Rev. Proc. 79-14

Section 1. Purpose and Nature of Changes.

.01 The purpose of this Revenue Procedure is to supersede Rev. Proc. 72-9, 1972-1 C.B. 718, by providing a revised list of those areas of the Internal Revenue Code of 1954 under the jurisdiction of the Assistant Commissioner (Technical) in which the Internal Revenue Service will not issue advance rulings or determination letters.

.02 Changes.

1 A new section 3.01(4), dealing with section 264(c)(1) of the Code, has been added to cover situations under section 264(c)(1) of the Code where the taxpayer pays no more than three of the first seven annual premiums (or substantially increased annual premiums) by means of indebtedness, but subsequently borrows the cash values accumulated during the four non-borrowing years.

2 New sections 3.01(6) and (7), dealing with section 302 of the Code, has been added. Section 3.01(6) was published as Rev. Proc. 76-1, 1976-1 C.B. 542, and section 3.01(7) was published as Rev. Proc. 77-45, 1977-2 C.B. 579.

3 Sections 3.01(11)(a)-(h) of Rev. Proc. 72-9, dealing with section 401 of the Code, which is no longer under the jurisdiction of the Assistant Commissioner (Technical), have been deleted by this Revenue Procedure.

4 A new section 3.01(16), dealing with section 704(b)(2) of the Code, has been added. A similar provision was published previously as Rev. Proc. 74-22, 1974-2 C.B. 476.

5 Section 3.01(17), dealing with section 2035 of the Code and section 3.01(20), dealing with section 2511 of the Code, have been deleted because of the provisions of the Tax Reform Act of 1976.

6 New section 3.02(5), dealing with Rev. Proc. 72-3, 1972-1 C.B. 698, has been added.

7 As announced previously in Rev. Proc. 76-19, 1976-1 C.B. 560, section 4.01(1) of Rev. Proc. 72-9, dealing with questions of whether advances to thin corporations constitute loans or are equity investments, has been deleted. Also, section 4.02(1) of Rev. Proc. 72-9, as amplified by Rev. Proc. 76-19, has been retained.

8 A new section 4.01(1), dealing with determinations as to who is the true owner of property or the true borrower of money, has been added.

9 Section 4.01(6) of Rev. Proc. 72-9, dealing with section 341(b) of the Code, has been modified by section 6 of Rev. Proc. 77-37, 1977-2 C.B. 568.

10 Sections 4.01(8) and (9) of Rev. Proc. 72-9, dealing with section 401 of the Code, which is no longer under the jurisdiction of the Assistant Commissioner (Technical), have been deleted by this Revenue Procedure.

11 A new section 4.01(8), dealing with section 992 of the Code, has been added.

12 New section 4.02(3), dealing with the question of whether property is held primarily for sale in the ordinary course of business, has been added in place of deleted section 4.01(10).

Sec. 2. Background.

Whenever appropriate in the interest of sound tax administration, it is the policy of the Service to answer inquiries of individuals and organizations regarding their status for tax purposes and the tax effects of their acts or transactions, prior to the filing of returns or reports that are required by the revenue laws.

There are, however, certain areas in which, because of the inherently factual nature of the problems involved, or for other reasons, the Service will not issue advance rulings or determination letters. These areas are set forth in two sections of this Revenue Procedure. Section 3 reflects those areas in which advance rulings and determinations will not be issued. Section 4 sets forth those areas in which they will not ordinarily be issued. Each Section reflects a number of specific questions and problems as well as the general areas.

With respect to the items listed, revenue rulings or revenue procedures may be published in the Internal Revenue Bulletin from time to time to provide general guidelines regarding the position of the Service.

These lists should not be considered all inclusive. Items may be added to or deleted by modification of this Revenue Procedure.

The authority and general procedures of the Technical Function of the National Office of the Internal Revenue Service and of the Offices of the District Directors of Internal Revenue with respect to the issuance of advance rulings and determination letters with respect to Code sections under the jurisdiction of the Assistant Commissioner (Technical) are outlined in Rev. Proc. 72-3.

