eGrove (Univ. of Mississippi)

American Institute of Certified Public Accountants

the tax adviser, Volume 16, Number 4, April 1979

Hanley, Thomas R.

Miller, Roger

Penick, William C.

Tax Adviser 
Volume 8 Issue 1 Article 6 
1977 
Washington Report: Tax Division’s comments on proposed regs. 
under Sec. 861 
Thomas R. Hanley 
Roger Miller 
William C. Penick 
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Recommended Citation 
Hanley, Thomas R.; Miller, Roger; and Penick, William C. (1977) "Washington Report: Tax Division’s 
comments on proposed regs. under Sec. 861," Tax Adviser: Vol. 8: Iss. 1, Article 6. 
Available at: https://egrove.olemiss.edu/tax_adviser/vol8/iss1/6 
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Washington report
Editors: THOMAS R. HANLEY, CPA
ROGER MILLER, CPA
Tax Division’s comments
 
on proposed regs.
 under Sec. 861
On November 6, 1976, the IRS reissued proposed
 
regulations under Sec. 861, relating to the alloca
­tion and apportionment of deductions to gross in
­come in determining taxable income from sources
 
bot
h within and without the United States. These  
regulations 
were
 first proposed in 1966 and were  
reproposed in 1973.
On December 16,
 
1976, Samuel M. Frohlich, Chair ­
man of the International Taxation Subcommittee,
 testified at a public 
hearing
 before the Service on  
these proposed regulations. He recommended that
 the regulations be withdrawn and rewritten. Ap
­proximately 20 other individuals in groups repre
­
sent
ing various industries, associations and public  
i terest 
groups,
 also testified at the hearing. Most  
of those individuals who testified opposed the
 adoption of the 
proposed
 regulations.
For the benefit of our members who will be di
­rectly affected by these 
proposed
 regulations if  
adopted, and others interested in the subject, the  
Tax Division’s formal letter of comment, which was
 submitted to the Service, follows:
December 7, 1976
 
Commissioner of Internal Revenue
 Attention: CC:LR:T
Washington, D.C. 20224
Dear Sir:
We have reviewed and herewith submit our com
­
ments on the revised proposed regulation 1.861-8
 on allocation and apportionment of deductions to
 gross income under section 861(b) of the Internal
 Revenue Code. We previously commented on the
 1973 
proposed
 regulation and a copy of those com ­
ments, most of which still 
apply,
 is enclosed.
THE TAX ADVISER, JANUARY 1977 45
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Hanley et al.: Washington Report
Published by eGrove, 1977
The newly 
proposed
 regulation revises the prior  
proposal in two principal respects. The method of
 allocating and apportioning research and develop
­ment (R&D) expenses has been changed and alter
­native methods of apportioning interest and R&D
 expenses have been provided. However, in princi
­ple, the revised version is substantially the same
 as that proposed in 1973.
Not having been changed in principle, these new
 
proposals still contain the same basic defects that
 caused the 1973 proposals to be withdrawn. We
 pointed out then that a basic defect was defining
 classes of income by reference to deductions 
in­curred. This leads to the consequences discussed
 below and is a principal reason for the failure of
 the revised version. So intent were the drafters of
 these proposals to allocate deductions, that the
 starting 
point,
 income, was not given its proper  
recognition. Had 
the
 drafters first defined classes  
of income with a view to determining net income
 of each class, giving proper weight to the income
 that gave rise to the deduction, the rigidity and
 arbitrary nature of the proposals would be kept to
 a minimum. Therefore, we urge that the revised
 proposed regulation be withdrawn for the following
 reasons:
1.
 
The requirements are too complex, arbitrary,  
precise, and rigid and fail to provide appropriate  
set-offs and reasonable safe havens;
2.
 
The problem of double taxation is not dealt  
with and foreign branches and subsidiaries are not
 treated in the same manner; and
3.
 
The effects of the international provisions of  
the Tax Reform Act of 1976 are not taken into ac
­count to a sufficient degree.
It is our view that before a regulation in this
 
area is finalized (1) interested parties should be
 provided sufficient time to submit specific com
­ments concerning the basic principles of the pro
­posed regulations; and (2) the impact of the Tax
 Reform Act of 1976 should be thoroughly evaluated
 in its application to allocations under section 861 (b).
Undue precision and inadequate safe havens
It is our view that the 1.861-8 regulation is too
 
complex, arbitrary, precise, and rigid and is not in
 keeping with sound business practice.
Its complexity is most evident in the allocation
 
and apportionment of R&D expenses and to a
 lesser extent in 
the
 allocation and apportionment  
of interest expense.
To comply with the R&D portion of the 
regula­tion, a corporate taxpayer must classify its busi
­ness activities under two-digit Standard Industrial
 Classification (SIC) categories which were devel
­oped primarily for statistical information purposes
 and are not designed to generate exact answers.
 Used in the fashion provided in the 1.861-8 
regula­tion, with a major effect on 
the
 foreign tax credits  
as a consequence, SIC categories take on a far
 greater range of importance 
than
 was originally
intended. The apportionment under the SIC group
­
ings requires development of unrelated licensee
 sales, the determination of lag times and resulting
 percentages of present value, and a significant
 
amou
nt of other information that will cause great  
difficulty in application and administration by most
 taxpayers. It is submitted that this is a backwards
 step at a time when the Internal Revenue Service
 has stated its desire for 
tax
 simplification.
The precise and rigid nature of the proposed
 regulation stems from an attempt to set standards
 that an Internal Revenue agent would be able to
 apply in all cases. It is our view that this is not
 possible in the “source of income” area which
 deals with relative concepts, e.g., what constitutes
 R&D or stewardship expenses, or to what income
 do certain expenses relate, or 
what
 are the appro ­
priate classes of income. The precision and rigidity
 of the regulation are demonstrated throughout, af
­fecting the allocations of R&D, interest, overhead,
 and the treatment of losses on sales of capital as
­sets. Contrast this with the regulation in a closely
 related area, section 482, which provides for a
 separate intercompany pricing method if the three
 specified methods do not apply, permits a number
 of different bases in allocating royalty income, and
 sets realistic safe havens in the case of interest.
 Moreover, 
the
 section 482 regulation mandates  
correlative adjustments, permits set-offs of price
 overcharges against undercharges, provides miti
­gating provisions, and considers business condi
­tions such as exchange controls. The proposed
 1.861-8 regulation does none of these.
We are convinced that the complexity and rigid
­
ity of the regulation will lead to elaborate schemes
 and 
arrangements
 by taxpayers to reduce the  
harsh tax results. In order to offset the impact of
 the interest allocation, thin capitalization of for
­eign subsidiaries may become common. Dividends
 
