or maintain the donee to the extent of his legal
obligations under local law; any income derived
from the gift which exceeds the obligations of the
supporter is taxable to the minor. (Sec. 61, ’86
Code.)
Rev. Rul. 56-484, 1956-2 C.B. 23.

276.44 Property gift to minor; Uniform Gifts
to Minors Act. Income derived from property
transferred to a minor under a statute patterned
after the Model Gifts of Securities to Minors Act
or the Uniform Gifts to Minors Act which is used
in the discharge or satisfaction, in whole or in part,
of a legal obligation of any person to support or
maintain a minor is taxable to such person to the
extent so used, but is otherwise taxable to the
minor. Amplified by Rev. Rul. 70-348, with
respect to the estate tax issue. §1.61–1. (Sec. 61,
’86 Code.)
Rev. Rul. 59–357, 1959-2 C.B. 212.
276.45 Property transferred to wholly owned
corporation. Taxpayer established and capitalized
at $1,000 each two wholly owned corporations.
He transferred to each substantial inherited
property, including royalty interests in oil and gas
discovered on the land, for which he took an interest
bearing note, but received neither interest nor
principal payments. The corporations maintained
separate books of account and borrowed and
repaid substantial amounts from banks. They did
not make any loans to taxpayer or pay any of his
personal expenses. Held, the corporations were
formed for legitimate business purposes; the transfers
of property effected to supply necessary capital
and income earned by the corporations was taxable
to them, not the taxpayer. (Sec. 22(a), ’39
Code; Sec. 61, ’86 Code.)
John Junker Spencer, 19 T.C. 727, Acq., 1953-1
C.B. 6.
276.46 Recognition of controlled business
enterprises; allocation of income. The court disregarded
the “arm’s length” test now specified in
reg. 1.482-1(a) and held that transactions between
related parties were “fair and reasonable.” (Secs.
22(a), 45, ’39 Code; Secs. 61, 482, ’86 Code.)
Seminole Flavor Co., 4 T.C. 1215; Grenada
Industries, Inc., 17 T.C. 231; Polack’s Frutal
Works, Inc., 21 T.C. 953; Friedlander Corp., 25
T.C. 70, Nonacqs., 1972-1 C.B. 2, 3.
276.47 Related companies; commonly controlled.
Two corporations and two partnerships
were owned or controlled directly or indirectly by
the same interests. The Commissioner contended
the partnerships were shams and allocated their
income and deductions to the corporations. Held,
each partnership was organized and operated as a
separate business entity to perform activities functionally
distinguished from the activities engaged
in or retained by the controlling corporations and
is taxed separately. (Secs. 22(a), 45, ’39 Code;
Secs. 61, 482, ’86 Code.)
National Hosiery Mills Inc. (Grenada Industries,
Inc.), 17 T.C. 231, Acq., 1952–2 C.B. 2,
1972-1 C.B. 2.
276.48 Related companies; partnership
formed to provide services for corporation.
Taxpayer’s controlling stockholder formed a partnership
to provide technical and management services
to taxpayer and other similarly controlled
enterprises. The partnership’s billings were made
at arm’s length on the basis of time, expenses and
results. Held, the partnership was not a sham, it
was formed for valid business reasons, and the
Commissioner’s allocation of part of its income to
the taxpayer was unreasonable. (Secs. 22(a), 45,
’39 Code; Secs. 61, 482, ’86 Code.)
Seminole Rock and Sand Co., 19 T.C. 259, Acq.,
1953-1 C.B. 6.
276.49 Rent; lease transferred in trust. Under
a trust instrument executed by a husband and wife
for the benefit of their minor children, the husband
and wife, as fee owners and lessors, transferred a
lease as the corpus of the trust, limited the powers
of the trustee, and provided for the return of the
lease after a stated period. The assignment of the
lease is an assignment of income, and rent payable
under the lease is income to the grantors. §1.61–1.
(Sec. 61, ’86 Code.)
Rev. Rul. 58-337, 1958-2 C.B. 13.
276.50 Royalty income transferred in trust;
oil and gas lease. Royalty income attributable to
an undivided one-half of one-eighth nonparticipating
royalty interest in an oil and gas lease,
transferred to an irrevocable trust by a husband
and wife for the benefit of their minor children, is
includible in the trust’s gross income. However,
any of the trust income used for the support or
maintenance of the minors is included in the grantor’s
gross income. §§1.61–1, 1.671–1. (Secs. 61,
671; ’86 Code.)
Rev. Rul. 71-130, 1971-1 C.B. 28.
276.51 Securities exchange; death benefits
fund for members. A security exchange established
a fund for the sole purpose of paying death
benefits to beneficiaries of its deceased members.
The fund was separately maintained and managed
by certain exchange officers and members acting
as trustees. Its sources of revenue included transfers
from the exchange, member fees and assessments,
and investment income. Held, the
exchange and fund were separate tax entities; neither
the fund’s income nor its payments to beneficiaries
were attributable to the exchange. (Sec.
161, ’39 Code; Sec. 641, ’86 Code.)
Philadelphia-Baltimore Stock Exchange, 19
T.C. 355, Acq., 1953-2 C.B. 5.
276.52 Stock purchased after record date for
dividend payment; corporate shareholder. A
corporation that receives dividends on stock of a
domestic corporation purchased after the record
date for the dividend payment is not entitled to the
dividends received deduction under section 243.
§§1.61-9, 1.243-1. (Secs. 61, 243; ’86 Code.)
Rev. Rul. 82-11, 1982-1 C.B. 51.
276.53 Stock sold and held in trust to secure
purchase price. Amounts received by a taxpayer
representing dividends paid on stock which he
sold and holds in trust to secure payment of a note
given by the vendee for the purchase price, which
dividends are applied against payment of interest
and principal on the note until it is fully paid, are
not taxable to the vendor, but to the vendee. I.T.
1958 revoked. §39.115(a)-1. (Sec. 115(a), ’39
Code; Sec. 316, ’86 Code.)
Rev. Rul. 56-153, 1956-1 C.B. 166.
276.54 Trust; termination of employment;
consulting services. Funds, placed into an irrevocable
trust for a cash basis former officer as a
condition of his resignation, were to be distributed
in 5 equal annual installments to him or his survivors
conditioned upon his service as a consultant
and his promise not to perform similar services in
competition. Held, the income was taxable when
received, not when placed in trust; the former officer’s
rights to, or interest in, the trust was conditional
or forfeitable, rendering section 402 inapplicable.
(Sec. 61, ’86 Code.)
James Max Harrison, 62 T.C. 524, Acq., 1974-2
C.B. 2.
276.55 Trust income. A widow was to receive
a determinable amount from trust income or principal
each year. If trust income exceeded such
amount, she received a third of the excess with the
balance added to the principal of the trust if she
failed to designate its distribution to other qualified
recipients. Held, the excess income added to
the trust is not taxable to her. (Secs. 22(a), 166,
167, ’39 Code; Secs. 61, 676, 677, ’86 Code.)
Nicholas A. Stavroudis, 27 T.C. 583, Acq.,
1957-1 C.B. 5.
276.56 Trust income; undistributable capital
gains. The taxpayer was the settler, life beneficiary,
and co-trustee of an irrevocable trust over
which she retained a limited power to invade the
corpus; a right to alter the shares of a designated
Gross income
class of remaindermen; and a contingent right to
dispose of the trust corpus by will if she survived
certain beneficiaries. The trust realized capital
gains which were not distributable to the taxpayer.
Held, the rights and powers retained by the taxpayer
did not justify the inclusion of the non-distributable
capital gains in her taxable income.
(Sec. 22(a), ’39 Code; Sec. 61, ’86 Code.)
Hiram Solomon, 27 T.C. 426, Acq., 1957-1
C.B. 5.
276.57 Value of override agreement. Taxpayer’s
solely owned insurance company transferred
some assets and all of its liabilities to another
insurance company through an involved reinsurance
agreement. An override agreement whereby
the purchasing corporation agreed to pay the transferor
a percentage of its gross premiums was
executed without taxpayer’s knowledge, and payments
were to commence after the lawyer negotiating
the transaction had acquired all of the stock
of the corporation. Held, the value of the override
agreement was not part of the consideration paid
for the sale of the business. (Sec. 61, ’86 Code.)
E. Brooks Glass, Jr., 55 T.C. 543, Acq., 1972-1
C.B. 2.
When included
278.1 Accrual basis builder; retainages. An
accrual basis taxpayer, under contract with the
Federal Government, manufactured and delivered
housing units begun in one year and completed the
following year. The contract provided for payments
to be made on the basis of periodic certified
estimates with 10 percent of the amount due
retained until final acceptance by the Government.
The contract was 86.7 percent completed in the
first year. Held, during the first year the taxpayer
properly accrued 86.7 percent of the contract price
less the 10 percent retainage, the right to which did
not accrue until completion of the contract. (Secs.
41, 42(a), ’39 Code; Secs. 446, 451, ’86 Code.)
Charles F. Dally, 20 T.C. 894, Acq., 1954-1
C.B. 4.
278.2 Accrual of compensation subject to
negotiation. An accrual method taxpayer performed
services and accrued related costs during
the year for the U.S. Government under contracts
providing that the amount of compensation would
be negotiated after delivery. The following year
the compensation was determined and paid. Held,
the compensation was properly accrued in the year
that its amount was negotiated. (Sec. 42(a), ’39
Code; Sec. 451, ’86 Code.)
Globe Corp., 20 T.C. 299, Acq., 1953-2 C.B. 4.
278.3 Accumulated cash surplus; distributions;
court order. A distribution of accumulated
cash surplus ordered by a lower court and subsequently
affirmed by a higher court and received by
the stockholders in the year of the higher court’s
decision is includable in the stockholders’ gross
income in the year the order was affirmed. A.R.R.
124 superseded. §1.451-1. (Sec. 451, ’86 Code.)
Rev. Rul. 70-109, 1970-1 C.B. 115.
278.4 Advance credit; unpaid warranty
work. Credits received from a manufacturer for
warranty work done by an accrual method dealer
pursuant to the manufacturers warranty claim
advance program are not includible in the dealer’s
gross income for a taxable year in which the
amount of the credits do not exceed the dealer’s
unpaid accrued warranty claims. Such amounts
represent a reduction of the dealer’s accounts
receivable due from the manufacturer. §§1.446-1,
1.451-1. (Secs. 446, 451; ’86 Code.)
Rev. Rul. 72-595, 1972-2 C.B. 232.
278.5 Advance payments; automobile club
dues. An accrual basis taxpayer reported as gross
income only that portion of the total prepaid
annual membership dues actually received or collected
in the calendar year, which ratably corresponded
with the number of membership months,

Gross income
covered by those dues, occurring in the same taxable
calendar year. The balance was reserved for
monthly accrual over the remaining membership
period in the following year as deferred or
unearned income. Held, the dues must be included
as income in the calendar year of their receipt.
§§39.41-1, 1.446-1, 1.451-1. (Sec. 41, ’39 Code;
Secs. 446, 451, ’86 Code.)
American Automobile Association, 367 U.S.
687, Ct. D. 1865, 1961-2 C.B. 245.
278.6 Advance payments; Cropland Adjustment
Program. A lump-sum payment received in
advance of performance under the Cropland
Adjustment Program by a taxpayer (producer)
who reports income under the cash method is
includible in gross income in the taxable year in
which the payment is received or made available,
whichever is earlier; where the taxpayer (producer)
uses the accrual method, the payment is
includible in the earlier of the taxable year in
which it is received or in which he has a right to
receive it. Modified to the extent inconsistent with
section 3 of Rev. Proc. 71–21, relating to the permissible
methods of treating advance payments
for services to be performed in the future by
accrual basis taxpayers. Rev. Rul. 70-445 superseded.
§§1.446-1, 1.451–1. (Secs. 446, 451; ’86
Code.)
Rev. Rul. 68-44, 1968–1 C.B. 191; Rev. Rul.
71-299, 1971-2 C.B. 218.
278.7 Advance payments; distributors’ prepurchase
of unspecified goods. Advance payments
received by an accrual basis manufacturer
for unspecified products to be ordered later by new
distributors are substantial advance payments
deferrable from income until the second year after
the date of receipt. No reduction is allowed for cost
of goods sold until the goods are shipped.
§1.451-5. (Sec. 451, ’86 Code.)
Rev. Rul. 72-208, 1972-1 C.B. 129.
278.8 Advance payments; dormitory accommodations.
An accrual basis corporation operating
a college dormitory requires students to make
payments in advance of the school year for room
and board not later than July 15. Such payments
are received by a bank, under an escrow agreement,
and released to the corporation on September
5. The advance payments are includible in the
corporation’s gross income on July 15, the date
they became due and payable, or at the time actually
received by either the bank or the corporation,
whichever is earlier. Modified to the extent inconsistent
with section 3 of Rev. Proc. 71–21, relating
to the permissible methods of treating advance
payments for services to be performed in the
future by accrual basis taxpayers. Rev. Rul.
70-445 superseded. §§1.446–1, 1.451-1. (Secs.
446, 451; ’86 Code.)
Rev. Rul. 65–141, 1965-1 C.B. 210; Rev. Rul.
71-299, 1971-2 C.B. 218.
278.9 Advance payments; future services;
accrual basis taxpayer. Procedures are prescribed
under which accrual basis taxpayers will
be allowed to defer the inclusion in gross income
of payments received, or amounts due and payable,
in one taxable year for services to be performed
before the end of the next succeeding taxable
year. Rev. Proc. 70–21 superseded.
§1.446-1, 1.451–1. (Sec. 601.204, S.P.R.; Secs.
446, 451, ’86 Code.)
Rev. Proc. 71-21, 1971-2 C.B. 549.
278.10 Advance payments; meter purchase
plan. Situations illustrate whether deposits
received by a corporate supplier under certain
meter purchase plans are security deposits or
advance payments for goods and when amounts
determined to be advance payments are includible
in gross income. §§1.61–1, 1.446-1, 1.451-1,
1.481-1. (Secs. 61, 446, 451, 481; ’86 Code.)