Sec. 3. Areas in Which Rulings or Determinations Letters Will Not Be Issued.

.01 Specific questions and problems.

1 Section 162. -- Trade or Business Expenses. -- Whether compensation is reasonable in amount.

2 Section 170. -- Charitable Contributions and Gifts. -- Whether a taxpayer who advances funds to a charitable organization and receives therefor a promissory note may deduct as contributions, in one taxable year or in each of several years, amounts forgiven by the taxpayer in each of several years by endorsements on the note.

3 Section 264(b). -- Certain Amounts Paid in Connection with Insurance Contracts. -- Whether "substantially all" the premiums of a contract of insurance are paid within a period of 4 years from the date on which the contract is purchased. Also, whether an amount deposited is in payment of a "substantial number" of future premiums on such a contract.

4 Section 264(c)(1). -- Certain Indebtedness Incurred or Continued as Part of a Plan in Connection with Insurance Contracts. -- Whether section 264(c)(1) of the Code applies.

5 Section 269. -- Acquisition Made to Evade or Avoid Income Tax. -- Whether an acquisition is within the meaning of section 269 of the Code.

6 Section 302. -- Redemption of Stock. -- Whether section 302(b) of the Code applies when the consideration given in redemption by a corporation consists entirely or partly of its notes payable, and the shareholder's stock is held in escrow or as security for payment of the notes with the possibility that the stock may or will be returned to the shareholder in the future, upon the happening of specified defaults by the corporation.

7 Section 302. -- Redemption of Stock. -- Whether section 302(b) of the Code applies when the consideration given in redemption by a corporation in exchange for a shareholder's stock consists entirely or partly of the corporation's promise to pay an amount that is based on, or contingent on, future earnings of the corporation.

8 Section 302. -- Redemption of Stock. -- Whether section 302(b) of the Code applies to a redemption of stock if after the redemption the distributing corporation uses property that is owned by the shareholder from whom the stock is redeemed and the payments by the corporation for the use of the property are dependent upon the corporation's future earnings or are subordinate to the claims of the corporation's general creditors. Payments for the use of property will not be considered to be dependent upon future earnings merely because they are based on a fixed percentage of receipts or sales.

9 Sections 311 and 336. -- Taxability of Corporation on Distribution; General Rule. -- Upon distribution of property in kind by a corporation to its shareholders, in complete liquidation under section 331 of the Code (when under the facts a sale of the property by the corporation would not qualify under section 337), in partial liquidation under section 346, or in redemption of stock under section 302(a), followed by a sale of the property, whether the sale can be deemed to have been made by the corporation under the doctrine of Commissioner v. Court Holding Company, 324 U.S. 331 (1945), 1945 C.B. 58.

10 Section 312. -- Earnings and Profits. -- The determination of the amount of earnings and profits of a corporation.

11 Sections 331, 332, and 333. -- Effects on Recipients of Distributions in Corporate Liquidations. -- The tax effect of the liquidation of a corporation preceded or followed by the re-incorporation of all or a part of the business and assets when more than a nominal amount of the stock (that is, more than 20 percent in value) of both the liquidating corporation and the transferee corporation is owned by the same shareholders; or when a liquidation is followed by the sale of the corporate assets by the shareholders to another corporation in which such shareholders own more than a nominal amount of the stock (that is, more than 20 percent in value).

12 Section 337. -- Gain or Loss; Certain Liquidations. -- The application of this section to a corporation upon the sale of property, in connection with its liquidation, to another corporation, when more than a nominal amount of the stock (that is, more than 20 percent in value) of both the selling corporation and the purchasing corporation is owned by the same persons.

13 Section 346. -- Partial Liquidation. -- The amount of working capital attributable to a business or portion of a business terminated that may be distributed in partial liquidation.

14 Section 453. -- Revolving Credit Sales as Installment Sales. -- Whether a proposed sampling procedure will be acceptable by the Service for the purpose of determining the portion of revolving credit balances to be treated as installment account balances. See Rev. Proc. 64-4, 1964-1 (Part 1) C.B. 644, and Rev. Proc. 65-5, 1965-1 C.B. 720.

