Rev. Proc. 81-10

Section 1. Purpose and Nature of Changes

.01 The purpose of this revenue procedure is to update Rev. Proc. 80-22, 1980-1 C.B. 654, as amplified by subsequent revenue procedures, by providing a revised list of those areas of the Internal Revenue Code 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 New section 3.012 refers to section 83. See Rev. Proc. 81-1, page 617, this Bulletin.

2 New section 3.014 refers to section 117. See section 1.028.

3 New section 3.0120 refers to section 351. See Rev. Proc. 81-5, page 619, this Bulletin.

4 New section 3.0127 refers to section 856. See Rev. Proc. 81-4, page 619, this Bulletin.

5 New section 4.015 refers to sections 304 and 357 of the Code. See Rev. Proc. 80-34, 1980-2 C.B. 768.

6 New section 4.019 refers to section 351. See Rev. Proc. 80-37, 1980-2 C.B. 771.

7 New section 4.0110 refers to section 871. See Rev. Proc. 80-38, 1980-2 C.B. 771.

8 Old section 5.02 has been deleted. See new section 3.014, which refers to section 117 and employer-related scholarship or fellowship grants. Previously, this was an area in which rulings were not being issued while the matter was under study. Consideration of the matter has been completed with the decision that the area is one in which rulings will not be issued.

9. New section 5.02 refers to section 820. See Rev. Proc. 80-41, 1980-2 C.B. 775.

10. Old section 5.03 has been deleted. See T.D. 7745, page 134, this Bulletin.

11 New section 5.05 refers to section 7701. See Rev. Proc. 81-8, page 623, this Bulletin.

Sec. 2. Background and Scope of Application

.01 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 four 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. "Not ordinarily" connotes that unique and compelling reasons must be demonstrated to justify a ruling or determination letter. Those sections reflect a number of specific questions and problems as well as general areas. Section 5 lists specific areas for which the Service is temporarily not issuing advance rulings and determinations because those matters are under extensive study. Section 6 lists areas for which the Service is prohibited by statute from issuing rulings or determination letters.

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.

Additions or deletions to this revenue procedure as well as restatement of items listed will be made by modification of this revenue procedure. Changes will be published as they occur throughout the year and will be incorporated annually in a new revenue procedure published in the first quarter of the next calendar year. These lists should not be considered all inclusive. Decisions not to rule on individual cases, as contrasted with those that present significant pattern issues, are not reported in this revenue procedure and will not be added to subsequent revisions.

The authority and general procedures of the Technical Function of the National Office of the Internal Revenue Service of the Offices of the District Directors of the 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. 80-20, 1980-1 C.B. 633.

.02 Scope of Application.

This revenue procedure is not to be considered as precluding the submission of requests for technical advice to the National Office from the Office of a District Director of Internal Revenue or a Chief, Appeals Office.

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

.01 Specific questions and problems.

1 Section 79.--Group Term Life Insurance Purchased for Employees.--Whether a group insurance plan for 10 or more employees qualifies as group term insurance if the amount of insurance is not computed under a formula that would meet the requirements of section 1.79-1(c)(2)(ii) if the group consisted of fewer than 10 employees.

2 Section 83.--Property Transferred in Connection with Performance of Services.--Whether a restriction constitutes a substantial risk of forfeiture if the employee is a controlling shareholder. Also, whether a transfer has occurred if the amount paid for a purported transfer of property involves a nonrecourse obligation.

3 Section 105(h).--Amount Paid to Highly Compensated Individuals under a Discriminatory Self-Insured Medical Expense Reimbursement Plan.--Whether, following a determination that a self-insured medical expense reimbursement plan is discriminatory, that plan had previously made reasonable efforts to comply with tax discrimination rules.

4 Section 117.--Scholarships and Fellowships Grants.--Whether an employer-related scholarship or fellowship grant is excludable from the employee's gross income if there is no intermediary private foundation distributing the grants, as there was in Rev. Proc. 76-47, 1976-2 C.B. 670.

5 Sections 121 and 1034.--One-Time Exclusion of Gain from Sale of Principal Residence by Individual Who Has Attained Age 55; Rollover of Gain on Sale of Principal Residence.--Whether at the time of its sale property qualifies as the taxpayer's principal residence.

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

7 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.

8 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.

9 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.

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

11 Section 302.--Redemption of Stock.--Whether section 302(b) of the Code applies when the consideration 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.

12 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, or when the promise to pay is contingent on working capital being maintained at a certain level, or any other similar contingency.

13 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 used 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.