Rev. Rul. 72-519, 1972-2 C.B. 32.
278.11 Advance payments; new plant; agreement
to finance; foreign purchasing commission.
An amount received by a domestic corporation
from a foreign purchasing commission
(acting as agent for a foreign country) to finance
a new plant upon an agreement to produce and sell
a certain product to a foreign country is not taxable
income at the time the loan is made, even though
the agreement provides that upon termination or
cancellation, monies due may, if not otherwise
paid, be offset against the loan. I.T. 3349 superseded.
§§1.61–1, 1.451–1. (Secs. 61, 451; ’86
Code.)
Rev. Rul. 70-226, 1970-1 C.B. 116.
278.12 Advance payments; residential facilities
provided to retirement community. Lumpsum
payments received by a calendar-year accrual-method
corporation from residents of a
retirement community for providing them an
apartment unit and the use of social, recreational,
laundry, medical and other common facilities for
the remainder of their lives are advance rentals and
must be included in gross income for the taxable
year of receipt. Rev. Rul. 64–231 distinguished.
§§1.61-8, 1.451-1. (Secs. 61, 451; ’86 Code.)
Rev. Rul. 73-549, 1973-2 C.B. 17.
278.13 Advance payments; service contracts.
Prepaid income from contracts to furnish services
and other types of prepaid income, such as prepaid
royalties, rent, bonuses, etc., will constitute taxable
income in the year of receipt, regardless of
whether the period of proration is definite or indefinite;
the contrary decision in Bressner Radio Inc.
will not be followed. Modified to the extent inconsistent
with section 3 of Rev. Proc. 71–21, relating
to the permissible methods of treating advance
payments for services to be performed in the
future by accrual basis taxpayers; Rev. Rul.
70-445 superseded. §§1.446-1, 1.451–1. (Secs.
446, 451; ’86 Code.)
Rev. Rul. 60-85, 1960-1 C.B. 181; Rev. Rul.
71-299, 1971-2 C.B. 218.
278.14 Advance payments; telephone company
basic monthly charge. Advance payments
received by a telephone company for subscribers
representing a basic monthly charge applicable to
the following month’s telephone service may be
deferred to the extent provided in Rev. Proc.
71-21. §§1.446-1, 1.451-1. (Secs. 446, 451; ’86
Code.)
Rev. Rul. 72-49, 1972–1 C.B. 125.
278.15 Airmail rates; temporary and retroactive
increase. Income resulting from a retroactive
increase in temporary airmail rates, accrues in
the year in which the Civil Aeronautics Board
issues an order providing for such increase. Pending
final determination of airmail rates, compensation
will accrue at the airmail rates in effect
at the end of the taxable year for which such
income is reported. I.T. 3961 revoked. §29.42–1.
(Sec. 42, ’39 Code; Sec. 451, ’86 Code.)
Rev. Rul. 169, 1953-2 C.B. 139.
278.16 Assumption of promissory note by
wholly owned corporation. An individual contracted
to purchase all the outstanding stock of
four related corporations for cash and promissory
notes and subsequently transferred the interest in
the stock of one of the related corporations to
another of the corporations in exchange for the
second corporation’s assumption of the primary
obligation of the individual to pay off the notes.
The second corporation made payments of principal
and interest on the notes as they came due.
Held, the assumption of the debt obligations is a
constructive dividend in the year of the assumption
rather than in the years in which principal and
interest payments were made. Held, further the
corporation is entitled to a deduction for interest
accruing on the promissory notes. (Secs. 61, 163,
301, 304; ’86 Code.)
Ray A. Maher, 55 T.C. 441, Nonacq., 1977-2
C.B. 2.
278.17 Auction sale of livestock; cash-basis
cattle breeder. The entire income realized from
the sale of cattle at an auction through a livestock
market, as sales agent for a cash basis cattle
breeder, is recognized to the breeder in the year of
the sale although a portion of the proceeds was
paid to the breeder in the subsequent year. Rev.
Rul. 58-162 distinguished. §1.61-1. (Sec. 61, ’86
Code.)
Rev. Rul. 70-294, 1970-1 C.B. 13.
278.18 Auction sale of livestock; deferred
payment contract. A “deferred payment contract”
between a marketing company and a cash
method farmer retaining ownership of cattle until
sale at auction and agreeing to receive his payment
in a subsequent year is a consignment and recognition
of his gain may not be deferred. §1.451–1.
(Sec. 451, ’86 Code.)
Rev. Rul. 72-465, 1972-2 C.B. 233.
278.19 Auction sale of livestock; deferred
payment contract. A cash method farmer sold
cattle to a licensed dealer under a “deferred payment
contract. ” The cattle were delivered to an
affiliate of the dealer and sold at auction with the
net proceeds paid to the dealer. In compliance with
the contract the dealer paid the net proceeds to the
farmer in the following taxable year. The dealer
acted as the agent of the farmer and the receipt of
the net proceeds by the dealer is the equivalent to
receipt by the farmer. Therefore, the net proceeds
must be reported by the farmer for the year the
cattle were sold and not deferred to the following
taxable year. §1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 79-379, 1979-2 C.B. 204.
278.20 Awards; escrow account; installment
payments. Where a taxpayer is awarded a cash
prize which, according to the terms of the contest,
is placed by the contest sponsor in a noninterestbearing
escrow account to be paid at future intervals,
the discounted value of the right to receive
future payments from the escrow account is
includible in the gross income of the taxpayer for
the taxable year in which the prize was awarded.
The excess of future payments received over the
discounted value is includible in the taxpayer’s
gross income for the taxable years in which
received. §§1.74–1, 1.451–1. (Secs. 74, 451; ’86
Code.)
Rev. Rul. 62–74, 1962-1 C.B. 68.
278.21 Awards; non-qualified deferred compensation
plan. An employee who is awarded
supplemental compensation and elects to receive
it in accordance with the provisions of a nonqualified
deferred compensation plan which includes
substantial forfeiture provisions receives taxable
income only in the taxable year the payment is
actually received unless otherwise made available
to the employee at an earlier date. §1.451–2. (Sec.
451, ’86 Code.)
Rev. Rul. 67-449, 1967-2 C.B. 173.
278.22 Barter club transactions; value of services.
The value of services exchanged by members
of a barter club is includible in each member’s
gross income for the taxable year in which
received. Also, these exchanges are reportable by
the barter club pursuant to section 6045. §§1.61–2,
1.451-1, 1.6045-1. (Secs. 61, 451, 6045; ’86
Code.)
Rev. Rul. 83-163, 1983-2 C.B. 26.
278.23 Barter club transactions. A barter club
uses credit units to credit or debit member’s
accounts for goods or services provided or
received. As soon as units are credited to the member’s
account, the member may use them to purchase
goods or services or may sell or transfer the
units to other members. The value of credit units

eceived is includible in the gross income of members
for the taxable year in which the units are
credited to their accounts. the dollar value of units
received for services by an employee of the club,
who may use the units in the same manner as other
members, is includible in gross income for the taxable
year in which received. §§1.61–1, 1.61–2,
1.451-1. (Secs. 61, 162, 262, 263, 451, 3121,
3306, 3401; ’86 Code.)
Rev. Rul. 80-52, 1980-1 C.B. 100.
278.24 Benefits from retirement plan; physicians
in partnership. A partnership of physicians
that, pursuant to an agreement, furnishes medical
services to a nonprofit medical and hospital corporation
is not a party to the corporation’s retirement
plan provided for the physicians and derives no
gross income therefrom; when the corporation
becomes obligated to make payments under the
retirement plan to a physician eligible under the
plan to receive such payments, by reason of his
interest in and rights under the retirement plan, he
derives gross income at such time or times as he
receives the payments. Rev. Rul. 69-49 superseded.
§1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 69-474, 1969-2 C.B. 105.
278.25 Blocked foreign income. A series of
questions and answers with respect to blocked foreign
income explain the term “deferrable
income”; how to account for and report such
income; how and when to make an election to
defer such income; when deferrable income
ceases to be deferrable; how to deduct expenses
paid or incurred or paid or accrued in the foreign
country in which there is deferrable income; how
to deduct costs and direct expenses paid or
incurred in U.S. dollars in a transaction giving rise
to deferrable income; and how to determine the
basis of investment or business property acquired
with funds representing deferrable income. Mires.
6475, 6494, and 6584 and I.T. 4037 superseded.
Modified by Rev. Rul. 81-290. §§1.61-1,
1.162-1, 1.446-1. (Secs. 61, 162, 446; ’86 Code.)
Rev. Rul. 74-351, 1974–2 C.B. 144.
278.26 Blocked foreign income; partial
remittance. A partial remittance of previously
blocked foreign income which has ceased to be
deferrable is includible in gross income on the
basis of the first-in first-out rule. (Sec. 446, ’86
Code.)
Rev. Rul. 57–379, 1957-2 C.B. 299.
278.27 Bonus; baseball players. Bonus payments
received under contract by a professional
baseball player for services (whether or not per
formed), and for refraining from playing for any
other club during the period of the contract, even
though the player entered the Armed Forces and
performed no services, are taxable as ordinary
income in the taxable year received. (Sec. 61, ’86
Code.)
Rev. Rul. 55–727, 1955–2 C.B. 25.
278.28 Bonus; corporate offficer and major
stockholder. A bonus based on net sales for the
year, computed after yearend by a calendar year
corporation as part of the compensation of its
cash-method calendar year senior officer and
major stockholder, paid to him within 2 1/2 months
following yearend and not otherwise available to
him, is includible in his gross income for the year
in which received even though it is accrued on the
corporation’s books as of December 31 of the preceding
year. §1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 75–180, 1975-1 C.B. 142.
278.29 Bonus; corporate officers. Calendar
year taxpayers organized and controlled a fiscal
year corporation which paid a small monthly
salary with the understanding that a bonus would
be paid if a satisfactory profit was earned. In February
1960 the salary for the entire fiscal year ending
June, 1960 was increased and accrued. Held,
taxpayers were taxable on the monthly amounts
received in 1959, not half the salary as adjusted in
1960. (Sec. 451, ’86 Code.)
R.E. Hughes, Jr., 42 T.C. 1005, Acq., 1965-1
C.B. 4.
278.30 Bonus; nonqualified deferred compensation
plan. Incentive bonuses awarded to
employees at the discretion of the corporate-employer
to be paid at a designated future time in
accordance with the provisions of a nonqualified
unfunded deferred compensation plan constitute
income in the taxable year actually received or
made available. The employer-corporation is
entitled to deduct the deferred bonus award only
in the taxable year in which payments are actually
made to the employee or his legal representative,
to the extent such payments are ordinary and necessary
business expenses. §§1.404(a)-1, 1.451–2.
(Secs. 404, 451; ’86 Code.)
Rev. Rul. 69-649, 1969-2 C.B. 106.
278.31 Bonus; paid in employer’s restricted
stock. Where an employee elects, prior to January
1 of a given year, to have all or part of any bonus
awarded him for that year paid to him in stock of
his employer corporation that is subject to restrictions
which have a significant effect on its value,
compensation will be realized by the employee at
the time the restrictions on the stock lapse, or the
stock is sold in an arm’s length transaction, whichever
event occurs earlier. §§1.61–2, 1.421–6.
(Secs. 61, 421; ’86 Code.)
Rev. Rul. 68-86, 1968–1 C.B. 184.
278.32 Awards; National Aeronautics and
Space Act. The Service will not follow the decision
in Jones v. Commissioner, (9th Cir. 1984)
relating to the taxability of NASA awards, but will
continue to follow the decision in Rogallo v.
United States, and Rev. Rul. 69-129. §1.74-1.
(Sec. 74, ’86 Code.)
Rev. Rul. 86-31, 1986-1 C.B. 75.
278.33 Fringe benefits; aircraft valuation
formula. For purposes of section 1.61-2T(g) of
the temporary regulations, relating to the rule for
valuing noncommercial flights on employer-provided
aircraft, the Standard Industry Fare Level
(SIFL) cents-per-mile rates and the terminal
charges in effect on June 30, 1987, and for prior
periods are set forth. Rev. Rul. 87–28 superseded.
§1.61-2T. (Sec. 61, ’86 Code.)
Rev. Rul. 87-101, 1987-2 C.B. 42.
278.34 Payment of employee’s FICA tax by
employer without deduction from wages. Payments
by an employer of employee FICA tax without
deduction from employee’s wages under an
agreement between them are additional wages for
FICA purposes, the amount of wages to be determined
by a formula. The additional FICA wages
so determined are includable in the employee’s
gross income and are wages for purposes of
income tax withholding. If otherwise appropriate,
the employer may deduct the payments as ordinary
and necessary business expenses under section
162. Rev. Rul. 74–75 modified. §§1.61–2,
1.162-7. (Secs. 61, 162, 3101, 3306, 3401, 6051,
6413; ’86 Code.)
Rev. Rul. 86-14, 1986-1 C.B. 304.
278.35 Corporation; leasing arrangement
with political subdivision; investment income
received by bond trustee. A corporation
described in Rev. Rul. 68–590 must include in its
gross income amounts received by the bond
trustee from the investment of net bond proceeds
during a temporary period and from the investment
of the reserve fund if the investment income
inures to the benefit of the corporation. Rev. Rul.
68-590 amplified. §§1.61-1, 1.103-1. (Secs. 61,
103; ’86 Code.)
Rev. Rul. 86-66, 1986-1 C.B. 9.
Gross income
278.36 Breeding rights; thoroughbred stallion.
A cash-basis taxpayer who receives, as compensation
for services, breeding rights in a thoroughbred
stallion must include the fair market
value of the rights in his income at the time of
receipt if the rights are freely transferable for the
lifetime of the stallion, readily marketable, and
immediately convertible to cash. Nontransferable
rights are not includable in income until the taxable
year in which they are earned and made available
to the taxpayer. When agreements are silent concerning
transferability, local law must be
examined to determine whether the taxpayer may
transfer his rights. §1.61–1. (Sec. 61, ’86 Code.)