from
 foreign subsidiaries may be deferred or re ­
duced in order to avoid the effect of allocations to
 foreign source income. Despite some relief given
 in the newly 
proposed
 regulation, new research  
facilities may be relocated abroad. Also, R&D ex
­penditures will be examined more closely to deter
­mine whether they can be reclassified to a different
 activity. Further, branch operations abroad rather
 than subsidiaries may be preferable in treaty 
coun­tries even though for sound business ( on-tax)
 reasons subsidiaries 
w uld
 be preferable.
Furthermore, and more important, the lack of
 
flexibility in the regulation is likely to result in long
 and protracted litigation. This will leave the IRS
 and taxpayers in the very unfortunate position of
 not being 
able
 to develop fair, consistent and rea ­
sonable solutions to meet specific business con ­
siderations.
Double taxation
Because of the increased sophistication of 
tax 
policy and administration in many foreign coun-
46 THE TAX ADVISER, JANUARY 1977
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tries, U.S. taxpayers doing business abroad have
 
had their determination of foreign taxable income
 challenged more aggressively. Accordingly, the
 allocation or apportionment of deductions for U.S.
 tax purposes has, in many instances, been unac
­ceptable to the foreign countries affected.
Double taxation of profits 
from
 foreign opera ­
tions is likely to be aggravated if this regulation is
 adopted. Differences in tax rules of the U.S. and
 foreign jurisdictions, such as the determination of
 taxable income, are compounded when these allo
­
catio
n rules are applied in their present form to  
branch income or to dividend income from foreign
 subsidiaries. For example, if a U.S. corporation has
 an activity in France, the income derived will be
 taxed by France at rates 
close
 to or exceeding the  
U.S. 
tax
 rate and, in addition, dividend payments  
or branch after-tax profits are subject to further
 French 
tax
 resulting in excess credits. Thus, every  
additional $100 of expense allocated to dividend
 income or branch income will cost the U.S. tax
­payer additional taxes of $48, tantamount to a
 disallowance of 
the
 deduction. Some recognition  
of this double 
tax
 result must be given in this  
regulation, such as the set-off principle of the sec
­tion 482 regulation; and appropriate recognition
 should be given to the impact of laws and regula
­
tion
s of foreign countries which limit the amount  
of expense allocations to operations within their
 jurisdictions.
A further comparison of the provisions of section
 
681 and section 482 demonstrates another serious
 double taxation problem caused by the inflexible
 application of this regulation. Often it is a close
 question whether an expense is subject to a sec
­tion 482 allocation and thus chargeable to a for
­eign subsidiary or subject to a section 861 alloca
­tion and thus allocable to income received 
from
 the  
foreign 
subsidiary.
 Where a foreign branch is used  
rather than a foreign subsidiary, expenses attrib
­utable to the overseas operation are allocable
 under section 861, and section 482 is generally
 irrelevant. However, expenses allocated under sec
­tion 861 to that foreign branch that are disallowed
 by the IRS on examination can be made subject
 to 
competent
 authority review if a treaty country  
is involved. There is no such competent authority
 review available for section 861 allocations to divi
­dends 
from
 foreign subsidiaries. As a result, in  
the case of allocations to dividends 
from
 foreign  
subsidiaries, double taxation can result. Since the
 bulk of U.S. investment abroad is in treaty coun
­tries, the problem may eventually be alleviated by
 providing in treaties that section 861 expenses can
 be attributed to operations of foreign subsidiaries
 if appropriate and if necessary to avoid double
taxation. In the meantime, until some relief is pro
­
vided in treaties, the U.S. should not unilaterally
 require allocation of expenses to dividend income
 which, in effect, results in double taxation.
Tax Reform Act
The revised proposed regulation applies to tax
­
able years beginning after 1976, and is 
thus
 prop ­
erly prospective in nature. Even before the passage
 of the Tax Reform Act of 1976, the proposed
 regulation would hav  r sulted in significant dou
­ble taxation. With passage of the new law, the
 severity and harshness of such double taxation is
 magnified and made onerous to a degree 
pres­ently unknown and unmeasured. To 
what
 extent  
will taxpayers be affected by the 
denial
 of the per-  
country limitation method in computing the foreign
 
tax
 credit?
Another specific provision of the new law re
­quires the recapture of an overall foreign loss.
 The Senate Finance Committee Report in discuss
­ing the definition of the
term
 “foreign loss” states  
that it means, “
the
 amount by which the gross  
income 
from
 sources without the United States is  
exceeded by the sum of the expenses . . . appor
­tioned or allocated to foreign 
sources
 and a ratable  
part of any expenses, losses, or other deductions
 which cannot definitely be allocated to some item
 or class of gross income (under sec. 862(b) of the
 Code).” The estimated increased revenue from this
 provision is $2 million but it is safe to say that
 Congress did not take into account the additional
 allocation and apportionment as a result of the
 revised proposed regulation which could easily be
 a large multiple of that amount.
Conclusion
For 
the
 reasons discussed above, and on th  
basis of our comments in response to the 1973
 proposed regulation, we again suggest that this
 
prop
osed regulation be withdrawn. We recommend,  
as we did at that time, that the concepts and ap
­proach of the regulation that was published in
 1966 on section 861(b) be reconsidered. That regu
­lation, with appropriate modifications, could serve
 as a reasonable and appropriate basis for promul
­gating a regulation on the subject of allocation and
 apportionment of deductions. Furthermore, we sug
­gest a re-examination of the statute with 
the
 pros ­
pect of referring the subject matter back to Con
­gress for its evaluation under current business
 conditions and in light of the 1976 Tax Reform Act.
Sincerely yours,
 
William C. Penick tta
THE TAX ADVISER, JANUARY 1977 47
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Hanley et al.: Washington Report
Published by eGrove, 1977


Washington Report: Tax Division’s comments on proposed regs. under Sec. 861

Tax Adviser 
Volume 8 Issue 1 Article 7 
1977 
Spotlight: Transportation expenses-clarification of Rev. Rul. 
76-453 requested 
Roger Miller 
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 Part of the Accounting Commons, and the Taxation Commons 
Recommended Citation 
Miller, Roger (1977) "Spotlight: Transportation expenses-clarification of Rev. Rul. 76-453 requested," Tax 
Adviser: Vol. 8: Iss. 1, Article 7. 
Available at: https://egrove.olemiss.edu/tax_adviser/vol8/iss1/7 
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has been accepted for inclusion in Tax Adviser by an authorized editor of eGrove. For more information, please 
contact egrove@olemiss.edu. 
spotlight
Editor: ROGER MILLER, CPA
Transportation expenses-clarification of
 
