Rev. Rul. 78-316

Rev. Rul. 77-261, 1977-2 C.B. 45, holds that the income of an investment fund established by a state is excludable from gross income under section 115(1) of the Internal Revenue Code of 1954. However, under section 6012(a)(2) and the regulations thereunder, the investment fund, being classified as a corporation subject to taxation under subtitle A of the Code, is required to file a federal income tax return each year.

Rev. Rul. 77-261 deals only with whether the income of an investment fund established by a state is excludable from gross income and whether the fund is required to file a federal income tax return. It does not hold that states and their political subdivisions, including municipalities, must file federal income tax returns.

Rev. Rul. 77-261 is clarified.