Rev. Rul. 71-305

Advice has been requested whether "silver futures" are either "stock" or "debt obligations" within the definition of these terms for purpose of the interest equalization tax (IET) under the circumstances described below.

The taxpayer, a citizen and resident of the United States, is actively engaged in the purchase of contracts calling for the delivery of silver to him or his order at specified future dates. While these "silver futures" generally are purchased by the taxpayer on the New York market, a few are also purchased on the European market through an account maintained with a Swiss bank. During 1969, three purchase contracts were made on the European market with delivery to be made in the following year, 1970.

Section 4911(a) of the Internal Revenue Code of 1954 imposes the IET on the acquisition by a United States person of the stock of a foreign issuer or the debt obligation of a foreign obligor, if such debt obligation has a period remaining to maturity of one year or more.

Section 4920(a)(4) of the Code defines the term "United States person" in part, to include an individual citizen or resident of the United States.

Section 4920(a)(1) of the Code defines a "debt obligation" as including (with certain exceptions not relevant here) any indebtedness, whether or not represented by a bond, debenture, note, certificate, or other writing, whether or not secured by a mortgage, and whether or not bearing interest.

Section 4920(a)(2) of the Code defines as "stock" any capital interest in a corporation (including certain convertible indebtedness), any interest of a partner in a partnership, and any interest in an investment trust.

A futures contract does not represent a capital interest or other interest in a corporation, partnership, or investment trust, nor does such a contract have any other characteristics that would justify its treatment, for purposes of the IET as "stock." Moreover, a futures contract is not a bond, note, debenture, or similar instrument evidencing either a loan of money, or money owed, nor does it otherwise constitute an indebtedness of the type defined in statutory definition of debt obligation set forth above. Instead, the purchase of a futures contract is the purchase of an assignable executory contract which gives the purchaser the right to demand and receive a specified commodity in a specified quantity at a specified future time upon the payment of a specified price. Silver, notwithstanding its use through much of history as money, has a wide variety of industrial and commercial uses and is bought and sold as a commodity.

Accordingly, it is held that the taxpayer's purchase of "silver futures" are not acquisitions subject to the interest equalization tax, irrespective of the market on which such futures were purchased or where delivery was to be made.