Rev. Rul. 76-453 requested
We depart from the normal format of the Spot
­
light column this month to report Rev. Rul. 76-453
 which was issued by the IRS on Nov. 22,1976. This
 ruling pertains to the deductibility of transportation
 expenses and will be of particular concern to all
 CPA firms. The reader should especially note ex
­amples 3, 4, 7 and 8.
On Dec. 10, 1976, and again on Dec. 20, 1976,
 
William C. Penick, Chairman of the Federal Tax
 Division’s Executive Committee, wrote to IRS Com
­missioner Donald C. Alexander protesting the rul
­ing and asking that it be reconsidered. The text of
 Mr. Penick’s letters to the Service follows the ed
­ited text of 
the
 Revenue Ruling, below.
Rev. Rul. 76-453
In view of recent court decisions regarding ex
­
penses incurred by an individual (who is not travel
­ing away from home) for daily transportation be
­tween the individual’s residence and place of work,
 the IRS has reconsidered the positions in Rev.
 Rul. 190 and Rev. Rul. 59-371.
Rev. Rul. 190 holds that (1) daily transportation
 
expenses incurred by construction workers, in
 going between a metropolitan area (in which they
 live and ordinarily work at various temporary 
jobs) and a temporary work location outside such area,
 are deductible business expenses; and (2) allow
­ances paid by an employer as reimbursement for
 such expenses are not “wages” for Federal em
­ployment tax purposes including income tax with
­holding.
Rev. Rul. 59-371 sets forth rules concerning what
 
is “temporary” employment for the purposes of
Rev. Rul. 190 and for the purposes of withholding
 
income tax on amounts 
paid
 to and received by  
employees as daily transportation allowances and  
per diem allowances while working on construction
 and other projects.
Sec. 162(a) in general provides that a deduction
 
will be allowed for all the ordinary and necessary
 expenses 
paid
 or incurred during the taxable year  
in carrying on any trade or business. Sec. 162(a)(2)
 specifically provides that the Sec. 162(a) deduction
 
shall
 include traveling expenses incurred while  
away from home in 
the
 pursuit of a trade or  
business.
In defining the term “adjusted gross income”
 
Sec. 62 
provides,
 in part, that allowable transpor ­
tation expenses paid or incurred by a taxpayer in
 connection with the performance of services as a
 self-employed individual or as an employee are
 deductible from gross income as trade or business
 expenses.
Sec. 262 provides that, except as otherwise ex
­
pressly provided, no deduction 
shall
 be allowed for  
personal, living, or family expenses.
Regs. Secs. 1.62-1(g), 1.162-2(e), and 1.262-1 (b)
 
(5) provide that deductible business expenses do
 not include the cost of commuting to and 
from
a  
place of work since this cost is personal in nature
 and, thus, nondeductible.
When transportation expenses are incurred by
 
a taxpayer in making daily round trips requiring no
 sleep or rest between the taxpayer’s residence and
 place of work, the travel expense deduction in Sec.
 162(a)(2) is inapplicable. Correll,
 
389 U.S. 299 (1967).  
If the taxpayer is allowed to deduct such expenses,
48 THE TAX ADVISER, JANUARY 1977
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Miller: Spotlight
Published by eGrove, 1977
it will be 
under
 the general expense provisions of  
Sec. 162(a).
In W. B. Turner, 56 TC 27 (1971), the Tax Court
 
in a reviewed opinion held that the transportation
 expenses incurred by the taxpayer in going between
 the taxpayer’s 
residence
 and temporary place of  
business were not deductible business expenses
 under Sec. 162(a), but rather were nondeductible
 commuting expenses. The Court went on to state
 that:
Commuting 
is
 commuting, regardless of the nature  
of the work engaged in, the distance traveled or the
 mode of transportation used. Our path herein was
 carefully charted in United States v. Trauterner, [407
 F2d 243 (CA-10, 1969), cert. denied, 396 US 824
 (1969)] at 246, where the Court of Appeals said:
The basic and unmodified fact of whether the tax
­
payer 
is
 going to the place where he begins work or  
is returning from the place where 
he
 ceases work  
should be determinative. Such travels are expenses
 within Sec. 262 as “personal, living or family ex
­penses” whether in an urban, suburban, or rural set
­ting. They are not ordinary business expenses under
 Sec. 162(a).
See also the recent decision in Sanders v. Com
­
missioner [439 F2d 296 (CA-9, 1971), cert. denied,
 404 US 964 (1971)].
The decision in Turner is premised on the Court’s
 
conclusion that the “temporary” nature of a tax
­payer’s work does not convert commuting expenses
 into ordinary and necessary business expenses.
The Turner decision has subsequently been fol
­
lowed in D. L. Crowson, 30 CCH Tax Ct. Mem. 953
 (1971); E. B. Gurney, 30 CCH Tax Ct. Mem. 1429
 (1971); J. W. Hill, Jr., 31 CCH Tax Ct. Mem. 14
 (1972); and P. Smith, 30 CCH Tax Ct. Mem. 739
 (1972).
Upon reconsideration of 
the
 issue, the Service  
will follow the Turner, Crowson, Gurney, Hill and
 Smith decisions.
Accordingly, where a taxpayer incurs transporta
­
tion expenses in going between the taxpayer’s
 residence and place of work even though tempo
­rary, such expenses are nondeductible 
commuting expenses, regardless of the nature of the work en
­gaged in, the distance 
traveled,
 the mode of trans ­
portation used, or the degree of necessity.
In addition, where the taxpayer who incurs such
 
daily transportation expenses is an employee and
 is reimbursed for such expenses by the employer,
 such payments are includible in gross income and
 are “wages” for purposes of the provisions of
 Chapters 21, 23, and 24 of the Code.
The application of this Revenue Ruling is illus
­
trated by the following examples:
Example (1). The distance between an individ
­
ual’s residence and regular and only place of work
 is 70 miles each way. The individual makes this
 trip daily by 
automobile.
 No deduction is allowable  
for such daily transportation expenses.
Example (2). Each day, for a two-week period, an
 
individual having no principal or regular place of
business drives 70 miles each way between the
 