14 Section 302.--Distributions in Redemption of Stock.--Whether the acquisition or disposition of stock described in section 302(c)(2)(B) of the Code has, or did not have, as one of its principal purposes the avoidance of federal income taxes within the meaning of that section, unless the facts and circumstances are materially identical to those set forth in Rev. Rul. 56-556, 1956-2 C.B. 177, Rev. Rul. 56-584, 1956-2 C.B. 179, Rev. Rul. 57-387, 1957-2 C.B. 225, Rev. Rul. 77-293, 1977-2 C.B. 91, or Rev. Rul. 79-67, 1979-1 C.B. 128.

15 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), Ct. D. 1636, 1945 C.B. 58.

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

17 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).

18 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, and the purchasing corporation is owned by the same persons.

19 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.

20 Section 351.--Transfers to Controlled Corporation.--

(a) That this section applies to a transfer by a shareholder of stock in one corporation (acquired) to another corporation (acquiring), in an exchange otherwise qualifying for treatment under this section, if the exchange is part of a larger transaction that fits a pattern common to acquisitive reorganizations, and after the transaction the acquiring corporation has control of the acquired corporation (within the meaning of section 368(c)), unless there is a continuing interest through stock ownership in the acquiring corporation on the part of the former shareholders of the acquired corporation that is equal in value to at least 50 percent of the value of all of the stock of the acquired corporation outstanding immediately before the overall transaction. For purposes of this determination, liabilities assumed or liabilities to which the property transferred is subject, will be considered to be part of the total consideration received. See Rev. Rul. 80-284, 1980-2 C.B. 117, and section 3.02 of Rev. Proc. 77-37, 1977-2 C.B. 568, 569.

(b) That this section applies to a transfer by a corporation (acquired) of a substantial portion of its assets to another corporation (acquiring), in an exchange otherwise qualifying for treatment under this section, if the exchange is part of a larger transaction that fits a pattern common to acquisitive reorganization, unless there is a continuing interest through stock ownership in the acquiring corporation on the part of the acquired corporation or shareholders of the acquired corporation that is equal in value to at least 50 percent of the value of all of the stock of the acquired corporation outstanding immediately before the overall transaction. For purposes of this determination, liabilities assumed or liabilities to which the property transferred is subject, will be considered to be part of the total consideration received. In addition, for purposes of this revenue procedure, an acquired corporation shall be deemed to have transferred a substantial portion of its assets if the transferred assets constitute 15 percent or more of its gross assets. See Rev. Rul. 80-285, 1980-2 C.B. 119, and section 3.02 of Rev. Proc. 77-37.

21 Section 451.--General Rule for Taxable Year of Inclusion.--The tax consequences of a nonqualified unfunded deferred compensation arrangement with respect to a controlling shareholder employee eligible to participate in the arrangement.

22 Sections 451 and 457.--General Rule for Taxable Year of Inclusion; Deferred Compensation Plans With Respect to Service for State and Local Governments.--The tax consequences to unidentified independent contractors in nonqualified unfunded deferred compensation plans. This applies to plans established under section 451 of the Code by employers in the private sector and to eligible state plans under section 457. However, a ruling with respect to a specific independent contractor's participation in such a plan may be issued.

23 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.

24 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.

25 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.

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

27 Section 856.--Definition of a Real Estate Investment Trust.--Whether a corporation whose stock is "paired" with or "stapled" to that of another corporation will qualify as a real estate investment trust under section 856 of the Code if the activities of the corporations are integrated.

28 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.

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

30 Section 2031.--Definition of Gross Estate.--Actuarial factors for valuing interests in the prospective gross estate of a living person.

31 Section 2512.--Valuation of Gifts.--Actuarial factors for valuing prospective or hypothetical gifts of a donor.

32 Section 7701.--Definitions.--Whether a foreign arrangement that is a participant in a domestic arrangement classified as a partnership for U.S. tax purposes will itself be classified as a partnership.

33 Section 7701.--Definitions.--Whether a foreign limited liability company will be classified as a partnership if the taxpayer requests classification as a partnership and (1) the taxpayer is a corporation and less than 20 percent of the interests in the limited liability company are held by independent parties or (2) the taxpayer is not a corporation and independent parties hold only a nominal interest in the company.

34 Section 7701.--Definitions.--The classification of arrangements formed as partnerships under local law where the members of such partnerships are professional corporations.

.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 matter involving the federal tax consequences of any proposed federal, state, local, or municipal legislation. The Service may provide general information in response to an inquiry.

