Rev. Rul. 66-297

Advice has been requesed whether a collective investment fund, established by a bank and consisting solely of property held by the bank in its capacity as trustee of qualified pension and profit-sharing trusts which are exempt from Federal income tax, may be exempt from Federal income tax as a common trust fund within the meaning of section 584 of the Internal Revenue Code of 1954 irrespective of the requirements of Revenue Ruling 56-267, C.B. 1956-1, 206, pertaining to group trust funds.

Section 584(a) of the Code provides, in part, that the term `common trust fund' means a fund maintained by a bank (1) exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as a trustee, executor, administrator, or guardian; and (2) in conformity with the rules and regulations, prevailing from time to time, of the Comptroller of the Currency pertaining to the collective investment of trust funds by national banks.

Section 1.584-1(b) of the Income Tax Regulations provides, in part, that (2) above applies whether or not the bank maintaining the fund is a national bank or a member of the Federal Reserve System.

Section 584(b) of the Code provides that a common trust fund shall not be subject to Federal income tax and shall not be considered a corporation.

Section 9.18(a) of Title 12 of the Code of Federal Regulations relating to fiduciary powers of national banks and collective investment funds, provides that, where not in contravention of local law, funds held by a national bank as fiduciary may be invested collectively (1) in a common trust fund maintained by the bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as executor, administrator, guardian or trustee under a will or deed; (2) in a fund consisting solely of assets of retirement, pension, profit-sharing, stock bonus, or other trusts which are exempt from Federal income taxation under the Internal Revenue Code; (3) in a common trust fund, maintained by the bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as managing agent under a managing agency agreement expressly providing that such moneys are received by the bank in trust. See Revenue Ruling 64-59, C.B. 1964-1 (Part 1), 193, as it pertains to (3) above.

Section 9.18(b)(2) of Title 12 provides that property held by the bank in its capacity as trustee of retirement, pension, profit-sharing, stock bonus or other trusts which are exempt from Federal income taxation under the Internal Revenue Code may be invested in collective investment funds established under the provisions of subparagraph (1) or (2) of section 9.18(a) of Title 12.

Revenue Ruling 56-267 holds that where, under certain specified conditions, separate tax-exempt trusts, forming parts of employer's qualified pension or profit-sharing plans, pool their funds in a group trust created to provide diversification of investments, the group trust may qualify as a tax-exempt trust and the exempt status of the separate trusts will not be adversely affected.

There is no requirement that a common trust fund maintained by a bank and consisting solely of property contributed by the bank in its capacity as trustee of exempt pension and profit-sharing trusts comply with Revenue Ruling 56-267 in order to qualify as a `common trust fund' under section 584 of the Code. If the common trust fund is maintained by the bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as trustee and this is done in conformity with the rules and regulations, prevailing from time to time, of the Comptroller of the Currency pertaining to the collective investment of trust funds by national banks, it qualifies as a `common trust fund.' The fact that the common trust fund may consist solely of property held by the bank in its capacity as trustee of qualified pension and profit-sharing trusts which are exempt from Federal income tax does not alter the rule, since such trust funds may be invested in a collective investment fund under the provisions of either subparagraph (1) or (2) of section 9.18(a) of Title 12.

Accordingly, a common trust fund, maintained by a bank and consisting solely of property held by the bank in its capacity as trustee of pension and profit-sharing trusts exempt from Federal income tax, will continue to be exempt from Federal income tax as a common trust fund within the meaning of section 584 of the Code, independently of the requirements for exemption of a group trust fund under Revenue Ruling 56-267.

Further, a group trust fund, maintained by a bank, consisting solely of assets of exempt pension and profit-sharing trusts, and complying with Revenue Ruling 56-267, will continue to be exempt from Federal income tax under section 501(a) of the Code, independently of the requirements for exemption of a common trust fund under section 584 of the Code. However, a group trust which commingles the funds of qualified employees' trusts with the funds of other exempt organizations will not be a trust described in section 401(a) or section 501(c) or section 501(d) of the Code and therefore cannot qualify for exemption from Federal income tax under section 501(a) of the Code.