individual’s residence and a temporary work 
a
s-  
signment. No deduction is allowable for such daily
 transportation expenses.
Example (3). A, a self-employed individual, main
­
tains a principal place of work in a downtown office
 building. In order to attend a business meeting in
 a distant city, A drives directly from A’s residence
 to an airport, flies to the distant city, and later that
 same day returns directly to A’s 
residence.
 Due to  
the length of time required to make the trip and
 attend 
the
 meeting, it is not reasonable to expect A  
to 
stop
 at the office on the way out of town and  
on the way back. However, in effect, A is traveling
 between one work location and another. Transpor
­tation costs incurred between work locations are
 deductible business expenses. See Rev. Rul. 55-
 109,1955-1 CB 261. Therefore, A should be entitled
 to deduct the lesser of (1) 
the
 expenses incurred  
in traveling between A’s residence and the business
 meeting and (2) the expenses that would have been
 incurred if A had traveled between A’s office and
 the business meeting by the same mode or modes
 of transportation.
However, because the difference between (1)
 
and (2) is generally de minimis compared with the
 total transportation expenses incurred for the trip,
 the Service will allow A to deduct the expenses
 incurred in traveling between A’s home and the
 business meeting.
Example (4). Assume the same facts as in exam
­
ple (3) except that B is an employee and is 
reim­bursed by B’s employer, under an expense allow
­ance arrangement, for the expenses of transporta
­tion incurred on the trip. Under such arrangement
 B is required to and does account to the employer
 for such expenses. B is allowed the same transpor
­tation expenses as taxpayer A may deduct in ex
­ample (3). B does not need to report the amount
 of 
the
 reimbursement on B’s Federal income tax 
return since B is required to and does account to
 the employer for the expenses for which reimburse
­ment is made and the reimbursement does not
 exceed the deductible expenses.
Example (5). During an entire taxable year, em
­
ployee C works at various temporary locations for
 periods of 
not
 more than one month at any one  
location. C drives varying distances each way be
­tween 
C
’s residence and each such temporary  
work location. C, pursuant to a union agreement,
 received a flat $7 daily amount as reimbursement
 for the transportation costs incurred. C is not
 required to account to the employer for such
 expenses.
C has not incurred any deductible transportation
 
expenses in going between the residence and each
 such work location. Further, the daily reimburse
­ments are includible in C’s gross income and must
 be reported on the income tax 
return
 filed. In addi ­
tion, withholding of income tax by the employer is
THE TAX ADVISER, JANUARY 1977 49
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required with respect to such transportation reim
­
bursements.
Example (6). D, an individual, who regularly
 
works and resides at home, makes daily round
 trips to and from another work location, which is
 D’s principal place of work. No portion of the trans
­portation expenses incurred for the daily round
 trips is deductible.
In addition, with regard to D’s work at home
 
(which is considered D’s minor place of work), if
 D, after returning home from the principal place of
 work, goes to one or more other work locations,
 the transportation expenses incurred in going 
from D’s home to the first work location and in returning
 home from 
the
 last such location are not deduc ­
tible.
Example (7). E, who has several regular places
 
of work, may drive from home to one or more than
 one place of work on any given work day. On the
 days that E drives to only one place of work and
 then returns home, no deduction is allowable for
 the cost of such transportation, including any park
­ing 
costs
 incurred. On the days that involve stops  
at more than one place of work, no deduction is
 allowed for the cost of transportation 
from
 E's  
home to the first work location and 
from
 the last  
work location back home. Transportation costs in
­curred between work locations are deductible busi
­ness expenses. See Rev. Ruls. 55-109.
Example (8). F, who regularly works in an office
 
located other than at F’s residence, has duties that
 require activities in that office and at various other
 locations with clients. On any given day F may (1)
 go directly from home to the office and return
 home from 
the
 office; (2) go from home to the  
office, later go to see a client during the day, and
 then return home; or (3) go from home directly to
 see a client, later go to the office, and then return
 home. In each situation, F has not incurred any
 deductible transportation expenses for any of the
 
costs
 incurred in going from home to the first work  
location and in returning home from the last work
 location.
Example (9). Assume the same facts as in exam
­
ple (8) except that on a day spent entirely in the
 office, F, after returning to the residence for dinner,
 goes 
back
 to the office in the evening to meet with  
a client. No deduction is allowable for the trans
­portation expenses incurred for either the 
daytime round trip or the evening round trip.
Example (10). Assume the same facts as in ex
­
ample (9) except that the evening meeting with the
 client is at a location other than 
F
’s office. No de ­
duction is allowable for the transportation ex
­penses incurred for either the daytime round trip
 or the evening round trip.
Example (11). Assume 
the
 same facts as in ex ­
ample (8) except that 
F
’s principal place of work  
is located at 
the
 individual’s residence. On days
that F drives to one or more other places of work,
 
the entire amount of the transportation expenses is
 deductible.
Under authority provided by Sec. 7805(b), this
 
Revenue Ruling will not be applied to transporta
­tion costs paid or incurred prior to Jan. 1, 1977.
Rev. Rul. 190 and Rev. Rul. 59-371 are revoked.
 
The following Revenue Rulings are modified to ac
­cord with the position set forth herein: Rev. Rul.
 54-497; Rev. Rul. 55-109; Rev. Rul. 61-67; and Rev.
 Rul. 63-82.
AlCPA responses
December 10,
 
1976
Commissioner of Internal Revenue
 1111 Constitution Avenue, N.W.Washington, D.C. 20224
Re: Rev. Rul. 76-453, IRB 1976-47
Dear Sir:
The purpose of this letter is to express our con
­
cern over the meaning of Rev. Rul. 76-453, which
 discusses several different examples of transporta
­tion expenses. Because of the effective date of this
 ruling, January 1, 1977, we urge that you review 
it in light of our comments noted below as quickly
 as possible, so that the large number of taxpayers
 who are affected will have a clear understanding
 of what is intended.
As a basic principle, we agree that commuting
 
expenses (i.e., costs incurred in traveling 
from
 a  
taxpayer’s residence to his principal place of work)
 are personal within the meaning of the IRC Sec.
 262, and should not be deductible. We think that
 this principle should be followed in the situations
 set forth in Rev. Rul. 76-453.
Our primary concern relates to Examples (7) and
 