Rev. Rul. 73–173, 1973–1 C.B. 40.
278.37 Carrying charges; installment sales.
Finance or carrying charges included in an installment
sales contract shall be accrued ratably over
the contract period. The Gunderson Bros. .Engineering
Corp., Luhring Motor Co. and Smith
Motors, Inc., decisions followed. §§1.446-1,
1.451-1, 1.453-2. (Secs. 446, 451, 453; ’86
Code.)
Rev. Rul. 67–316, 1967–2 C.B. 171; Gunderson
Bros. Engineering Corp., 42 T.C. 419 and Luhring
Motor Co., 42 T.C. 732, Acqs., 1967-2 C.B. 2, 3.
278.38 Change in billing procedures. An
accrual method taxpayer changed its customer
contracts and billing system to make all orders
noncancellable and billable in the year of publication
which was the year after ordering. The Commissioner
contended that income should be recognized
in the year the noncancellable orders were
received. Held, in the year of change income is to
be recognized either when payment is due or when
it is received, whichever is earlier. (Sec. 451, ’86
Code.)
Decision, Inc., 47 T.C. 58, Acq., 1967-2 C.B. 2.
278.39 Claim of right; kickback payments.
Taxpayer’s purchasing agent and nominal president
received kickback payments from taxpayer’s
suppliers. Taxpayer won judgment against the
agent for these payments in state court in a later
year. Held, until settlement of the court suit, taxpayer
had no established right to the amounts and
could not accrue them as income. (Sec. 42(a), ’39
Code; Sec. 451, ’86 Code.)
All Americas Trading Corporation, 29 T.C. 908,
Acq., 1958-2 C.B. 3.
278.40 Claim of right; overpayments; truck
rental contract. Taxpayer, on the cash basis,
received an overpayment of truck rental income in
1956, which he discovered and agreed to repay in
1957. Held, the overpayment is taxable in 1956,
not 1957. (Sec. 61, ’86 Code.)
J.W. Caddy, 38 T.C. 943, Nonacq., 1969-2 C.B.
xxiv.
278.41 Colorado State income tax refunded.
A refund of Colorado State income tax resulting
from a net operating loss carryback is includible in
the income of an accrual-method taxpayer in the
taxable year of the loss which gives rise to the
refund. §1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 69-372, 1969-2 C.B. 104.
278.42 Commissions; advance; insurance
agents. Advances made against unearned commissions
to an independent cash-basis insurance
agent that the agent is legally obligated to repay,
but for which repayment is customarily forgiven,
are includible in gross income in the taxable year
of receipt. Any change from not including to
including such advances constitutes a change in
accounting method. §§1.446-1, 1.451-1,
1.481-1. (Secs. 446, 451, 481; ’86 Code.)
Rev. Rul. 83-12, 1983-1 C.B. 99.
278.43 Commissions; advance; insurance
agents; consent for change in accounting
method. A procedure is provided for certain cash
basis insurance agents to expedite a consent to
change their method of accounting for advance
commission income applicable to the sale and
renewal of insurance policies. §§1.446-1,

Gross income
1.451–1, 1.481–1. (Sec. 601.204, S.P.R.; Secs.
446, 451, 481, ’86 Code.)
Rev. Proc. 83-4, 1983-1 C.B. 577.
278.44 Commissions; advanced by estate.
The fair market value of securities received by an
executor of an estate for estimated commissions
that might be due him, for which he executed a
note to be held by the estate and enforced only if
commissions were not authorized, is includable in
his gross income in the year of receipt. §1.451-1.
(Sec. 451, ’86 Code.)
Rev. Rul. 71-528, 1971-2 C.B. 219.
278.45 Commissions; deposited with court;
rates contested. Commissions in excess of rates
established by a Government agency that are
required to be deposited with the court while the
rates are being contested are not reported in gross
income until the taxable year ownership has been
judicially determined. O.D. 980 superseded.
§§1.61-1, 1.451-1. (Secs. 61, 451; ’86 Code.)
Rev. Rul. 69-642, 1969-2 C.B. 9.
278.46 Commissions; loan corporation; borrowers’
credit life insurance. An accrual method
loan corporation that receives a commission from
an insurance company from which it obtains life
insurance coverage for its borrowers, must report
the entire commission as income for the taxable
year in which the insurance coverage is arranged
even though, in the event of a loan prepayment and
termination of insurance coverage, it may be
required to refund or abate a portion of the commission
computed under the Rule of 78’s method.
§1.451-1. (Sec. 451, ’86 Code.)
Rev. Ru1. 75-541, 1975-2 C.B. 195.
278.47 Commissions; salesman. Advance
commissions received by a cash basis salesman
are includible in gross income in the taxable year
received; the portion of such commissions
received and included in gross income that are
later repaid to the employer are deductible business
expenses in the taxable year repaid, subject to
provisions of section 1341. O.D. 19 superseded.
§§1.61-2, 1.162-7. (Secs. 61, 162; ’86 Code.)
Rev. Rul. 72-78, 1972-1 C.B. 45.
278.48 Commissions; stock broker; trade or
settlement date. An accrual method stock brokerage
business must accrue the commission income
on the sale or purchase of securities for a customer
on the trade date rather than on the settlement date.
Further, a change to the method of accruing commission
income on the trade date is a change in
accounting method. §§1.446-1, 1.451-1,
1.481-1. (Secs. 446, 451, 481; ’86 Code.)
Rev. Rul. 74-372, 1974-2 C.B. 147.
278.49 Commodities dealers; futures contracts.
Dealers in cotton and other commodities
treated in a similar manner may, in determining
gross income, take into account gains or losses at
the end of the taxable year based upon market
value of open futures contracts to which they are
parties that are hedges against actual spot or cash
transactions or against forward sales or purchases.
This does not apply to purely speculative transactions
in futures, which may not be included or
taken into income in any manner until they are
actually closed. A.R.M. 135, I.T. 1166, S.R. 5084,
and S.M. 5693 superseded. §1.61–3. (Sec. 61, ’86
Code.)
Rev. Rul. 74-223, 1974–1 C.B. 23.
278.50 Compensation for improper dismissal.
A lump-sum payment received by a dismissed
city employee as a settlement for waiving
his right to reinstatement in his position and his
salary rights for the period of dismissal constitutes
income includable in the recipient’s gross income
in the year received. §§1.37-4, 1.61–14, 1.212–1.
(Secs. 37, 61, 212; ’86 Code.)
Rev. Rul. 60-188, 1960-1 C.B. 28.
278.51 Compensation for services received
from fiscal year taxpayer. An accrual-method
calendar year taxpayer provided services for an
accrual-method fiscal year corporation for compensation
based upon the construction completed
and sold by the corporation during the year at a
percentage fixed at the fiscal year end. Held, the
compensation was accruable as the amounts
became fixed by the corporation at the end of its
fiscal year, not as the services were rendered.
(Secs. 41 ,42, ’39 Code; Secs. 446, 451, ’86 Code.)
Emery Kinkead, Inc., 35 T.C. 152, Acq., 1961-2
C.B. 4.
278.52 Construction contract; long-term.
The long-term construction contract provided that
portions of the fee invoiced by the accrual method
taxpayer and all the bonus, if one was due, would
be retained until completion of the contract. Held,
the retained fee and bonus attributable to work
completed in years prior to the contracts’ completion
were accruable prior to the completion year
even though such amounts could not be exactly
ascertained. (Secs. 41, 42, ’39 Code; Secs. 446,
451, ’86 Code.)
Dingle-Clark Co., 26 T.C. 782, Acq., 1957-2
C.B. 4.
278.53 Construction contract; long-term;
accounting methods. An accrual method corporation
in the construction business that uses the
completed contract method of accounting to
report income from long-term contracts of more
than 12 months duration may not use the percentage
of completion method to report income from
long-term contracts of less than 12 months duration
in a situation in which that method was used
with respect to such contracts in prior years when
its use was improper under section 1.451–3 of the
then current regulations. §1.451–3. (Sec. 451, ’86
Code.)
Rev. Rul. 78-180, 1978–1 C.B. 136.
278.54 Contested income. An accrual method
taxpayer who has contested an increase in the per
diem charge for the rental of railroad freight cars
is not entitled to accrue and deduct the amount in
dispute until the controversy is resolved. This
principle is equally applicable in determining the
taxable year of the inclusion of an amount in gross
income where the right thereto is in dispute.
§§1.451-1, 1.461-1. (Secs. 451, 461; ’86 Code.)
Rev. Rul. 60-237, 1960-2 C.B. 164.
278.55 Cooperatives; deposits by borrowerstockholders.
A corporation, organized to finance
crop operations, charged a deposit on each box of
fruit sold by borrower-stockholders. The deposits
were to indemnify the corporation against credit
and operating losses but remained the property of
the borrowers until the corporation, pursuant to
the loan agreement, could elect to use them. Held,
the deposits were not taxable income to the corporation
in the year received. (Sec. 22(a), ’39 Code;
Sec. 61, ’86 Code.)
Growers Credit Corp., 33 T.C. 981, Acq.,
1960-2 C.B. 5.
278.56 Corporation franchise taxes
refunded; New York State. A refund of New
York State corporation franchise taxes resulting
from a net operating loss carryback is includible in
the income of an accrual-method taxpayer in the
taxable year of the loss which gives rise to the
refund. §1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 65-190, 1965-2 C.B. 150.
278.57 Cost plus a percentage of cost, cost
plus contracts; completed contract method of
accounting. A taxpayer engaged in the construction
business whose contracts are not completed
within the taxable year in which they are entered
into may report the income from “cost plus a percentage
of cost”, “cost plus a fixed fee”, or “cost
plus with a guaranteed maximum” contracts on
the completed contract method of accounting.
Rev. Rul. 74-129 amplified. §§1.446-1, 1.451-3,
1.481–1. (Secs. 446, 451, 481; ’86 Code.)
Rev. Rul. 77-38, 1977-1 C.B. 129.
278.58 Cost-plus-fixed-fee contract; completed
contract method of accounting. The
income from cost-plus-fixed-fee contracts of a
corporation engaged in the construction of ships
requiring at least three years to complete may be
reported on the completed contract method of
accounting. I.T. 3459 revoked. Amplified by Rev.
Rul. 77–38. §§1.446-1, 1.451–3, 1.481–1. (Secs.
446, 451, 481; ’86 Code.)
Rev. Rul. 74-129, 1974-1 C.B. 109.
278.59 Cost-plus-fixed-fee contract; reimbursement
of expenses. An accrual basis taxpayer
included in income amounts of expenses
which the Government agreed to reimburse under
cost-plus-fixed-fee contracts. The next year some
of the reimbursements were disallowed and in a
later year, some of the disallowed items were reallowed.
Held, the reimbursements disallowed
must be subtracted from the amount reported as
income in the year of the original agreement; the
amounts subsequently re-allowed must be
included in income of the year of re-allowance.
(Sec. 42(a), ’39 Code; Sec. 451, ’86 Code.)
Cramp Shipbuilding Co., 17 T.C. 516, Acq.,
1954-2 C.B. 4.
278.60 Cotton equalization payments. Payments-in-kind
(or cash in lieu thereof) received
under the cotton equalization programs of the
Agricultural Act of 1964, must be included as
items of other income in the tax return of an
accrual basis taxpayer in the year in which the
applications for payment-in-kind certificates are
approved by the Commodity Credit Corporation.
§1.451-1. (Sec. 451, ’86 Code.)
Rev. Rul. 65-17, 1965-1 C.B. 207.
278.61 Cotton price support payments. Cotton
farmers property reporting price support payments
on a cash basis may not apply Rev. Proc.
64-16 to change the accounting treatment of these
items for a year when he receives payments under
title IV of the Food and Agricultural Act of 1965.
§1.451-1. (Sec. 451, ’86 Code.)
Rev. Rul. 67-404, 1967-2 C.B. 173.
278.62 Cotton producer; loan from Commodity
Credit Corporation. The amount of an
unpaid loan from the Commodity Credit Corporation
to a cotton producer, who has not elected
under section 77 to treat the loan as income in the
taxable year received, is includable in his gross
income in the year in which his liability on the loan
is discharged by transferring to the Corporation
his ownership of the cotton pledged as security.
Any additional amount realized by the producer
from the Corporation’s sale of the cotton for more
than the amount owed is includible in his income
in the taxable year received if he uses the cash
method or the year his right to the amount becomes
fixed if he uses the accrual method. I.T. 4016
superseded. §1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 75–57, 1975-1 C.B. 141.
278.63 Cotton sold; payment deferred; cashmethod
farmer. Proceeds received in January by
a cash-method farmer under a deferred payment
contract entered into with a cooperative before
delivery of his cotton in the prior year are includable
in his gross income in the year received even
though, under a preexisting marketing agreement
with the cooperative, he would have been entitled
to an advance payment equal to the government
loan value of his cotton upon its delivery.
§1.451-2. (Sec. 451, ’86 Code.)
Rev. Rul. 73-210, 1973-1 C.B. 211.
278.64 Credit card service fees; bank. Fees
charged for credit card services must be accrued
by a bank, using the accrual method of accounting,
in the year in which remittances for charge sales

are made to enrolled merchants. §1.451–1. (Sec.
451, ’86 Code.)
Rev. Rul. 71-365, 1971-2 C.B. 218.
278.65 Credit card service fees; bank; cash
method. The fees that a cash method bank operating
a credit card plan charges for its services by
deducting the fees from amounts it periodically
remits for credit sales to merchants enrolled in the
plan are includable in the bank’s income as payments
are received from the cardholders on their
accounts. §1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 78-40, 1978-1 C.B. 136.
278.66 Crop advances; cooperative member
growers. Advances received by cash method
member growers from a cooperative association
for crops sold to the association, under an agreement
whereby all crops are sold to the association
for resale, are partial payments includible in the
growers’ gross income in the year received. The
growers may not defer the accounting for the payments
untiI the year final settlement is made for
their crops. I.T. 2107 superseded. §§1.451–1,
1.1385-1. (Secs. 451, 1385; ’86 Code.)