15 Section 642(c). -- Deduction for Amounts Paid or Permanently Set Aside for a Charitable Purpose. -- Allowance of an unlimited deduction for amounts set aside by a trust or estate for charitable purposes when there is a possibility that the corpus of the trust or estate may be invaded.

16 Section 704(b)(2). -- Partner's Distributive Share Determined. -- Whether the allocation to a partner under the partnership agreement of income, gain, loss, deduction, or credit (or an item thereof) has substantial economic effect.

17 Section 704(e). -- Family Partnerships. -- Matters relating to the validity of a family partnership when capital is not a material income producing factor.

18 Section 1221. -- Capital Asset Defined. -- Whether specialty stock allocated to an investment account by a registered specialist on a national securities exchange is a capital asset.

19 Section 1551. -- Disallowance of Surtax Exemption and Accumulated Earnings Credit. -- Whether a transfer is within section 1551 of the Code.

.02 General Areas.

1 The results of transactions that lack bona fide business purpose or have as their principal purpose the reduction of Federal taxes.

2 A matter upon which a court decision adverse to the Government has been handed down and the question of following the decision or litigating further has not yet been resolved.

3 A matter involving the prospective application of the estate tax to the property or the estate of a living person.

4 A matter involving alternate plans of proposed transactions or involving hypothetical situations.

5 A request that does not comply with the provisions of Rev. Proc. 72-3.

Sec. 4. Areas in Which Rulings or Determination Letters Will Not Ordinarily Be Issued.

.01 Specific questions and problems.

1 Section 61. -- Determinations as to who is the true owner of property or the true borrower of money in cases in which the formal ownership of the property or liability for the indebtedness is in another party.

2 Section 167. -- Depreciation.

(a) Useful lives of assets.

(b) Depreciation rates.

(c) Salvage value of assets.

3 Section 302. -- Redemption of Stock. -- The tax effect of the redemption of stock for notes, when the payments on the notes are to be made over a period in excess of 15 years from the date of the issuance of such notes.

4 Section 306. -- Disposition of Certain Stock. -- Whether the distribution or disposition or redemption of "section 306 stock" in a closely held corporation is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes within the meaning of section 306(b)(4) of the Code.

5 Section 331. -- Gain or Loss to Shareholders in Corporate Liquidations. -- The tax effect of the liquidation of a corporation by a series of distributions, when the distributions in liquidation are to be made over a period in excess of 3 years from the adoption of the plan of liquidation.

6 Section 341. -- Collapsible Corporations. -- Whether a corporation will be considered to be a "collapsible corporation," that is, whether it was "formed or availed of" with the view of certain tax consequences. However, ruling requests will be considered on this matter when the enterprise (1) has been in existence for at least 20 years, (2) has had substantially the same owners during that period, and (3) has conducted substantially the same trade or business during that period.

7 Section 351. -- Transfers to Controlled Corporation. -- The tax effect of the transfer when part of the consideration received by the transferors consists of bonds, debentures, or any other evidences of indebtedness of the transferee.

8 Section 992. -- Requirements of a Domestic International Sales Corporation. -- The tax effects of a Domestic International Sales Corporation's stock being held by individuals who are also shareholders in a related supplier corporation.

.02 General areas.

1 Any matter in which the determination requested is primarily one of fact, e.g., market value of property, or whether an interest in a corporation is to be treated as stock or indebtedness.

2 The tax effect of any transaction to be consummated at some indefinite future time.

3 Any matter dealing with the question of whether property is held primarily for sale to customers in the ordinary course of trade or business.

Sec. 5. Scope of Application.

This Revenue Procedure is not to be considered as precluding the submission of requests for technical advice in any of the above areas from the Office of a District Director of Internal Revenue to the National Office.

Sec. 6. Effect on Other Documents.

Rev. Proc. 72-9, Rev. Proc. 74-22, Rev. Proc. 76-1, Rev. Proc. 76-19, section 6 of Rev. Proc. 77-37, and Rev. Proc. 77-45 are superseded.