Rev. Rul. 71-119

Under an agreement of compromise and settlement, a corporation deposited an amount of money with a United States District Court. The purpose of this settlement fund was to settle claims that were asserted against the corporation in several lawsuits brought by shareholders who alleged misstatements and omissions in registration statements filed pursuant to the Securities Act of 1933 by the corporation.

The court issued a final judgment and order approving the agreement of compromise and settlement, and a claim application form was sent to each stockholder of record during the period the alleged misstatements were filed. In its final judgment the court also appointed a special master with all of the powers enumerated in Rule 53 of the Federal Rules of Civil Procedure to administer the fund and take all necessary ministerial steps to effectuate the settlement. These powers included power to receive all proofs of claim, pass on the validity of same, direct the giving of notice to interested persons of hearings on disputed claims, conduct any necessary hearing, submit his reports thereon, and in general supervise the administration of the settlement and decide all disputed questions of law and fact connected therewith, subject to confirmation by the court. Neither the court nor the special master had title to the settlement fund for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts.

The fund, after deduction of the expenses incurred in its administration, is to be distributed on a pro rata basis to those claimants whose claims were approved by the special master.

Held, the settlement fund is not "property held in trust" within the meaning of section 641(a) of the Internal Revenue Code of 1954.

Further held, neither the United States District Court, nor the Special Master appointed by the Court to administer the settlement fund, is a "fiduciary" within the meaning of section 7701(a)(6) of the Code. Therefore, neither the court nor the special master is required to file a Form 1041, U.S. Fiduciary Income Tax Return, for the settlement fund.