Rev. Rul. 71-430, 1971-2 C.B. 219.
278.67 Crop insurance proceeds; election. A
cash-method taxpayer who receives crop insurance
proceeds in the same calendar year his grain
crops were damaged and who establishes that
more than 50 percent of the crop income would
have been reported in the following year under his
normal business practice is entitled to elect under
section 451(d) to include the proceeds in income
in the following year, but he may not allocate the
proceeds between the two years. A mere disclosure
on the return that insurance proceeds are
being deferred is not a proper election. §1.451-6.
(Sec. 451, ’86 Code.)
Rev. Rul. 74-145, 1974-1 C.B. 113.
278.68 Crop insurance proceeds; election.
Section 451(d) of the Code which provides an
election to include crop insurance proceeds in
gross income in the taxable year following the taxable
year of destruction or damage applies to payments
received under title 1 of the Disaster Assistance
Act of 1989. Rev. Rul. 75–36 revoked.
§1.451-6T. (Sec. 451, ’86 Code.)
Rev. Rul. 91-55, 1991-2 C.B. 321.
278.69 Crop shares; contributed to charity or
used as feed. The fair market value of crop shares
received as rent by a farmer-landlord, which are
contributed to a charitable organization or are used
as feed in the farming operation, must be included
in the farmer-landlord’s gross income at the time
of such contribution or use. The taxpayer is considered
to have made a charitable contribution or
becomes entitled to a business expense deduction
at the same time and in the same amount as the
income recognized. Taxpayer may be entitled to
use the optional method of determining net earnings
from self-employment under section 1402(a)
and the retirement income credit under section 37.
Rev. Ruls. 56-496 and 63-66 modified. §§1.61-4,
1.162-12, 1.170A-1, 301.7805-1. (Secs. 61, 162,
170, 7805; ’86 Code.)
Rev. Rul. 75-11, 1975-1 C.B. 27.
278.70 Dealers reserves; withheld by finance
company. Credits to a dealers reserve by banks or
finance companies to cover possible losses on
notes purchased from dealers constitute income to
the dealers employing the accrual method of
accounting at the time such credits we made;
losses sustained by the dealers on such notes are to
be separately established. (Sec. 61, ’86 Code.)
Rev. Rul. 57–2, 1957–1 C.B. 17.
278.71 Dealers reserves; withheld by finance
company. A retail dealer on the accrual basis of
accounting who sells installment paper to a
finance company and a percentage of the sale price
is retained by the company in a dealer reserve
account as security for the dealer’s guarantor
liability receives income when the amounts
retained are recorded on the books of the finance
company as a liability to the dealer. §§29.41–1,
29.42-1, 39.41-1, 39.42-1, 1.446-1, 1.451-1.
(Secs. 41, 42, ’39 Code; Secs. 446, 451, ’86 Code.)
Hansen, 360 U.S. 466, Ct. D. 1838,1959-2 C.B.
460.
278.72 Deferred compensation; employeeemployer
agreement. Amounts payable to an
employee under a deferred compensation agreement
whereby the employee does not acquire a
present interest either in the amount credited to an
account or in an employer’s annuity contract used
as a funding method are not includable in his gross
income until actually received or otherwise made
available, whichever is earlier. §1.451–2. (Sec.
451, ’86 Code.)
Rev. Rul. 72-25, 1972-1 C.B. 127.
278.73 Deferred payment arrangement with
nonprofit corporation; physicians. A cash-basis
physician electing, under an agreement with a
nonprofit corporation insuring medical expenses
of subscribers, to defer compensation due from the
corporation for services rendered to patient-subscribers
must include such amounts in gross
income in the year withheld. Amplified by Rev.
Rul. 77-420. §1.451-2. (Sec. 451, ’86 Code.)
Rev. Rul. 69-50, 1969-1 C.B. 140.
278.74 Deferred payment arrangement with
nonprofit corporation; physician. The conclusion
of Rev. Rul. 69–50 which holds that a cashbasis
physician who enters into an agreement with
a nonprofit corporation insuring medical expenses
of its subscribers and elects to defer compensation
due from the corporation for services rendered to
patient-subscribers must include the deferred
amounts in gross income in the year withheld,
applies even if the agreement contains a substantial
forfeiture provision inuring to the corporation.
Rev. Rul. 69-50 amplified. §1.451-2. (Sec. 451,
’86 Code.)
Rev. Rul. 77-420, 1977-2 C.B. 172.
278.75 Deposit on purchase price of real
property. A nominal payment made, when a purchase
contract for real estate is signed, is treated as
a deposit on the purchase price of the property and
is taken into account in determining the character
and amount of income in the year the actual sale
is consummated. A.R.R. 13 and O. 988 superseded.
§1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 69-93, 1969–1 C.B. 139.
278.76 Discounted promissory note. A negotiable
promissory note, issued by a cash-method
client for deductible legal services and accepted as
payment for such services by a cash-method lawyer,
is includable in the lawyer’s income, to the
extent of its fair market value, in the year the lawyer
accepted the note as payment, and is deductible
by the client, in its face amount, in the year
payment is made to the bank. A.R.M. 201 superseded.
§§1.451–1, 1.461–1. (Secs. 451, 461; ’86
Code.)
Rev. Rul. 76-135, 1976-1 C.B. 114.
278.77 Disputed gift of income producing
property. Taxpayer authorized publication of a
manuscript received as a gift from an alien author
living in a country at war with the U.S. Due to a
dispute with the author’s agent in the U.S., the
publisher paid all royalties into an escrow except
for $12,000 which was paid to the taxpayer in the
issue year with the balance paid in a later year.
Held, in the issue year, only the $12,000 was taxable.
(Sec. 42(a), ’39 Code; Sec. 451, ’86 Code.)
Daniel M. Cory, 23 T.C. 775, Acq., 1975-2 C.B.
4.
278.78 Diversion payments; wheat stabilization
or feed grain programs. A cash-method taxpayer
who receives payments under the “1963
Gross income
Wheat Stabilization Program” or the “1963 Feed
Grain Program”, shall include the amounts of the
advance and final payments in gross income in the
taxable year received, or in the year the payments
are made available, whichever is earlier.
§1.451-2. (Sec. 451, ’86 Code.)
Rev. Rul. 65–97, 1965–1 C.B. 211; Rev. Rul.
65-98, 1965-1 C.B. 213.
278.79 Dividends; casualty insurance company;
accrual method. An accrual-method casualty
insurance company taxable under section 831
is not required to accrue at the end of its taxable
year and include in the computation of investment
income under section 832(b)(2) dividends that
have not been actually or constructively received.
§§1.301-1, 1.451-1, 1.832-4. (Secs. 301, 451,
832; ’86 Code.)
Rev. Rul. 78-117, 1978-1 C.B. 214.
278.80 Dividends on restricted stock;
employee compensation. Dividends paid on substantially
nonvested stock transferred to an
employee in connection with the performance of
services are treated as dividends and not as compensation
if the employee makes the election
under section 83(b). §1.83–2. (Sec. 83, ’86 Code.)
Rev. Rul. 83–22, 1983–1 C.B. 17.
278.81 Dividends on restricted stock;
employee compensation. Dividends received by
an employee on restricted stock that is not substantially
vested, for which the election under section
83(b) has been made, are reportable as dividend
income and not as compensation on the
employee’s income tax return. Rev. Proc. 80-11
distinguished. §§1.83-2, 1.116-1, 1.6042-2.
(Sec. 601.602, S.P.R.; Secs. 83, 116, 6042, ’86
Code.)
Rev. Proc. 83-38, 1983-1 C.B. 76.
278.82 Dividends; right to receive disputed;
accrual method. Pursuant to a compromise settlement
of a claim to dividends, the recipient of dividends
declared and paid the prior year, gave the
taxpayer half of the disputed amount. Held, the
settlement amount was taxable in the year of
settlement, not the prior year. (Sec. 42(a), ’39
Code; Sec. 451, ’86 Code.)
Distributors Finance Corp., 20 T.C. 768, Acq.,
1954-2 C.B. 4.
278.83 Domestic sale of “export” cotton. A
domestic accrual method cotton merchant who
sells, on the domestic market, “export” cotton
which he purchased from the Commodity Credit
Corporation under its cotton export program and
who has not fulfilled his obligation to export a like
quantity of such cotton at the close of the taxable
year of sale, must include the entire gain on such
sale in his gross income and may not offset such
unfulfilled export obligation against this gain as a
provisional purchase or a “hedge” in computing
his tax liability for the taxable year of sale.
§§1.446-1, 1.451-1. (Secs. 446, 451; ’86 Code.)
Rev. Rul. 60-24, 1960-1 C.B. 171.
278.84 Early salary payment; Federal
employee. A yearend salary payment for work
performed, received by a Federal employee before
the regularly scheduled payday in the employee’s
following taxable year, is subject to income tax
withholding and must be included in the
employee’s - gross income in the year received.
§1.61-1. (Secs. 61, 3122, 3401; ’86 Code.)
Rev. Rul. 75-478, 1975-2 C.B. 28.
278.85 Embezzled funds. Embezzled funds are
to be included in the gross income of the embezzler
in the taxable year in which the funds are misappropriated.
The Wilcox decision, 327 U.S. 404,
Ct. D. 1668, 1946-1 C.B. 6, overruled. However,
conviction of the taxpayer is reversed on the
ground that the element of willfulness could not
be proven so long as the statute had the gloss
placed upon it by the Wilcox decision at the time
the taxpayer embezzled the funds. §§39.22(a)–1,

Gross income
39.145-1, 1.61-1. (Secs. 22(a), 145, ’39 Code;
Secs. 61, 7201, ’86 Code.)
James, 366 U.S. 213, Ct. D. 1863, 1961-2 C.B.
9.
278.86 Embezzled funds. Embezzled funds are
to be included in the gross income of the embezzler
in the year in which the funds are embezzled.
James decision followed. G.C.M. 24945 revoked;
G.C.M. 16572 superseded. §§1.61-1, 1.451-1.
(Secs. 61, 451; ’86 Code.)
Rev. Rul. 61–185, 1961–2 C.B. 9.
278.87 Employee stock option. An employee
gave unconditional promissory notes for the
option price of stock and, in a subsequent year,
gave cash for the notes and received the stock.
Held, the option was exercised and compensation
received when the notes were given. (Sec. 22(a),
’39 Code; Sec. 61, ’86 Code.)
James S. Ogsbury, 28 T.C. 93, and Phillip J.
LoBue, 28 T.C. 1317, Acq., 1960-2 C.B. 6, 5.
278.88 Employee stock option; nonstatutory;
full payment or payroll deductions. Where an
employee has been granted a nonstatutory stock
option without a readily ascertainable fair market
value, and, upon exercising the option, elects to
pay for the stock through payroll deductions
although entitled to pay for it in full at any time, he
realizes compensation at the time the option is
exercised even though the shares are not transferred
to him until the option price is paid.
§1.421-6. (Sec. 421, ’86 Code.)
Rev. Rul. 66-346, 1966-2 C.B. 192.
278.89 Employee stock subscription agreement.
An employee is in receipt of income in 1968
when he enters into a subscription agreement in
that year obligating him to purchase, at less than
fair market value, stock of his employer over a
five-year period and giving him an unconditional
right to receive the stock. §1.61–2. (Sec. 61, ’86
Code.)
Rev. Rul. 71-34, 1971-1 C.B. 31.
278.90 Employer-provided outplacement
counseling. The Service has ruled on the income
tax and employment tax treatment in three situations
where an employer provides outplacement
services to its employees based on their individual
needs and each affected employee is seeking new
employment within the employee’s same trade or
business. §1.132-5. (Secs. 61, 125, 132, 451,
3121, 3306, 3401; ’86 Code.)
Rev. Rul. 92-69, 1992-2 C.B. 51.
278.91 Excessive salaries resulting in transferee
liability. The taxpayers were held taxable in
1945 for the full amount of salaries received as
officers of a corporation, despite the fact that subsequently
they paid corporate income taxes as
transferees, which taxes resulted from the disallowance
of a part of the salaries paid as being
unreasonable. The claim of right doctrine requires
that the full amount of compensation be treated as
income when received, with a deduction allowed
in the later year for the amount paid on the corporation’s
deficiency. §§29.42–1, 29.43–2. (Secs.
42, 43, ’39 Code; Secs. 451, 461, ’86 Code.)
Healy, 345 U.S. 278, Ct. D. 1756, 1953–1 C.B.
68.
278.92 Farmers; generic commodity certificates;
CCC loans. The tax consequences to farmers
are set forth in situations involving (1) the
receipt of generic commodity certificates, (2) the
pledging of grain to secure a loan from the Commodity
Credit Corporation and the termination of
that loan, (3) the use of the certificates to repurchase
the grain that was pledged, and (4) the subsequent
sale of the grain. §1.61–1. (Sec. 61, ’86
Code.)
Rev. Rul. 87–17, 1987-1 C.B. 20.
278.93 Federal employee; annual leave
repaid on re-employment. The gross income,
reported by a Federal employee who received a
lump-sum annual leave payment from one agency
and repaid a portion of it when re-employed by
another agency in the same taxable year, may be
adjusted to reflect the repayment and a copy of the
agency receipt for the repayment should be
attached to reconcile the amounts subject to withholding
shown on the Forms W-2. I.T. 3969 superseded.
§§1.61–1, 1.451–1. (Secs. 61, 451, 3401,
6051; ’86 Code.)
Rev. Rul. 75-531, 1975-2 C.B. 31.
278.94 Federal employee; sick leave buy
back. An explanation is presented of the treatment
of amounts received by a federal employee for
sick leave that were later repaid so that the recipient
could be placed in leave without pay status and
receive benefits under the Federal Employees
Compensation Act for that period. §§1.61-1,
l.104-1, 1.165-1, 1.451-1, 1.461-1, 1.1341-1.
(Secs. 61, 104, 165, 451, 461, 1341; ’86 Code.)