(8), and, in particular, the rules that should apply
 to situations where an employee does have a prin
­cipal place of work, but is required to go to other
 locations to contact clients or customers on par
­ticular days when he does not go to his principal
 place of work.
Perhaps our concern can be expressed by an
­
other example. Assume that an employee of a
 professional firm lives in Virginia, ten miles from
 his firm’s office location in Washington. Assume
 further that the employee has to visit the office of
 a client in 
Rockville,
 Maryland, either for part of a  
day, all of a day, or perhaps for several days.
 Rather than 
drive
 from his home to his office in  
Washington (a distance of 10 miles each way) and
 then drive to the client’s office in Rockville (a dis
­tance of 30 miles), the employee drives directly
 from his home to the client’s office in Rockville
 (a distance of 35 miles). 
It
 seems equitable that,  
in this situation, where the employee drives a total
 of 70 miles on a given day to and from his client’s
 office, the excess of that distance over his normal
 commuting mileage (20 in this case), should clearly
 be allowable as business travel.
50 THE TAX ADVISER, JANUARY 1977
3
Miller: Spotlight
Published by eGrove, 1977
A literal reading of Examples (7) and (8) sug
­
gests that this may not be correct. 
If
 it is the intent  
of those examples to disallow travel expenses in
 the situation described above, we suggest that it
 is a very unrealistic approach and could 
encourage employees to 
drive
 to their office first, then drive  
to the client’s office, and return to their office be
­fore going home at the end of the day. 
This
 would  
seem to be not only a waste of time, but would also
 involve additional mileage and gasoline consump
­
tion
, which exacerbates our energy shortage.
In Example (3), the situation dealt with involves
 driving to the airport, boarding a plane to a dis
­tant city, and driving home from the airport follow
­ing the air trip. In this case, under a "de minimis”
 approach, all of the mileage for the ground trans
­portation would be allowed as business expense.
 We do not think this approach should be limited
 to situations where air transportation is used for
 part of the trip. It certainly should apply where
 other kinds of ground or 
rail
 transportation are  
used, as well as situations where automobile trans
­portation is used for the entire trip.
As noted earlier, since the effective date of this
 
ruling is very near, we urge that immediate atten
­tion be given to this and that a clarification of the
 ruling be issued as quickly as possible. We would
 be pleased to meet with you or other appropriate
 Service personnel to discuss this, if you so desire.
Very truly yours,
 
William C. 
Penick
December 20, 1976
Commissioner of Internal Revenue
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Dear Sir:
This is a follow-up to our letter of December 10,
 
requesting reconsideration of Rev. Rul. 76-453, re
­
lating to various types of employee transportation
 
expenses.
Over 
the
 last ten days, a number of taxpayer  
groups who will be affected by the new ruling, 
in­cluding many of the major accounting firms, have
 been considering problems of implementing the
 changed rules, if these procedures are adopted as
 proposed. Aside from changes in computerized
 payroll and expense reporting systems, a very real
 problem exists in revising personnel policies and
 communicating the changed procedures to literally
 thousands of employees in all parts of the country.
We will urge strongly that the Revenue Service
 
reconsider its position in situations where an em
­ployee has a principal place of work but, on cer
­tain days, in the interest of saving time, cost and
 automobile usage, goes directly to or returns from
 a client’s or customer’s office without visiting that
 place of work. In situations like these, 
the
 em ­
ployee should be permitted to treat as deductible
 expense 
the
 excess of travel expenses or mileage 
incurred over his normal cost of commuting from
 residence to office.
In the event that you do not agree with this
 
change, however, we request that you defer the
 effective 
date
 of this ruling to July 1, 1977 to pro ­
vide employers sufficient time to change internal
 accounting procedures and to inform their person
­nel about the changed policies. Because of the
 rapidly approaching effective 
date
 of the ruling it ­
self (about ten days from now), we urge that you
 adopt this 
change
 in effective date and inform the  
public as soon as possible.
Representatives of our Division would be pleased
 
to meet with you and other appropriate Revenue
 Service or Treasury officials to discuss this matter
 in more depth, if this would be helpful in resolving
 the matter expeditiously.
Very
 truly yours,
William C. Penick tta
THE TAX ADVISER, JANUARY 1977 51
4
Tax Adviser, Vol. 8 [1977], Iss. 1, Art. 7
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Spotlight: Transportation expenses-clarification of Rev. Rul. 76-453 requested

Grauer, Josh

Tax Adviser 
Volume 8 Issue 3 Article 4 
1977 
code words 
Josh Grauer 
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 Part of the Accounting Commons, and the Taxation Commons 
Recommended Citation 
Grauer, Josh (1977) "code words," Tax Adviser: Vol. 8: Iss. 3, Article 4. 
Available at: https://egrove.olemiss.edu/tax_adviser/vol8/iss3/4 
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contact egrove@olemiss.edu. 
code words
by JOSH GRAUER, CPA
ACROSS
1
 
Greek irredentist's goal
7
 
Sutherland or Sills
11 Professional initials
14 Crap shooter’s play 
(again)
15 Pahlavi’s realm
16 Eugene and 
Salem
 state: abbr.
17 Commissioner’s tools
19 17 Across: abbr.
20 Found in soda and in bodacious
21 Found before cure and center
22 Sec. 2010, ’54 Code, for example
23 Linguistics expert Mario
24 Millstone support
26 Israeli A.F. general
28 American saint and relatives
30 They lack contractual capacity
33 Contains agent’
s
 findings: abbr.
34 
Steep
 slope
36 Eat
38 Ancient Mexican
41 British raingear
42 Professional pronouncement initials
44
 Human and not divine act: infin.
46 Sec. 274 substantiation
47 London district
49 Rural affirmative
51 Triumphal expletive peculiar to California
53 Before
55 Last in certain series of numbers (2 words)
57 Take 
away
60 
Observe61 Accountant’s need after April 15
64
_______
Gerver, CPA; Ivy leaguer
65
 _______
 Lingus
67 Short for 10 Down
69 Hway
70 Encore!
71 Summer soldier, perhaps: (2 words)
74 Initials for security org.
75 Blarney’
s
 home
76 Peat’s Pete and family; church officers
77 Not elsewhere specified: abbr.
78 Hautboy
79 Reforest
DOWN
1 Subject of SRTP No. 6
2
 
