Rev. Rul. 55-51

Advice has been requested with respect to the application of the documentary stamp tax imposed by section 1802(b) of the Internal Revenue Code of 1939 when stock is transferred from the name of an odd-lot dealer, acting as principal, to himself as custodian under a written custodian agreement with the owner of the stock.

In the instant case, a monthly investment plan for buying listed stocks on a pay-as-you-go basis is operated by odd-lot firms in cooperation with representative commission brokerage firms of the New York Stock Exchange for the purpose of providing small investors a method of buying stock at minimum cost in accordance with their current available funds. An investor or participant in the plan determines his own program, within certain prescribed limits, and incurs only the customary commission rates for all regular services afforded by the plan. The shares or fractional shares purchased for the investor become his exclusive property immediately and are at all times thereafter subject to his unqualified disposition and control. An individual desiring to acquire stocks pursuant to the method offered by the plan executes an instrument known as a `Purchase Order' which evidences his intention to invest a stated amount monthly or quarterly in a named stock listed on the Stock Exchange and sets forth the terms of the agreement including precise instructions by the participant relating to pertinent matters affecting the operation of the plan. The investor's remittances are deposited in a specially authorized bank account. The odd-lot dealer then sells to the Exchange member, for the account of the customer, such shares, or fractions thereof, of the designated stock as the remittance permits, after deducting regular commissions. The shares and fractions are credited to the account of the customer and held by the odd-lot dealer as custodian for the investor. The remittances by the investor and the stock acquisitions for his account continue to be made and to accumulate in accordance with the terms of the Purchase Order, the stock being delivered pursuant to the investor's directions.

Section 1802(b) of the Code imposes a stamp tax on all sales or transfers of legal title to any shares or certificates of stock, with certain exceptions, which include the provision that the tax shall not be imposed upon deliveries or transfers of shares or certificates from the owner to a custodian if under a written agreement between the parties the shares or certificates are to be held or disposed of by such custodian for, and subject at all times to the instructions of, the owner; or from such custodian to such owner.

Section 113.35(f) of Regulations 71 provides that such an exemption shall not be granted in any case unless the delivery or transfer of stock to or by a custodian is accompanied by an exemption certificate, as provided for in section 113.35(i) of those regulations.

The sale of the stock by the odd-lot dealer to the investor through the latter's member broker is taxable under section 1802(b) of the Code. The shares thus purchased could be delivered to the customer without incurring a transfer tax. Such shares could then be transferred by the owner to his custodian without incurring a transfer tax, providing the requisite exemption certificate is affixed. Since the direct or short-cut transfer of the shares from the odd-lot dealer in his capacity as seller to himself in his capacity as custodian does not involve the short-cutting of a taxable transfer, no tax will be due on such direct transfer if the necessary exemption certificate is furnished.

Accordingly, a transfer tax is not incurred, except the tax on the sale, where an odd-lot dealer acting as a principal transfers stock from his name to himself as custodian under a written custodian agreement with the owner of the shares, provided the requisite exemption certificate is furnished