Rev. Rul. 79-322, 1979-2 C.B. 76.
278.95 Foreign currency acquired at illegal
exchange rates; gain on disposition. A U.S. citizen
working in a foreign country who exchanged
U.S. dollars for foreign currency at illegal
exchange rates and then exchanged the foreign
currency for Military Payment Certificates, for
personal use, having a dollar value greater than his
basis in the foreign currency, has realized gain that
must be reported for the taxable year in which the
foreign currency was disposed of. §1.61-1. (Sec.
61, ’86 Code.)
Rev. Rul. 75-477, 1975-2 C.B. 27.
278.96 Fruit purchase contracts; farmers.
Amounts received by a farmer, using the cash
method of accounting, under a “fruit purchase
contract” which provides for a fixed price (1) at
the time the contract is signed, (2) the time the fruit
is picked, or (3) at the time the fruit is delivered,
and under which the farmer receives part payment
at the time the contract is signed and the remainder
when the fruit is picked or delivered, are includable
in gross income for the taxable year received irrespective
of when the total price is fixed. Under the
accrual method of accounting, where a fixed price
is determined at the time the contract is signed, the
farmer must include in his gross income the total
price received that year, however, where the total
price is not determined until the fruit is picked or
delivered, he must include any partial payment in
the year received and the remaindering the year the
price is determined. §§1.61-4, 1.451-1. (Secs. 61,
451; ’86 Code.)
Rev. Ru. 69-358, 1969-1 C.B. 139.
278.97 Fruit purchase participation contracts;
farmers. Amounts received by a farmer
under the terms of a contract where the sales price
is determined at the time the fruit is delivered and
the farmer receives part of the price at time of harvest
and the remainder when the fruit is resold by
the purchaser, and which may involve advance
payments subject to interest, are includable in
gross income for the taxable year in which
received under the cash method of accounting.
Under the accrual method of accounting, such
amounts are includable in the year received or
determined, whichever is earlier. Any advance
payments received prior to resale of the fruit by the
purchaser merely represents a portion of the sales
price and is not a loan. §§1.61-4, 1.451–1. (Secs.
61, 451; ’86 Code.)
Rev. Rul. 69-359, 1969-1 C.B. 140.
278.98 Gambling revenue; credit customers.
A gambling casino that uses the accural method of
accounting must include in income the amount of
gambling revenue derived from customers who
gamble on credit for the tax year the gambling
obligations arise and the gambling occurs.
§§1.446-1, 1.451-1. (Secs. 446, 451; ’86 Code.)
Rev. Rul. 83-106, 1983-2 C.B. 77.
278.99 Gasoline tax credit; farmers. The
amount of credit allowable for gasoline used on a
farm for farming purposes after June 30, 1965,
should be included in the gross income of a cashbasis
farmer in the year in which he files a timely
income tax return on which the credit is taken. An
accrual-basis farmer should include the amount of
the credit in gross income in the taxable year in
which the gasoline is used. These rules are applicable
in determining net profit or loss for income
tax purposes and for determining net earnings for
self-employment tax purposes. §1.61-4, 1.451–1.
(Secs. 39, 61, 451; ’86 Code.)
Rev. Rul. 67-2, 1967-1 C.B. 13.
278.100 Government contract; termination;
time for reporting income. The position of the
Service regarding the time for reporting compensation
resulting from the termination of Government
contracts has not been changed by the
Apex Electrical Manufacturing Co. decision.
§39.42-1. (Sec. 42, ’39 Code; Sec. 451, ’86 Code.)
Rev. Rul. 55-205, 1955-1 C.B. 325.
278.101 Improper accounting for installment
sales. Taxpayer consistently reported income in
full from installment sales in the year the last
installment was received. The Commissioner
assessed tax on gain from sales made in the audit
year but left undisturbed the gain reported currently
from prior years. Held, income attributable
to prior years was not includible in current gross
income despite the taxpayer’s consistent erroneous
method of accounting. (Sec. 42(a), ’39
Code; Sec. 451, ’86 Code.)
John W. Commons, 20 T.C. 900, Acq., 1954-1
C.B. 4.
278.102 Incentive per diem charges; use
restricted by I.C.C.; railroads. Incentive per
diem charges received by a railroad corporation
under I.C.C. regulations for the use of general service
unequipped boxcars, the use of the charges
being restricted to the purchase, building, or
rebuilding of such boxcars, are not excludable
from gross income under section 118, but are
includible in the year earned or received, whichever
is earlier. §§1.61–1, 1.451–1. (Secs. 61, 451;
’86 Code.)
Rev. Rul. 73-566, 1973-2 C.B. 152.
278.103 Income from face-amount certificates;
cash-method certificate holder. Amounts
credited to certificate reserves for outstanding
face-amount certificates are not includible in the
gross income of a cash-method certificate holder
prior to the surrender, redemption, or maturity of
the certificate. The investment company issuing
face-amount certificates must provide information
of Forms 1096 and 1099 for the calendar year
in which the certificates mature or are surrendered
or redeemed. §§1.72–11, 1.6049-1. (Secs. 72,
6049; ’86 Code.)
Rev. Rul. 64-215, 1964-2 C.B. 19.
278.104 Income from life insurance policy
transferred to charity. The taxpayer transferred
an endowment policy on his life to a charitable
organization which paid him the amount of his
basis therein. In a subsequent year, the organization
collected the maturity value of the policy.
Held, the amount by which the value of the policy
exceeded the taxpayer’s basis was taxable as
income in the year the proceeds were received by
the organization, not in the year of transfer. (Sec.
72, ’86 Code.)
S.M. Friedman, 41 T.C. 428, Acq., 1964-2 C.B.
5.
278.105 Increment in value; growth savings
certificates. The increment in value of growth
savings certificates issued by a bank shall be
included in the gross income of a taxpayer

employing the cash receipts and disbursements
method of accounting in each taxable year in
which the increase occurs, since the taxpayer (certificate
holder) has a right to redeem the certificate
in such taxable year. Rev. Rul. 57-452 revoked.
§1.451-2. (Sec. 451, ’86 Code.)
Rev. Rul. 66-44, 1966-1 C.B. 94.
278.106 Installment bonus contracts; oil and
gas leases. Cash-method taxpayers who receive
an installment bonus contract as consideration for
an oil or gas lease must include its value in gross
income for the year in which the lease is executed
if the obligation is transferable and readily saleable.
§§1.61–1, 1.446-1, 1.451–1. (Secs. 61, 446,
451; ’86 Code.)
Rev. Rul. 68-606, 1968-2 C.B. 42.
278.107 Installment obligations assigned as
collateral security for loan. The assignment of an
installment obligation as collateral security for a
loan in an amount substantially equal to the face
amount of such obligation is considered to be a
“disposition” of such obligation within the meaning
of section 453(d) of the Code. §1.453–9. (Sec.
453, ’86 Code.)
Rev. Rul. 65-185, 1965-2 C.B. 153.
278.108 Installments on corporation training
program contract; two-year period. Installments
received by a calendar year accrual basis
corporation pursuant to a contract with the Department
of Labor to hire and train underemployed
low-income persons in its construction business
over a two-year period must be included in income
in the year received. §1.451–1. (Sec. 451, ’86
Code.)
Rev. Rul. 72-207, 1972–1 C.B. 126.
278.109 Installments on promissory note. All
the corporate stock and the purchaser’s downpayment
and promissory note in payment of the stock
were placed in escrow in 1948 with the same
escrow agent who, in 1948 and 1949 received payments
on the note and distributed them to the sellers.
Held, the fair market value of the note was not
includable in gross income in 1948 but the payments
were includible as received. (Sec. 42(a), ’39
Code; Sec. 451, ’86 Code.)
Virginia W. Stettinius Dudley, 32 T.C. 564,
Acq., 1959-2 C.B. 4.
278.110 Insurance proceeds received as a
result of arson. Insurance proceeds received by a
taxpayer who pays a third party to burn down the
taxpayer’s building represents gain includable as
ordinary income in the taxpayer’s gross income.
Other federal income tax consequences resulting
from discovery of the arson and repayment of the
insurance proceeds in the following tax year are
also discussed. §1.61–14, 1.162–18, 1.165–1,
1.212–1, 1.1001-1, 1. 033(a)-2, 1.1231-1. (Secs.
61, 162, 165, 212, 1001, 1033, 1231; ’86 Code.)
Rev. Rul. 82-74, 1982-1 C.B. 110.
278.111 Interest; attorney’s trust account.
Interest earned on clients’ nominal and short-term
advances deposited in an attorney’s trust account
and paid over to a bar foundation, pursuant to a
program established by the Supreme Court of
State X, is not includable in the gross incomes of
the clients. §1.61–7. (Sec. 61, ’86 Code.)
Rev. Rul. 81-209, 1981-2 C.B. 16.
278.112 Interest; attorney’s trust account. A
Lawyer Trust Account Fund created, supervised
and controlled by a state Supreme Court is not subject
to federal income tax. Interest income that is
earned on pooled accounts containing clients’
nominal and short-term funds held by lawyers and
paid over to the Fund pursuant to an order of the
state Supreme Court is not includible in the gross
incomes of either the clients or lawyers. Rev. Rul.
81-209 amplified. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 87-2, 1987-1 C.B. 18.
278.113 Interest; collected in advance; insurance
company. Interest collected in advance on
an annual basis by an insurance company on outstanding
loans constitutes taxable income in the
year received, even though such company
employs the accrual method of accounting, and is
required by state authorities to report only the
interest earned as income and to set up reserves for
unearned interest. §§39.201–7, 1.803-4. (Sec.
201(c), ’39 Code; Sec. 803, ’86 Code.)
Rev. Rul. 58-225, 1958-1 C.B. 258.
278.114 Interest; escrowed funds held by
bank. A bank appointed escrowee of wrongful
death action proceeds without the ordinary duties
of a trustee or fiduciary is not required to file a
fiduciary return, Form 1041, reporting interest on
the escrowed funds pending the court’s determination
of proper distribution; interest is taxable to the
distributes in the year of determination.
§§1.451-1, 1.641(b)-2, 1.6012-3, 301.7701-6.
(Secs. 451, 641, 6012, 7701; ’86 Code.)
Rev. Rul. 70-567, 1970-2 C.B. 133.
278.115 Interest; Graduated Payment Mortgages.
The proper method is discussed for reporting
interest income by mortgagees and interest
deductions by mortgagors under Graduated Payment
Mortgage Plans implemented by the Department
of Housing and Urban Development.
§§1.61-1, 1.163-1, 1.446-1, 1.451-1, 1.461-1.
(Secs. 61, 163, 446, 451, 461; ’86 Code.)
Rev. Rul. 77-135, 1977-1 C.B. 133.
278.116 Interest; injury settlement deposited
for minor. A court-approved settlement of a
minor’s personal injury suit, paid into the registry
of the court for the benefit of the minor, is excludable
from the minor’s gross income under section
104(a)(2). However, interest on the court-ordered
investment of the funds in the name of the minor
in five-year certificates of deposit, the terms of
which prohibit withdrawal of principal or interest
prior to maturity, is subject to the ratable inclusion
rules of section 1232(a)(3). §§1.61–7, §1.104-1,
1.451-1, 1.1232-1. (Secs. 61, 104, 451, 1232; ’86
Code.)
Rev. Rul. 76-133, 1976-1 C.B. 34.
278.117 Interest; installment loans; accounting
method; Rule of 78’s. A permissible method
of accounting is set forth for interest on short-term
consumer loans when the terms of the indebtedness
state that interest is earned in accordance with
the Rule of 78’s. §§1.163-1, 1.451–1, 1.461–1.
(Sec. 601.204, S.P.R.; Secs. 163, 451, 461, ’86
Code.)
Rev. Proc. 83-40, 1983-1 C.B. 774.
278.118 Interest; installment loans; accounting
method; Rule of 78’s. Even though a loan
agreement provides that interest shall be earned in
accordance with the Rule of 78’s, no deduction for
interest will be allowed for any year in excess of
the economic accrual of interest. Rev. Ruls.
72-100 and 72–562 modified and superseded;
Rev. Ruls. 74–395 and 79–228 modified; Rev.
Rul. 74-607 clarified. §§1.163-1, 1.446-1,
1.451-1, 1.461-1. (Secs. 163, 446, 451, 461; ’86
Code.)
Rev. Rul. 83-84, 1983-1 C.B. 97.
278.119 Interest; installment loans; actuarial
method. The actuarial method of accounting for
income from interest on installment loans qualifies
as a permissible method of accounting within
the meaning of section 446, and a financial institution
will be permitted to change to such method.
Modified by Rev. Rul. 83–84. §1.446–1. (Sec.
446, ’86 Code.)
Rev. Rul. 79-228, 1979-2 C.B. 200.
278.120 Interest; reverse mortgage loan.
Interest on a “reverse mortgage loan” that is
added monthly to the outstanding loan balance as
it accrues is neither includable in a cash method
Gross income
lender’s gross income nor deductible by a cash
method borrower at the time it is added. §§1 .61–7,
1.163-1, 1.451-2, 1.461-1. (Secs. 61, 163, 451,
461; ’86 Code.)
Rev. Rul. 80-248, 1980-2 C.B. 164.
278.121 Interest; six-month money market
certificate “rolled over” into an All-Savers
Certificate. A taxpayer using the cash receipts
and disbursements method of accounting must
include interest income earned on a six-month
money market certificate in gross income in the
year the principal and interest are “rolled over”
into an “All-Savers Certificate.” Rev. Ruls.
80-157 and 81-218 amplified. §§1.451-1,
5c.128-1. (Secs. 128, 451; ’86 Code.)
Rev. Rul. 82-42, 1982-1 C.B. 77.
278.122 Interest; Uniformed Services Savings
Deposits Program. Section 1232(a)(3), as
amended by Pub.L. 91-172, does not apply to
interest earned on savings accounts established by
servicemen under section 1035, title 10, U.S.