Sec. 170 gift recipients
3
 
. They are concerned with carbon  
compounds (2 words)
4
 
French coin
5 Winnie 
_____ 
Pu
6
 
Deliriously irrational
7
 
502 in Rome
8
 
Depletable element
9
 
Wind Indicators
10
 
Response
11 Subchapter C subject (2 words)
12
 
Dress
13 Sponsorship
18 Noun-making suffix
25
 Basic molecular units of heredity
27 “Lost Weekend” malady
29 Hayakawa’
s
 hat
31
_______ 
Lippo Lippi
32 What one may do when refund claim is denied
34 Dispatch
35 Portuguese saint
37
 Claimant of sorts
39 Tibetan Ferdinand
40 Professional membership org.
43 Grauer, Hur, or Gurion
45
 Regret, particularly in Paris
48 Iberian gold
50 Qts/2
52 Educational underpinnings
54 Sec. 7201 miscreant
56 Unfriendly persuation or pursuit
57
 Forbid again
58 Omit
59
 Ghostly
62 Cubic measure
63 What the '54 Code 
is
 not
66 Unusual
68 Type of practitioner
72 Found in 413 Fed (2d) 636
73 Bug’
s
 nemesis
1 2 3 4 5 6 █L 8 9 10 11 12 1314
17 18
20 3, ■ 22 23
24 26 27 ■ 28 29
30 31 32 ■ 33
34 35 36 37 ■ 38 39 40
41 ■ 42 ■ 44 ■ •
47 49 50 ■ 52
53 ■ 56
57 58 59 60 ■ 62 63
64 65 66 ■ 67 69
70 J 71 72 73
74 75 J 76
77 78 79
(Solution on p. 177)
THE TAX ADVISER, MARCH 1977 161
1
Grauer: code words
Published by eGrove, 1977
These footnotes will disclose (among other infor
­
mation), the estimated current cost at the end of
 the reporting period of replacing inventories, as
 well as 
the
 approximate cost of sales for the two  
most recent full fiscal years computed on the basis
 of 
replacement
 cost during the reporting period.  
Will any of these disclosures create a conformity
 problem for a corporation using the LIFO inven
­tory method?
IRS response. The Service is considering this
 
problem and hopes to publish something soon deal
­ing with replacement cost.
Note: Rev. Proc. 77-7, IRB 1977-10, satisfactorily
 
resolves this problem. It does, however, conclude
 that a "computation of a cost of goods sold is an
 integral part of computation of income." The com
­mittee understands but does not necessarily agree
 with this conclusion.
Problem 3-22. The first sentence of Rev. Proc.
 
76-7 under Section 3.03 of the Procedure reads
 “the computation made to determine the income
 effect of penetration of a LIFO layer must be made
 on the same basis employed by the taxpayer in
 actually valuing its LIFO increments” (emphasis
 added). 
This
 computation should be stated as a  
general rule rather than the only rule. There should
 be room for exceptions.
In certain fact situations—where 
the
 specific  
period and reason for the LIFO decrement can be  
pinpointed—there is accounting authority for com
­puting the income effect with reference to costs of
 the particular period. For instance, a decrement
 might occur in 
the
 third quarter of the taxpayer’s  
year because of a strike or other unforeseen event
 and the taxpayer 
then
 knows that the decrement  
will not be restored before year-end. In this case,
 calculation of the income effect of the liquidation
 with reference to the third quarter’s inventory cost
rather than the first quarter’s cost would be proper
 
disclosure.
Under the 
present
 terms of Rev. Proc. 76-7, tax ­
payers will be nervous about disclosing the income
 effect on a basis other than the prescribed method.
AICPA comments. To ease taxpayers’ concern in
 
this area, can the Service incorporate more lenient
 language in the revised edition of Rev. Proc. 76-7?
IRS response. The Service requests that the com
­
mittee provide an illustration of this problem.
Problem 3-23. Most department stores that are
 
on LIFO use the BLS indices for making the LIFO
 calculations. For publicly-held companies, which
 under SEC rules have to provide a good bit of
 information in quarterly earnings statements, esti
­mates have to be made at the end of each of 
the first three quarters of what 
the
 BLS indices may  
ultimately turn out to be. These estimates then
 form the basis for the quarterly earnings that are
 reported.
In the final quarter, when the exact index fac
­
tors are known, if they are significantly different
 from the earlier estimates, proper financial report
­ing would require disclosing either in the annual
 statement or in a separate report for 
the
 fourth  
quarter the 
amount
 required in that quarter to cor ­
rect the earlier estimates. 
Under
 this procedure,  
there would not be disclosure to shareholders of
 what earnings would have been on other than a
 LIFO method.
The question is whether or not the fourth quarter
 
disclosure, which 
is
 intended to correct estimates  
for the first three quarters, would by any stretch of
 imagination violate the conformity requirement.
IRS response. The Service contemplates publishing
 
a ruling to deal with this question. See also Rev.
 Rul. 76-475, IRB 1976-49, 11. tta
THE TAX 
ADVISER,
 MARCH 1977 177
2
Tax Adviser, Vol. 8 [1977], Iss. 3, Art. 4
https://egrove.olemiss.edu/tax_adviser/vol8/iss3/4


code words

Tax Adviser 
Volume 8 Issue 3 Article 9 
1977 
Author index, 12 months ended February 1977 
American Institute of Certified Public Accountants 
Follow this and additional works at: https://egrove.olemiss.edu/tax_adviser 
 Part of the Accounting Commons, and the Taxation Commons 
Recommended Citation 
American Institute of Certified Public Accountants (1977) "Author index, 12 months ended February 
1977," Tax Adviser: Vol. 8: Iss. 3, Article 9. 
Available at: https://egrove.olemiss.edu/tax_adviser/vol8/iss3/9 
This Article is brought to you for free and open access by the Archival Digital Accounting Collection at eGrove. It 
has been accepted for inclusion in Tax Adviser by an authorized editor of eGrove. For more information, please 
contact egrove@olemiss.edu. 
author index
12 months ended
 
February 1977
Abbin, Byrle M.
Estate planning: Significant recent developments concerning
 
estate planning—1976. Part I—76:166. Part II—76:228. Part
 III—76:288. Part IV—76:331.
Adams, Dean A.
The Tax Reform Act of 1976—what’s in it for business? 77:4.
Alpern, Anita F.
Staggered filing: an idea whose 
time
 has come? 76:221.
Bagley, Ron N.
Gift tax now or estate tax later? New planning guides. 76:346.
Barnett, Bernard
Accumulation trusts and the '76 Act—simplification at a
 
price. 76:654.
Bauernfeind, George G.
Estate and gift taxes—could this be the year for change?
 
76:485. See also Hanley, Thomas R.
Benson, Cynthia C.
See Sanchez, R. 
Michael.
Blum, Marc P.
ESOPs as financing vehicles: dilution aspects. 76:452.
Bodzin, Stephen A.
Tax planning for insolvent individuals. Part I—76:324. Part
 
II
—76:395.
Braun, Steven
Taxation of professional sports teams. 76:196.
Cain, Douglas M.
See Sanchez, R. Michael
Campbell, Jimmy F.
Taxation of foreign exchange activities of commercial banks.
 