6 Whether reasonable cause exists under Subtitle F (Procedure and Administration) of the Code.

7 Whether a proposed transaction would subject the taxpayer to a criminal penalty.

8 A request that does not comply with the provisions of Rev. Proc. 80-20.

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

.01 Specific questions and problems.

1 Sections 61 and 163.--Gross Income Defined; Interest.--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 170(c).--Charitable, etc., Contributions and Gifts.--Whether a taxpayer who transfers property to a charitable organization and thereafter leases back all or a portion of the transferred property, may deduct the fair market value of the property transferred and leased back as a charitable contribution.

4 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 issuance of such notes.

5 Sections 304 and 357.--Redemption Through Use of Related Corporation; Assumption of Liability.--A transaction similar to that described in Rev. Rul. 80-240, 1980-2 C.B. 116, holding that sections 304(a)(1) and 357(a) of the Code are inapplicable because there was no assumption of liability, unless the taxpayer can satisfy the Internal Revenue Service that the liability was incurred by the taxpayer as a mere intermediary agent for the newly created corporate transferee. To establish this, the taxpayer must submit to the Internal Revenue Service documented evidence, composed at the time the liability was incurred, which indicates that the unrelated lender had agreed to release the transferor-borrower from any and all obligation on the liability in favor of the corporate transferee. Further, the taxpayer must show, or represent to, the Internal Revenue Service that the transfer and assumption actually occurred, or will actually occur within 12 months of the date the debt was incurred.

6 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.

7 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.

8 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.

9 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 evidence of indebtedness of the transferee and the term of the "indebtedness" is either less than 10 years or a determination as to whether the "indebtedness" is properly classified as debt or equity is required in order to establish that the requirements of section 351 are met.

10 Section 871.--Classification of alien individuals as resident or nonresident.--The determination as to whether an alien individual is either a resident or nonresident of the United States will not be made with respect to situations in which the determination is dependent on factual representations that cannot be confirmed until the close of the alien individual's affected taxable year(s), that is, representations concerning an alien individual's projected stay and activities in the United States.

11 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.

12 Section 7701.--Definitions.--Whether what is generally known as a foreign corporation will be classified as a partnership for U.S. tax purposes if the taxpayer requests classification as a partnership.

13 Section 7701.--Definitions.--Whether a foreign partnership will be classified as an association for U.S. tax purposes if the taxpayer requests classification as an association.

.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. Areas Under Extensive Study in Which Rulings or Determination Letters Will Not Be Issued Until the Service Resolves the Issue Through Publication of a Revenue Ruling, Revenue Procedure, Regulations or Otherwise

.01 Section 79.--Group Term Life Insurance Purchased for Employees.--Whether life insurance provided for employees under a "retired lives reserve" plan will be considered group term insurance (also sections 61, 72, 83, 101, 162, 264, and 641).

.02 Section 820.--Optional Treatment of Policies Reinsured Under Modified Coinsurance Contracts.--The tax consequences of modified coinsurance contracts to which section 820 of the Code may apply, including whether taxpayers who have entered into a modified coinsurance contract may allocate between the reinsured and reinsurer certain items to which section 820(c) applies.

.03 Section 1001.--Determination of Amount of and Recognition of Gain or Loss.--Determination of amount of, and recognition of, gain or loss in divorce property settlements.

.04 Section 1372.--Election by Small Business Corporation.--Whether trailer or mobile home parks or aircraft rental business qualify as electing small business corporations.

.05 Section 7701.--Definitions.--Whether a trust which is beneficially owned by the shareholders of the settlor corporation is a trust for federal income tax purposes if the corporation remains in existence after the transfer in trust, and if the corporation retains working interests in oil, gas, or mineral properties, the royalty interests of which properties are transferred to the trust.

Sec. 6. Areas for Which the Service is Prohibited by Statute from Issuing Rulings or Determination Letters

.01 Section 61.--Gross Income Defined.--Employee fringe benefits. Pub. L. 96-167, 1980-1 C.B. 483.

.02 Section 162.--Trade or Business Expenses.--Expenses of commuting, Pub. L. 96-167.

.03 Section 170.--Charitable, etc., Contributions and Gifts.--Application of revenue ruling (Rev. Rul. 79-99, 1979-1 C.B. 108) to deny a charitable contribution deduction. Pub. L. 96-74, 1979-2 C.B. 473.

Sec. 7 Effect on Other Documents

Rev. Procs. 80-22, 80-34, 80-37, 80-38, 80-41, 81-1, 81-4, 81-5, and 81-8 are superseded.