Code. The interest is includable in servicemen’s
gross income when actually received or made
available in accordance with Rev. Rul. 67-450.
§§1.451-2, 1.1232-3A. (Secs. 451, 1232; ’86
Code.)
Rev. Rul. 72-516, 1972-2 C.B. 487.
278.123 Interest; Uniformed Services Savings
Deposits Program. Interest on a Uniformed
Services Savings Deposits Program account with
a balance of less than $10,000 is subject to substantial
restrictions on withdrawal and is not
includible in gross income until actually received
or made available to the serviceman, whichever is
earlier; interest on an account that has reached and
maintained a balance of $10,000 may be withdrawn
quarterly and is includable in gross income.
Rev. Rul. 67-450 modified. §1.451-2. (Sec. 451,
’86 Code.)
Rev. Rul. 74-37, 1974-1 C.B. 112.
278.124 Interest; Uniformed Services Savings
Deposits Program. Interest on the savings
account of a serviceman under the provisions of
section 1035, title 10, U.S.C., as amended by Pub.
L. 89-538, is includable in his gross income in the
taxable year such interest is actually received or
made available to him, whichever is earlier. Modified
by Rev. Rul. 74-37. §§1.61-1, 1.451-1.
(Secs. 61, 451; ’86 Code.)
Rev. Rul. 67-450, 1967–2 C.B. 174.
278.125 Interest in real property; fee for legal
services. In 1937 the client agreed to convey, as
compensation for past and future services, an
interest in property to an attorney who initiated
legal action to restore legal title of said property in
the client. Oil was discovered on the land in 1939;
the royalties were held in escrow pending clarification
of title; and in 1944 the State court found for
the client who then delivered a “Confirmation
Deed” to the attorney and a portion of the royalties
were delivered to him. Held, attorney acquired his
interest in 1937 and was not required to include the
value thereof in gross income for 1944. (Sec.
42(a), ’39 Code; Sec. 451, ’86 Code.)
Thomas W. Blake, Jr., 20 T.C. 721, Acq.,
1954-2 C.B. 3.
278.126 Interest offset to stockholder’s commission.
Amounts that are computed at the prevailing
prime rate of interest on money deposited
with a stockbroker by an investor, that are credited
on the broker’s books, and that may be used only
to offset commissions payable to the broker on
subsequent stock transactions are includable in the
gross incomes of the investor as interest and of the
broker as compensation when so used. §1.61-1.
(Sec. 61, ’86 Code.)
Rev. Rul. 79-247, 1979-2 C.B. 24.
278.127 Interest on overpayments; accrual
method taxpayer. Interest on a tax refund or
credit to an accrual method taxpayer must be

Gross income
accrued as income when the right to receive the
refund or credit is determined, generally the date
on which the overassessment allowance in respect
of the tax is first certified. Specific exemptions are
set forth. §1.451–1. (Secs. 42(a), 3771(a), ’39
Code; Secs. 451, 6611, ’86 Code.)
Rev. Rul. 62–160, 1962–2 C.B. 139; Household
Products, Inc., 24 B.T.A. 594, Pacific Coast Biscuit
Co., 32 B.T.A. 39, Acqs., 1962–2 C.B. 4, 5.
278.128 Interest on postal savings deposits.
Interest on U.S. postal savings deposits made on or
after March 1, 1941, by a cash method taxpayer is
includible in his gross income in the taxable year
it is actually received or available for withdrawal.
§§1.61-7, 1.451-2. (Secs. 61, 451; ’86 Code.)
Rev. Rul. 63-126, 1963-2 C.B. 197.
278.129 Interest on U.S. securities; incorrect
checks replaced in following year. A cashmethod,
calendar-year taxpayer, who should have
received two checks in equal amounts in 1971 for
interest on U.S. securities, instead received one
check for less and the other for more than the correct
amount. He was requested to return the larger
check, retain the smaller one, and file a claim for
the underpayment, but he elected to return both
checks and received two checks in the correct
amounts in 1972. Held, taxpayer constructively
received, and must include in his 1971 income, the
amount shown on the check he was asked to retain;
the remainder of the interest involved is includable
in 1972. §1.451–2. (Sec. 451, ’86 Code.)
Rev. Rul. 73-486, 1973-2 C.B. 153.
278.130 Irish Sweepstakes; minor’s winnings
held by Irish court. Irish Sweepstakes winnings
of a minor which must be held by the Irish court
until his majority are included in his gross income
in the year the funds are paid over to the court.
§§1.74-1, 1.451-1. (Secs. 74, 451; ’86 Code.)
Rev. Rul. 67-203, 1967–1 C.B. 105.
278.131 Issuance of emission allowances.
Gross income does not include the issuance of an
emission allowance by the Environmental Protection
Agency pursuant to 42 U.S.C. section
7651b(a). §§1.61-1, 1.1012-1. (Secs. 61, 1012;
’86 Code.)
Rev. Rul. 92–16, 1992–1 C.B. 15.
278.132 Judgment award; breach of contract.
A judgment award for breach of contract
that is payable by the U.S. must be included in the
gross income of an accrual basis taxpayer in the
year the judgment becomes final even though payment
is dependent upon a Congressional appropriation
in a subsequent year. I.T. 3165 superseded.
§1.451-1. (Sec. 451, ’86 Code.)
Rev. Rul. 70-151, 1970-1 C.B. 116.
278.133 Liquidating trust distributions. Ordinary
income or capital gain realized by a liquidating
trust currently distributed to a beneficiary, is
includable in the gross income of the recipient for
his taxable year in which or with which the taxable
year of the trust ends. Capital gain realized by the
trustee on sale of the trust property, which is distributed
to the beneficiary, would also be capital
gain in the hands of the certificate holders. Gain or
loss is also realized by the certificate holders with
respect to distribution of trust principal other than
proceeds of capital gain measured with respect to
the certificate holder’s basis in his trust certificate,
and constitutes ordinary income or loss.
§39.162-1. (Sec. 162, ’39 Code; Sec. 641, ’86
Code.)
Rev. Rul. 56-78, 1956-1 C.B. 648.
278.134 Loan fee income; savings and loan
association. Fees received on loans by a cash basis
savings and loan association at the time the loan is
made are includible in gross income in the year
received. The fact that the Federal Home Loan
Bank Board requires that a portion of the fees be
credited to a deferred account and taken into
income proportionately over a period of years is
not controlling for income tax purposes.
§1.451-1. (Sec. 451, ’86 Code.)
Rev. Rul. 68–220, 1968-1 C.B. 194.
278.135 Lump-sum payment in cancellation
of agreement. The lump-sum payment received
by an employee as consideration for the cancellation
of his employment contract constitutes gross
income to the recipient in the taxable year of
receipt. However, such amount does not constitute
“wages” for employment tax purposes. Distinguished
by Rev. Rul. 75-44.§§1.61-1, 1.451-1.
(Secs. 61, 451; ’86 Code.)
Rev. Rul. 58-301, 1958–1 C.B. 23.
278.136 Lump-sum payment in relinquishment
of seniority rights. A lump-sum payment
received by a railroad employee as consideration
for relinquishing employment seniority rights is
ordinary income in the taxable year of receipt and
the payment constitutes compensation for purposes
of the RRTA and is wages for purposes of
income tax withholding. Rev. Rul. 58–301 distinguished
and Rev. Rul. 59-227 superseded.
§§1.61-1, 1.1221-1, 1.1222-1, 301.7805-1.
(Secs. 61, 1221, 1222, 3231, 3401, 7805; ’86
Code.)
Rev. Rul. 75-44, 1975-1 C.B. 15.
278.137 Lump-sum payment to Civil Service
retiree. That part of a lump-sum payment from the
United States Civil Service Retirement and Disability
Fund representing the monthly benefits
which accrued to a retired Civil Service employee
between the date of his retirement and the time he
filed a claim five years later, that exceeds his contribution
to the fund, is includable in his gross
income in the taxable year received. §§1.72–13,
1.402(a)-1, 1.1301-1. (Secs. 72, 402, 1301; ’86
Code.)
Rev. Rul. 68-486, 1968–2 C.B. 184.
278.138 Management fees deferred. An
accrual method taxpayer entered into a management
contract with a business that later encountered
financial difficulty and the bank, as a condition
to granting a loan, required the taxpayer to
waive its right to the management fees as long as
the business was indebted to the bank. Held, the
agreement by the taxpayer was a modification of
the contract which made the receipt of the fee so
uncertain that no income was accruable in the
issue year. (Sec. 451, ’86 Code.)
Commercial Solvents Corp., 42 T.C. 455, Acq.,
1965-1 C.B. 4.
278.139 Medicaid; accrual-basis nursing
home; year-end adjustment. An accrual-basis
nursing home must report the actual amount of
readily calculable year-end adjustments with
respect to income earned for services rendered
during the taxable year to Medicaid patients in the
taxable year the services are performed.
§§1.451-1, 1.461-1. (Secs. 451, 461; ’86 Code.)
Rev. Rul. 81-176, 1981-2 C.B. 112.
278.140 Medicare; current financing payments.
Current financing payments received
under the Medicare program by providers of services
are payments for services rendered, includable
in income of cash method taxpayers for the
taxable year received and treated as payments on
accounts receivable by accrual method taxpayers.
§§1.61-1, 1.451-1. (Secs. 61, 451; ’86 Code.)
Rev. Rul. 72–22, 1972-1 C.B. 21.
278.141 Membership fees; subject to refund.
Membership fees received by a taxpayer-swimming
club, organized for profit, are includible in
income for the taxable year in which received or
accrued, depending upon the taxpayer’s method of
accounting, even though subsequently it may be
required to refund portions of such fees. Rev. Rul.
58–17 distinguished. §§1.451–1, 1.461–1. (Secs.
451, 461; ’86 Code.)
Rev. Rul. 66-347, 1966-2 C.B. 196.
278.142 Mineral production payments;
“take or pay” gas purchase contract. Payments
received for gas that is to be taken in the future
under a “take or pay” gas purchase contract are
not mineral Production payments and are includible
in gross income. §§1.451–1, 1.636-1. (Secs.
451, 636; ’86 Code.)
Rev. Rul. 80-48, 1980-1 C.B. 99.
278.143 Mineral production payments;
“take or pay” gas purchases contracts; inclusion;
deficiency takings. The deficiency taking
amount in a “take or pay” gas purchase contract
determined at December 31, the last day of the
contract year, must be included in the taxpayer’s
gross income for its tax year ended June 30, the tax
year in which the amount of the deficiency taking
became fixed and determinable. §1.451-1. (Sec.
451, ’86 Code.)
Rev. Rul. 84-31, 1984-1 C.B. 127.
278.144 Mortgage service fees. A mortgage
service fee may be averaged over the life of the
mortgage but is includable in gross income for the
taxable year in which received even though the
accounts are kept on an accrual basis and the
amount received diminishes each year. I.T. 3496
superseded. §§1.446-1, 1.451-1. (Secs. 446, 451;
’86 Code.)
Rev. Rul. 70-142, 1970-1 C.B. 115.
278.145 Note; consolidation of prior obligations.
Taxpayer, on the cash basis of accounting,
accepted a note given by the maker to consolidate
all the maker’s obligations to taxpayer, which
included accrued interest and bills for livestock
feed. Held, in the absence of a determination that
the note was the equivalent of cash or was given
or accepted as payment, the note was not income
in the year it was received. (Sec. 42(a), ’39 Code;
Sec. 451, ’86 Code.)
Joe W. Scales, 18 T.C. 1263, Acq., 1954-2 C.B.
5.
278.146 Operating interest in oil and gas
property; received for drilling well. The proper
treatment is shown for an arrangement under
which, in consideration for drilling an oil and gas
well at a designated location on a leased tract of
land, the driller receives from the lessee of the land
an assignment of the entire working interest in the
drill site and an undivided fraction of the working
interest in the remainder of the tract. §§1.61–2;
1.263(c)-1, 1.451-1, 1.612-4, 1.614-1,
1.1001-1, 301.7805-1. (Secs. 61, 263, 451, 612,
614, 1001, 7805; ’86 Code.)
Rev. Rul. 77-176, 1977-1 C.B. 77.
278.147 Original issue discount; ratable
inclusion of interest on church bonds. The ratable
inclusion rules of section 1232(a)(3) apply to
interest earned on a nonprofit corporate church’s
10-year bonds issued at par, bearing annual interest
of 7 percent compounded semiannually, and
payable only at the maturity of the bonds.
§1.1232-3A. (Sec. 1232, ’86 Code.)
Rev. Rul. 75-112, 1975-1 C.B. 274.
278.148 Overplus held by Commodity Credit
Corporation. A farmers’ cooperative does not
have a claim of right to any part of the one-half of
the “overplus” held as collateral security retained
by the Commodity Credit Corporation from the
sale of a crop until the excess over the outstanding
indebtedness can be determined. Such amount
constitutes gross income to the cooperative in the
year received. §1.77-2. (Secs. 61, 77; ’86 Code.)
Rev. Rul. 57–358, 1957-2 C.B. 42.
278.149 Partner; receipt of guaranteed payment;
capitalized by partnership. A guaranteed
payment that is received by a partner as a finders
fee is includible in the partner’s gross income in

the year of receipt, even though the partnership
must capitalize and amortize the expense.
§1.707-1. (Sec. 707, ’86 Code.)
Rev. Rul 80-234, 1980-2 C.B. 203.
278.150 Pay; Coast Guard Academy cadet.
The statutory pay of a cadet of the United States
Coast Guard Academy is includible in his gross
income and subject to withholding of income tax
in the year it is received by the Superintendent, or
a subordinate, as his agent. Expenditures made on
the cadet’s behalf for insignia, shoulder boards,
and similar items are deductible in computing taxable
income, but not the cost of text books, supplies,
and uniforms. §§1.61–2, 1.117-4, 1.162–5,
1.262-1. (Secs. 61, 117, 162, 262; ’86 Code.)
Rev. Rul. 62-122, 1962-2 C.B. 12.