76:541.
Carlson, David K.
See 
Abbin,
 Byrle M.
Chan, Lionel
ERISA implications for fringe benefit programs. 76:266.
Chapman, Benson J.
Divorce and separation: 
recent
 income tax developments.  
76:592.
Charyk, William R.
See Bodzin, Stephen A.
Cole, Robert T.
Highlights of the new U.S.-U.K. income tax treaty. 76:580.
Daskal, Robert H.
See Abbin, 
Byrle
 M.
Dickman, Marvin J.
See Hammert, Walter S., Jr.
Eckard, Kurt H.
Personal liability of corporate executives for withholding
 
taxes. 76:266.
Ellis, Loudell 0.
Tax on unrelated business income of churches. 76:270.
Emory, Meade
Auditing corporate returns and the illegal payments area—
 
a view from within the Service. 76:459.
Eustice, James S.
Tax complexity and the tax practitioner. 77:27.
Forster, Joel M.
IRS and AICPA discuss tax administration—1975. Part II—
 
76:157. Administrative Conference recommendations on IRS
 procedures. 76:240. The IRS illegal payment questionnaire.
 76:299. The IRS illegal payment questionnaire—update 76:
 366. The IRS illegal payment questionnaire—update. 76:
 423. Estate and gift taxes—could this be the year for
 change? 76:485.
Goldberg, Daniel S.
Lifetime gifts in 1976: planning and strategy. 76:716.
Hanley, Thomas R.
Congressional Budget Act of 1974. 76:551. The tax expendi
­
tures budget. 76:614. The illegal payment questionnaire re
­visited. 76:687. 
Regulation
 of return preparers under the '76  
Act. 76:751. Tax Division comments on proposed Sec. 861
 regs. 77:45. Tax Division’s comments on Sec. 585 proposed
 regulations. 77:108.
Hammert, Walter S., Jr.
Dispositions of subchap. S stock. 76:535.
Harmelink, Philip J.
Jeopardy and termination assessments: the Laing case and
 
the Tax Reform Act of 1976. 76:708.
Hoffman, Arthur S.
Estate planning: Intricacies of the fiduciary income tax return
 
—Form 1041. 76:425.
Huene, Herbert A.
Beware the ESOP: a cautionary 
tale.
 76:722.
Jarchow, Stephen P.
See Stevenson, Willis C.
Klingman, Barry
The '76 Act hits the tropics: the improved investment climate
 
in Puerto Rico. 77:12.
Kramer, John L.
Accelerating the benefit of deemed-paid foreign tax credits.
 
77:36.
Lamp, Walter
U.S. tax benefit from foreign subsidiary losses. 77:98.
Lange, N. Richard
See Zwick, 
Jude
 P.
Leibowicz, Barry
Hedging in foreign currency: capital or ordinary? 76:477.
Lieberman, Paul
Tse taxation of ESOTs. Part II—76:132.
Linett, Eugene S.
For Tax Trends column, see “at a glance’’ page of each issue.
Maguire, Edward
See Cole, Robert T.
Miller, Roger
See Hanley, Thomas R.
O’Connor, Walter F.
See Campbell, Jimmy F.
Padwe, Gerald W.
Tax shelters after the 
Tax
 Reform Act of 1976. 76:644.
Parker, James P.
See Sexton, John J.
Pavlock, Robert S.
The taxation of ESOTs. Part II—76:132.
Phillips, Lawrence C.
Tax implications of accounting for inflation. 76:465.
Pies, Roger A.
See Goldberg, Daniel S.
Pratt, James S.
Tax aspects of subchap. S distributions not in 
exchange
 of  
stock. 76:741.
Pries, Jacques A.
Estate and gift tax reforms of the ’76 Act: summary and
 
analysis. 77:68.
Pusey, Michael
Taxation of professional sports teams. 76:196.
Redemske, Michael R.
Income tax considerations for the condominium corporation.
 
76:608.
Saltzman, Michael I.
Accountants and the IRS summons: 
recent
 developments.  
76:516.
THE TAX ADVISER, MARCH 1977 191
1
: Author index, 12 months ended February 1977
Published by eGrove, 1977
Sanchez, R. Michael
The vesting provisions of ERISA. Part I—76:408. Part II—
 
76:491.
Schorr, Eugene G.
Allocation of trust expenses to nontaxable income—the capi
­
tal gain controversy. 76:360.
Sexton, John J.
Tax litigation reform. 76:670.
Shull, Joseph A.
Tax incentives for historic preservation. 76:224.
Shurtz, Nancy E.
See Harmelink, Philip J.
Siegel, Mayer
The utility of the professional corporation: a rejoinder. 76:663.
South, John B.
See Bagley, Ron N.
Stellwagen, Gerard F.
See Schorr, Eugene G.
Stevenson, Willis C.
Protecting the tax integrity of partner-partnership transac
­
tions. 77:82.
Strassler, Philip F.
See Chapman, Benson J.
Stromsem, William
See Hanley, Thomas R.
Wegge, James R., Jr.
Insurance expirations: goodwill or not? 76:145.
Wheeler, James E.
Social Security—its place In our tax and retirement systems.
76:150. See also Kramer, John L.
Wilson, Donald E.
See Pries, Jacques A.
Wood, James
See Sanchez, R. Michael
Zwick, Jude P.
Accounting and tax treatment of industrial development
 
bonds. 76:388.
Tax clinic editors
Borini, Mario P.
Sept. 76:525.
Diss, William T.
Jan. 77:19.
Elder, Peter
Apr. 76:207.
Farber, Paul
June 76:351.
Gregory, William H.
Nov. 76:677
Josephs, Stuart R.
May 76:277.
Lerner, Herbert J.
Aug. 76:471.
Oehring, Thomas S.
Dec. 76:732.
Raby, William L.
Oct. 76:599.
Schwanbeck, William J.
Mar. 76:137.
Schwartz, Barry
Feb. 77:91.
Tarantino, Dominic A.
July 76:401.
Key to page references
Pages Issue Pages Issue Pages Issue
76:129-192 March 76 76:385-448 July 76 76:641-704 Nov. 76
76:193-256 April 76 76:449-512 Aug. 76 76:705-768 Dec. 76
76:257-320 May 76 76:513-576 Sept. 76 77:1-64 Jan. 77
76:321-384 June 76 76:577-640 Oct. 76
77:65-128
Feb. 77
192 THE TAX ADVISER, MARCH 1977
2
Tax Adviser, Vol. 8 [1977], Iss. 3, Art. 9
https://egrove.olemiss.edu/tax_adviser/vol8/iss3/9


Author index, 12 months ended February 1977

Tarantino, Dominic A.

tax clinic

Abbin, Byrle M.