278.151 Payment to security fund; reimbursement
for insurance costs. The initial
deposit made by a transit authority to an independent
security fund set up to reimburse an accrual
method railroad for future increases in the railroad’s
liability insurance premiums that result
from the transit authority’s use of rail road property
is not income to the railroad. §§1.61–14, 1.451–1.
(Secs. 61, 451; ’86 Code.)
Rev. Rul. 79-266, 1979-2 C.B. 203.
278.152 Payments to escrow account; sale of
property owned by incompetent. A guardian
negotiated the sale, with the necessary State court
approval, of property owned by an incompetent.
The terms of sale called for the proceeds, less the
down payment, to be placed into an irrevocable
escrow account and paid to the incompetent in
later years. The transaction was an installment
sale, and the proceeds were not taxable until actually
received by the incompetent. Interest credited
to the escrow account was not taxable until
received by the incompetent. (Sec. 451, ’86 Code.)
Nannie Carr Harris, 56 T.C. 1165, Nonacq.,
1978-2 C.B. 3.
278.153 Pension plan funded by insurance on
employee’s life. Where the employer is the sole
beneficiary under an insurance contract purchased
to insure the payment of pension obligations, the
employee is not in receipt of income at the time the
employer entered into the insurance contract since
the transaction did not produce a present economic
benefit to the employee. The amounts paid by the
employer will be includable in the employee’s
gross income in the taxable year received or otherwise
made available. §1.451–1. (Sec. 451, ’86
Code.)
Rev. Rul. 68-99, 1968-1 C.B. 193.
278.154 Points, commitment and service fees;
lending institutions. Examples illustrate the rule
for determining the taxable year in which lending
institutions should include in their income
the “points”, “commitment fees”, and “service
fees” charged by them in connection with real
estate mortgage loans. Amplified by Rev. Rul.
74-607. §1.451-1. (Sec. 451, ’86 Code.)
Rev. Rul. 70-540, 1970-2 C.B. 101.
278.155 Points; construction and development
loans; accrual-method lender. Points representing
interest in construction loans received
by an accrual-method taxpayer engaged in making
such loans, either discounted from the loan proceeds
with no rebate for prepayment or repaid at
the end of the loan, are includable in gross income
ratably on a straight-line basis over the life of the
loan unless they are received or become due earlier.
Rev. Rul. 72–100 clarified and Rev. Rul.
70-540 amplified. Clarified by Rev. Rul. 83-84.
§1.451-1. (Sec. 451, ’86 Code.)
Rev. Rul. 74-607, 1974-2 C.B. 149.
278.156 Postponement of corporate bond
interest payments. An accrual method taxpayer
holding a corporation’s interest bearing debentures
agreed to let the corporation postpone interest
payments until it had fully repaid a Reconstruction
Finance Corporation loan. Held, the
taxpayer’s right to interest was contingent upon
payment of the RFC loan; therefore, the postponed
interest was not includible in taxpayer’s gross
income. (Sec. 451, ’86 Code.)
Standard Lumber Co., 35 T.C. 192, Acq.,
1961-1 C.B. 4.
278.157 Pre-need funeral contracts; payments
held in trust. A funeral home collected
funds for pre-need funeral arrangements under a
contract which provided that the funds were to be
deposited and held in trust; use of the funds was
restricted for the benefit of the customers; the
funeral home was entitled to the interest earned on
the deposits. Held, payments from customers were
not income when received. (Sec. 451, ’86 Code.)
Angelus Funeral Home, 47 T.C. 391, Acq.,
1969-2 C.B. 20.
278.158 Prepaid fees; dance studio. A dance
studio on the accrual-method of accounting must
include in income for a particular year the advance
payments received by way of cash and negotiable
notes, plus contract installments becoming due
and payable during that year. The studio’s method
of deferring such payments until the lessons were
taught or forfeited, or the contract lapsed, does not
clearly reflect income. §39.41-1, 1.446-1. (Sec.
41, ’39 Code; Sec. 446, ’86 Code.)
Schlude, 372 U.S. 128, Ct. D. 1879, 1963-1
C.B. 99.
278.159 Promissory note exchanged for
series of notes; recovery of cost. Purchasers of an
insolvent corporation’s overdue note were each
issued twenty notes, each new note in the terms of
the original note. Each purchaser turned in a randomly
chosen note as the debtor paid one-twentieth
of the indebtedness. Held, the notes did not
represent dividend interests in the original debt,
and purchasers were not required to allocate cost
basis to the twenty notes or report income until the
cost basis in the original indebtedness was recovered.
(Sec. 117(f), ’39 Code; Sec. 1232, ’86 Code.)
Webster Atwell, 17 T.C. 1374, Acq., 1954-1
C.B. 3.
278.160 Property exchanged for annuity contract.
Gain realized on the transfer of property by
an individual to an organization, such as a corporation,
trust, fund, or foundation (other than a commercial
insurance company) which from time to
time issues annuity contracts, for a lifetime annuity
is taxable in the year of the exchange to the
extent that the value of the contract exceeds the
basis of the property transferred. If the property
transferred is a capital asset in the hands of the
transferor, the gain will be capital gain. An annuity
rate table is provided in Rev. Rul. 62–137 for use
in valuing such contracts; supplemented by Rev.
Rul. 62–216 to provide additional tables; clarified
by Rev. Rul. 67–39 to provide that the additional
tables are to be used for estate and gift tax purposes;
amplified by Rev. Rul. 72-438 to add tables
to be used in the evaluation of certain types of deferred
payment annuity contracts. §§1.61–1,
1.72-1, 1.451-1. (Secs. 61, 72, 451; ’86 Code.)
Rev. Rul. 62-136, 1962-2 C.B. 12; Rev. Rul.
62-137, 1962-2 C.B. 28; Rev. Rul. 62-216,
1962-2 C.B. 30.
278.161 Public utilities; excess revenues collected.
Revenues of a utility company in excess of
approved rates during a period of rate dispute
between the company and the regulatory authority
are taxable income when received, even though
the excess is in a restricted bank account.
§39.22(a)-1. (Sec. 22(a), ’39 Code; Sec. 61, ’86
Code.)
Rev. Rul. 55–137, 1955–1 C.B. 215; Brooklyn
Union Gas Co., 22 B.T.A. 507, Acq., 1955-1 C.B.
4.
Gross income
278.162 Public utilities; fuel adjustment
charges. A public utility that uses the accrual
method of accounting is authorized to include fuel
adjustment charges in its customer’s bills for natural
gas. The charges may be adjusted every six
months and are based on estimated sales for the
period they are in effect, but they are intended to
recover the increased fuel costs for the preceding
six-month period. The utility must include the fuel
adjustment charges in gross income as part of the
selling price of gas sold during the period the
charges are in effect. §1.451–1. (Sec. 451, ’86
Code.)
Rev. Rul. 80-308, 1980–2 C.B. 162.
278.163 Readjustment or lump-sum severance
payments; Armed Forces. Readjustment
payments received by members of a reserve component
of the Armed Forces involuntarily released
from active duty and lump-sum severance payments
received by commissioned officers are
includable in gross income in the year received;
however, income averaging may be applicable to
payments received after 1963. If members of a
reserve component later qualify for retirement
pay, such pay must be reduced by 75 percent of the
readjustment payments previously received and
the remainder is includable in gross income.
§§1.61-1, 1.1301-1. (Secs. 61, 1301; ’86 Code.)
Rev. Rul. 58-496, 1958–2 C.B. 20; Rev. Rul.
67-350, 1967-2 C.B. 58.
278.164 Real property sold; additional rentals
received. Additional calendar year rent based
on gross receipts, partially determinable at the
time the property was sold by the fiscal year
accrual method seller, was required under the sale
contract to be collected by the buyer and shared
with the seller in proportion to the months each
owned the property during the calendar year. Held,
the additional rent was not part of the sale price
and the seller must report it as ordinary income.
The amount determinable in the fiscal year of the
sale must be reported by the seller in that year and
the remainder in the following year. §§1.61-8,
1.451-1, 1.1001-1. (Secs. 61, 451, 1001; ’86
Code.)
Rev. Rul. 73–276, 1973–1 C.B. 210.
278.165 Real property tax rebated; California.
Illustrative situations are set forth relative to
the tax treatment of rebates of the California real
property tax on personal residences for the fiscal
year 1968-69 as a result of the November 5, 1968,
amendment of section 1(d), article XIII, to the
California Constitution. §§1.61-1, 1.111-1,
1.164-1. (Secs. 61, 111, 164; ’86 Code.)
Rev. Rul. 70-86, 1970-1 C.B. 23.
278.166 Real property taxes paid as additional
rent to lessor. An accrual-method lessee
who is obligated to pay as additional rent the real
estate taxes on the leased property which accrue
on January 1, but become due and payable on June
1 of the following year when the tax bills are
issued to the lessor, may not accrue the taxes as an
additional rent deduction until June 1 of the year
they become payable. The accrual-method lessor
may deduct the real estate taxes on January 1 and
include them in income on June 1 when they
become due and payable by the lessee. Clarified
and distinguished by Rev. Rul. 76-474.
§§1.162-11, 1.446-1, 1.451-1, 1.461-1. (Secs.
162, 446, 451, 461; ’86 Code.)
Rev. Rul. 74-244, 1974-1 C.B. 118.
278.167 Real property taxes paid as additional
rent to lessor. An accrual-method lessee
who is obligated on January 1 to pay as additional
rent the real estate taxes on the leased property
which accrue on that date, but become payable on
June 1 of the following year when the tax bills are
issued to the lessor, may accrue and deduct the
taxes as additional rent on January 1. Rev. Rul.
74-244 clarified and distinguished. §§1.162-11,
1.461-1. (Secs. 162, 461; ’86 Code.)
Rev. Rul. 76-474, 1976-2 C.B. 135.

Gross income
278.168 Rent based on lessee’s sales. An
accrual method corporation leased a plant to its
shareholder president who was to pay one-half the
plant’s yearly net income as rent. Commissioner
determined the lessee failed to report substantial
amounts of income. Held, the unreported income
was not accruable by the corporation which
reported as income the amounts submitted by the
lessee and had no knowledge of any additional
rent due. (Secs. 22(a), 42, ’39 Code; Secs. 61, 451,
’86 Code.)
Camilla Cotton Oil Co., 31 T.C. 560, Acq.,
1959-1 C.B. 3.
278.169 Restricted savings account. A cash
basis taxpayer received, as part of the property’s
sales price, a restricted savings account from
which limited amounts could be withdrawn only
as the purchaser made mortgage payments. Held,
the face amount of the restricted savings account
is not required to be included in gross income
when received but amounts are includable when
they can be withdrawn. (Secs. 61, 1001; ’86
Code.)
Western Oaks Bldg. Corp., 49 T.C. 365, Nonacq.,
1968–2 C.B. 3.
278.170 Restricted stock exchanged in reorganization.
Compensation is realized by an
employee when stock, subject to restrictions having
a significant effect on its value, is exchanged
for nonrestricted stock of the acquiring corporation
in a reorganization described in section
368(a)(1)(A) of the Code, notwithstanding the
fact, that section 354 applies to the plan of reorganization.
§§1.61–2, 1.354–1, 1.421–6. (Secs. 61,
354, 421; ’86 Code.)
Rev. Rul. 68-473, 1968-2 C.B. 191.
278.171 Retainages under Government contract;
boat builder. An accrual-basis builder of
small boats under a Government contract is not
required to include in income the 40 percent retainage
applicable to each boat until final acceptance
of each boat and is not required to include in
income the remaining 60 percent of the retainage
until final acceptance of all boats specified in the
particular contract. §§1.446-1, 1.451–1. (Secs.
446, 451; ’86 Code.)
Rev. Rul. 69-314, 1969–1 C.B. 139.
278.172 Retained portion of construction
contract price. The portion of a contract price
withheld pending final acceptance and completion
of construction work performed by a cash-method
taxpayer is includable in gross income for the taxable
year in which received, even though the taxpayer
was required to deposit other property in
order to secure release of the withheld amount
prior to completion of the contract. §1.451-1.
(Sec. 451, ’86 Code.)
Rev. Ru1. 69–92, 1969–1 C.B. 138.
278.173 Retirement contributions; State
employees. Amounts deducted from the salaries
of public employees of the State of Arizona and
credited to their retirement accounts are taxable
for the year in which deducted. Clarified by Rev.
Rul. 72-94. (Sec. 61, ’86 Code.)
Rev. Rul. 56-473, 1956-2 C.B. 22.
278.174 Retirement contributions; U.S. Government
employees. The portion of a U.S. Government
employee’s compensation that is withheld
and contributed to the U.S. Civil Service
Retirement and Disability Fund is includable in
gross income in the same taxable year in which it
would have been included if it had been paid to
him directly. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 72–250, 1972–1 C.B. 22.
278.175 Retroactive decrease in gas rates
ordered by Federal Power Commission. Where
an accrual method distributor receives a refund
from its natural gas supplier by reason of a retroactive
price decrease pursuant to a F.P.C. order, the
amount of the refund is includible in the distributor’s
gross income for the taxable year during
which the decrease is ordered. Similarly, refunds
which the distributor is required to pay to its customer-consumers
must be accrued as a liability in
the same taxable year, regardless of the manner
used in making such refunds to the customer. Distinguished
by Rev. Rul. 80–308. §§1.451–1,
1.461-1. (Secs. 451, 461; ’86 Code.)
Rev. Rul. 63-182, 1963–2 C.B. 194.
278.176 Right to refund of prepaid advertising
expenses. Where a manufacturer’s letter
established the right of an accrual method dealer
to a refund of the unspent portion of his contributions
to an advertising and promotional fund, and
the amount thereof can redetermined with reasonable
accuracy before the due date for filing his
return for the taxable year in which the right was
established, the dealer should accrue and include
in his gross income for that taxable year the
amount so determined. §1.446–1. (Sec. 446, ’86
Code.)
Rev. Rul. 58-474, 1958-2 C.B. 158.
278.177 Royalties; escrow account; ownership
pending litigation. Royalty payments
deposited in escrow pending litigation regarding
ownership of land are not to be included in the lessor’s
income for the years in which they would
otherwise have been payable, but should be
reported as income for the year in which the litigation
is settled or the lessor’s right to the royalties
is established in some other way. I.T. 1212 superseded.
§1.451–1. (Sec. 451, ’86 Code.)
Rev. Rul. 70-66, 1970-1 C.B. 114.
278.178 Security deposit to insure agent’s
performance under contract. 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 includable in
the principal’s gross income where he is under an
obligation to repay such amounts upon performance
of the terms of the contract. The agent may
not deduct these payments made during the period
of the contract. However, any amounts appropriated
from the security deposit are includible in
the principal’s gross income and may be deducted
by the agent, in the year in which such amounts are
appropriated to cover such default. §1.61–1. (Sec.
61, ’86 Code.)
Rev. Rul. 67-47, 1967-1 C.B. 9.
278.179 Seed sold under contract of sale or
return. An accrual method taxpayer must include
income from the sale of seed under a contract of
sale or return when title passes upon delivery of
the seed to a common carrier; seed sold under such
contracts are not includable in inventory.
§§1.446-1, 1.451-1. (Secs. 446, 451; ’86 Code.)
Rev. Rul. 71-451, 1971-2 C.B. 217.
278.180 Settlement payment; stock loss suit.
An accrual method corporation that incurred a loss
on the sale of stock held four months for investment
received payment in a later year under a
court-approved settlement of a law suit it filed
alleging its loss resulted from the issuer’s violations
of federal securities laws. The payment is
short-term capital gain in the taxable year in which
the court approved the settlement. §§1.451–1,
1.1221-1, 1.1222-1. (Secs. 64, 451, 1221, 1222;
’86 Code.)
Rev. Rul. 79–278, 1979–2 C.B. 302.
278.181 State sales and use taxes refund given
State. State sales and use taxes previously
deducted, which have been determined to be erroneously
collected and subject to refund but which
the taxpayer chooses to treat as a gift to the State,
are includible in gross income in the year all events
occurred that fixed his right to a refund; however,
a charitable deduction is allowable for the taxable
year during which the State is affirmatively notified
of the gift; where no such action has been
taken and the statute of limitations within which to
file a claim for refund with the State has expired,
no deduction is allowable. Distinguished by Rev.
Rul. 73–385. §§1.61–1, 1.170–1, 1.451–1. (Secs.
61, 170, 451; ’86 Code.)
Rev. Rul. 70-419, 1970-2 C.B. 5.
278.182 State sales and use taxes refunded to
State bank. Sales and use taxes for which accrual
method Virginia banks filed claims for refund that
the State refused to process until 1970, although a
1968 decision of the Supreme Court of the United
States held national banks exempt from sales and
use taxes, are includible in gross income in 1970,
the year the State took affirmative action. Rev.
Rul. 70-419 distinguished. §§1.111-1, 1.451-1.
(Secs. 111, 451; ’86 Code.)
Rev. Rul. 73-385, 1973-2 C.B. 151.
278.183 Stock appreciation rights. A corporation
grants stock appreciation rights to its key
employees that entitle them to a cash payment for
each right exercised equal to the excess of the fair
market value of a share of the corporation’s common
stock on the date of exercise over the fair market
value of a share on the date the right is granted.
The rights cannot be exercised before one year,
and if they are not exercised within five years, they
are deemed exercised on the fifth anniversary of
the grant. At that time, the employee will be paid
the amount of the appreciation. Payments received
for the stock appreciation rights are includible in
gross income in the year the rights are exercised.
Amplified by Rev. Rul. 82-121. §§1.61-2,
1.451–2. (Secs. 61, 451; ’86 Code.)
Rev. Rul. 80-300, 1980-2 C.B. 165.
278.184 Stock appreciation rights. The surrender
of the related option upon exercise of a
stock appreciation right (SAR), where the amount
receivable upon the exercise of the SAR is limited
to the price per share at which the related option
could have been exercised on the exercise date, is
the loss of a valuable right and, therefore, is a substantial
limitation that precludes constructive
receipt of income by virtue of the appreciation of
the employer’s stock. Rev. Rul. 80–300 amplified.
§§1.61-2, 1.451-2. (Secs. 61, 451; ’86 Code.)
Rev. Rul. 82-121, 1982–1 C.B. 79.
278.185 Stock bequest as compensation;
constructive receipt; New York. Stock received
by bequest in 1966 as compensation for past services
rendered a New York decedent who died in
1965 was constructively received in 1965. (Sec.
451, ’86 Code.)
Victor R. Welder, 58 T.C. 974, Nonacq., 1978-2
C.B. 4.
278.186 Stock sold; proceeds withheld from
seller; constructive receipt. The taxpayer sold
stock in a corporation in 1953 but agreed to permit
the buyer to withhold the sales proceeds pending
the outcome of suits filed against the taxpayer by
third parties questioning her title to the stock.
Held, the taxpayer did not constructively receive
the stock sale proceeds in 1953. (Sec. 42, ’39
Code; Sec. 451, ’86 Code.)
Margaret L. Carpenter, 34 T.C. 408, Acq.,
1960-2 C.B. 4.
278.187 Stock transferred to employee; risk
of forfeiture. A corporation transferred common
stock to an employee subject to a substantial risk
of forfeiture. The fair market value of the stock at
the time the risk lapses is includable in the
employee’s gross income for that year. §1.83–1.
(Secs. 83, 3121, 3306, 3401; ’86 Code.)
Rev. Rul. 79-305, 1979-2 C.B. 350.
278.188 Supplemental unemployment benetits.
Benefits paid to former employees of a company
from a particular trust pursuant to a supplemental
unemployment benefit plan established as
a result of a collective bargaining agreement are
includible in gross income in the year received.
However, the benefits paid do not constitute

wages for employment tax purposes (Rev. Rul.
56-249). Amplified to provide similar treatment
where plans are initially instituted by the employer
(Rev. Rul. 58-128), and where benefit payments
are made by an employer direct to certain qualifying
former employees under such a plan which
does not involve the use of a trust (Rev. Rul.
60-330). §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 56-249, 1956-1 C.B. 90; Rev. Rul.
58-128, 1958-1 C.B. 89; Rev. Rul. 60-330,
1960-2 C.B. 46.
278.189 Supplemental unemployment benefits.
Benefits paid to former employees of a company
from a trust fund, established pursuant to a
supplemental unemployment compensation benefits
plan, are includable in the recipients’ gross
income in the year received and are subject to
income tax withholding. Rev. Ruls. 56-249 and
58–128 amplified and modified. §§1.61-1. (Secs.
61, 3121, 3306, 3402; ’86 Code.)
Rev. Rul. 77-347, 1977–2 C.B. 362.
278.190 Trademark license and purchase
option. Taxpayer received payment from a corporation
in consideration for an extension of a trademark
license agreement. The payment was also
intended to be applied against the purchase price
of the trademark if the corporation exercised its
option to purchase it. Held, the payment is not
includable in taxpayer’s gross income until the
option to purchase either is exercised or lapses.
(Secs. 61, 451, 1234; ’86 Code.)
Dill Co., 33 T.C. 196, Nonacq., 1961-1 C.B. 4.
278.191 Trading stamps; redemption; estimated
volume. Guidelines are set forth relating to
acceptable methods of estimating the volume of
trading stamps to be redeemed at the end of any
taxable year. The guidelines are to be used in conjunction
with reg. 1.451-4 by trading stamp companies
and those companies issuing stamps or coupons
with sales of merchandise. §1.451-4. (Sec.
601.105, S.P.R.; Sec. 451, ’86 Code.)
Rev. Proc. 72-36, 1972-2 C.B. 771.
278.192 Treasure-trove. The finder of a treasure-trove
is in receipt of taxable income to the
extent of its value in U.S. currency, for the taxable
year in which it is reduced to undisputed possession.
§29.22(a)-1. (Sec. 22(a), ’39 Code; Sec. 61,
’86 Code.)
Rev. Rul. 61, 1953–1 C.B. 17.
278.193 Trust; termination of employment;
consulting services. A labor association placed
$50,000 into an irrevocable trust for a cash basis
former officer as a condition of his resignation
which was to be distributed over five years in
equal annual installments to him or his survivors
under conditions that he would serve as a consultant
to the association and would not perform similar
services in competition with the association.
Held, the former officer’s rights to, or interest in,
the trust was conditional or forfeitable, rendering
section 402 of the Code inapplicable, and the
income was taxable when received and not when
placed in trust. (Sec. 61, ’86 Code.)
James Max Harrison, 62 T.C. 524, Acq., 1974-2
C.B. 2.
278.194 Trust income due beneficiary in year
of death. Where all trust income is required to be
distributed currently to a beneficiary (now
deceased), who reported his income under the
accrual method, such income earned by the trust to
the date of the beneficiary’s death is includable in
the final return of the deceased beneficiary.
§§1.451-1, 1.652(a)-1. (Secs. 451, 652; ’86
Code.)
Rev. Rul. 59–346, 1959–2 C.B. 165.
278.195 Tuition; promissory notes. An accrual
method correspondence school receives federally
guaranteed nonnegotiable promissory notes from
students enrolled in courses to be completed over
36 months. The amount of the note is conditioned
on the number of lessons completed and no payment
is due until nine months after graduation or
a student ceases to carry at least half of a normal
full-time academic workload. The school transfers
the notes to banks or other financial institutions
under repurchase agreements that entitle the
banks to interest on the notes during the period
they are held. The arrangement between the
school and banks is a loan with the notes as collateral
security. The tuition income is realized by the
school as each lesson is completed by a student.
§1.451-1. (Sec. 451, ’86 Code.)
Rev. Rul. 79-195, 1979-1 C.B. 177.
278.196 Unauthorized expenditures over
subcontract sum. The accrual method taxpayer’s
expenditures under a cost-plus-fixed-fee subcontract
were limited unless specifically authorized
by the prime contractor who was not obligated to
reimburse unauthorized amounts but could ratify
and pay them. Held, taxpayer had no fixed or
unconditional right to reimbursement of excess
expenditures until their ratification, and they were
not includible in income. (Sec. 42(a), ’39 Code;
Sec. 451, ’86 Code.)
Marquardt Corp., 39 T.C. 443, Acq., 1965-2
C.B. 6.
278.197 Unclaimed mutual insurance company
premium refunds. After unsuccessful
attempts to locate policy holders, the accrual basis
agent for mutual insurance companies who
received premium refunds for transmission to
policy holders credited the unclaimed premium
refunds at least annually to a “dividends stored”
account. That liability account balance was later
transferred to a surplus account. Held, income was
realized upon the annual transfers to the liability
account, not upon the transfer of the dividends
stored account to surplus. (Sec. 61, 63; ’86 Code.)
Policy Holders Agency, Inc., 41 T.C. 44, Acq.,
1964-2 C.B. 7.
278.198 Unemployment benefits. The amount
equivalent to unemployment benefits paid to a taxpayer
by the Railroad Retirement Board in prior
years which is deducted from the total compensation
found to be due the taxpayer upon the settlement
of his claim for additional salary for such
prior years is includible in the taxpayer’s gross
income in the taxable year the proceeds of the
claim are received. (Secs. 61, 451; ’86 Code.)
Rev. Rul. 56-631, 1956-2 C.B. 25.
278.199 U.S. savings bonds; transferred to
reversionary trust. A valid short-term reversionary
trust was created to which the grantor transferred
a Series H bond, on which the interest from
exchanged Series E bonds had been deferred.
Since the trust instrument provided that the
accrued bond interest was to be allocated to corpus,
the transfer did not result in such a disposition
of the bond as to require the owner to include in his
gross income in the year of transfer the interest on
the bonds not previously returned as income.
§§1.671-3, 1.677(a)-1. (Secs. 671, 677; ’86
Code.)
Rev. Rul. 64-302, 1964-2 C.B. 170.
278.200 Warehouse receipts for crop shares;
transferred as gift. An individual who transfers,
by gift, warehouse receipts evidencing crop shares
received as rent for the use of his farm land, must
include in his gross income the amounts received
by the donees for the crop shares in the taxable
years in which they reduce such crop shares to
money or the equivalent of money. Rev. Rul.
55-531 distinguished. Modified by Rev. Rul.
75-11. §§1.61-4, 1.451-1. (Secs. 61, 451; ’86
Code.)
Rev. Rul. 63-66, 1963-1 C.B. 13.
Gross Income
278.201 Welfare payments; fraudulently
received. Welfare payments fraudulently received
under state and Federal assistance programs are
includible in the recipient’s gross income in the
year received. §1.61-1. (Sec. 61, ’86 Code.)
Rev. Rul. 78–53, 1978-1 C.B. 22.
278.202 Wheat sold; payment deferred; cashmethod
farmer. The proceeds from the sale of
wheat by a cash method farmer under a contract
calling for payment in the taxable year following
that in which the wheat was delivered to the purchaser
are includable in his gross income for the
taxable year in which payment is received. Distinguished
by Rev. Rul. 70–294 with respect to cattle
consigned to auction. §1.451-2. (Sec. 451, ’86
Code.)
Rev. Rul. 58-162, 1958–1 C.B. 234.
278.203 Year end; check drawn in December;
mailed in January. A cash-basis, calendar year
taxpayer must include in his gross income for
1967 the amount of a retirement check drawn in
December 1967, but placed in the mail and delivered
to him in January 1968, where the check was
made available to him on the last working day of
December. §1.451-2. (Sec. 451, ’86 Code.)
Rev. Rul. 68-126, 1968–1 C.B. 194.
278.204 Year end; severance pay mailed in
December; received in January. Severance pay
sent by certified mail that could not be delivered
when attempted on December 31, 1974, as the
payee was not home to sign the requested return
receipt, was constructively received and includible
in the calendar-year payee’s 1974 gross
income. §1.451–2. (Sec. 451, ’86 Code.)
Rev. Rul. 76-3, 1976-1 C.B. 114.