Daskal, Robert H.

Carlson, David K.

Estate Planning: Significant recent developments concerning estate planning (part IV)

the tax adviser, Volume 8, Number 9, September 1977

Linowes, Harry M.

Estate Planning: Joint ownership with right of survivorship— the gift tax consequences

Manning, Robert F.

Tax Adviser 
Volume 8 Issue 10 Article 7 
1977 
Spotlight 
Robert F. Manning 
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 Part of the Accounting Commons, and the Taxation Commons 
Recommended Citation 
Manning, Robert F. (1977) "Spotlight," Tax Adviser: Vol. 8: Iss. 10, Article 7. 
Available at: https://egrove.olemiss.edu/tax_adviser/vol8/iss10/7 
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contact egrove@olemiss.edu. 
spotlight
Editor: ROBERT F. MANNING, J.D.
Legislation
•
 
Adoption expenses. Sen. Daniel Inouye (D-  
Hawaii) has introduced a bill (S. 1997) which would
 allow a $1,000 deduction for expenses incurred in
 adopting a child. Deductible expenses would in
­clude adoption agency fees, court costs, attorney’s
 fees, and other necessary costs connected with
 the adoption process.
IRS rulings, etc.
•
 
Bank holding companies. The IRS has an ­
nounced (IR-1870, 8/11/77) new procedures for
 qualified bank holding companies electing to pay
 a certain portion of their income tax liability in
 annual installments. The Bank 
Holding
 Company  
Tax Act of 1976 amended Sec. 6158 to provide
 that a qualified bank holding company may elect
 to pay the tax attributable to the sale of certain
 assets in equal annual installments over a 10-year
 period.
•
 
After the ball is over. A taxpayer made a  
donation to an inaugural committee that was in
 charge of fund-raising affairs and other activities
 in connection with a Presidential inaugural cere
­mony. The committee was appointed by the Presi
­dent-elect, and it sponsored the inaugural parade,
 the inaugural ball, etc. Some of the activities were
 open to the public, while admission to others was
 by invitation only. The IRS has held that the dona
­tion is not a deductible charitable contribution
 under Sec. 170(c)(1) because it is not a gift to or
 for the use of the United States for exclusively
 public purposes. Furthermore, the donation is not
 deductible under Sec. 170(c)(2) because the com
­mittee is not a charitable organization. (Rev. Rul.
 77-283.)
•
 Exempt
 organizations. A nonprofit organiza ­
tion was formed to provide security 
services
 for  
residents and property owners of a particular com
­munity. In return for the services, contracting cli
­ents agree to make voluntary donations to the or
­ganization at a specified rate 
per
 hour to defray  
the costs and expenses of performing the services.
 Occasionally, the organization provides free se
­curity and rescue services if necessary to protect
 life or 
property.
 All of the organization’s income is  
derived 
from
 clients for whom security services are
provided.
 The IRS has held, in Rev. Rul. 77-273,  
that the organization doesn’t qualify for 
tax
 exemp ­
tion 
under
 Sec. 501(c)(4) (civic leagues).
•
 
More returns on tape. The IRS has announced  
(IR-1871, 8/12/77) that 
it
 has enlarged its magnetic  
tape and disc reporting program for certain infor
­mation returns. Beginning Jan. 1, 1978, 1977 infor
­mation returns Forms 1099 and 1087 may be 
filed on compatible cartridge discs or diskettes. After
 processing, the IRS will return the disc or diskette
 to the filer.
•
 
Congressman enjoys nonrecognition. After his  
election to Congress, the taxpayer bought a resi
­dence in Washington, while retaining ownership of
 a residence in his congressional district. For the
 next eight years, the taxpayer and his family occu
­pied the Washington residence, and his children
 attended school in the Washington area. On occa
­sion, the taxpayer used the residence in his con
­gressional district for lodging during visits there.
 Subsequently, the taxpayer sold the Washington
 residence at a gain and bought another Washing
­ton residence. In holding that the gain on the sale
 was entitled to nonrecognition under Sec. 1034,
 the IRS 
pointed
 out that when a taxpayer alter ­
nates between two properties, physically occupy
­ing each as a residence for successive periods of
 time, the property that the taxpayer occupies a
 majority of the time will ordinarily be considered
 his principal residence. (Rev. Rul. 77-298.)
•
 
Restricted securities valuation. The IRS has  
issued new guidelines for the valuation, for federal
 tax purposes, of securities that can’t be immedi
­
ate
ly resold because they’re restricted from resale  
pursuant to federal securities laws. (Rev. Rul. 77-
 287, amplifying Rev. Rul. 59-60 as modified by
 Rev. Rul. 65-193.)
•
 
Nonacquiescences. The IRS has announced  
its nonacquiescence in Est. of Kelley, 63 TC 321
 (1974), and its withdrawal of acquiescence and
 substitution of 
nonacquiescence
 in S. R. Haygood,  
42 TC 936 (1964). In those cases the Tax Court
 upheld, for the purposes of annual gift tax exclu
­sions, arrangements whereby parents transferred
 property to their children and took back vendor’s
 lien notes that were forgiven each year as they
 became due.
620 THE TAX ADVISER, OCTOBER 1977
1
Manning: Spotlight
Published by eGrove, 1977
•
 
Sec. 183 applies to partnership. Sec. 183 pro ­
vides that when an individual or a subchap. S cor
­poration engages in an activity that’s not for 
profit, no deduction attributable to that activity is allowed,
 except as provided in Sec. 183. Sec. 703(a) pro
­vides that the taxable income of a partner shall be
 computed in the same manner as in the case of
 an individual. Therefore, says the IRS in Rev. Rul.
 77-320, Sec. 183 applies to the activities of a part­nership, and its provisions are applied at the part
­nership level and reflected in the partners’ dis
­tributive shares.
Regulations
•
 
At risk rules. The IRS has issued temporary  
regulations (T.D. 7504) under Sec. 465 that provide
 rules for determining amounts at 
risk
 as of the  
first day of the first taxable year for which Sec.
 465 is applicable. The regs. apply to activities
 begun, but not completed, prior to the effective
 date of Sec. 465. Sec. 465 generally applies to
 losses attributable to amounts paid or accrued in
 taxable years beginning after Dec. 31, 1975.
•
 
Foreign trusts. The IRS has issued temporary  
regulations under Sec. 6048 relating to the filing of
 an annual return for a foreign trust having a U.S.
 beneficiary. (T.D. 7502.) The temporary regulations
 require an annual return (Form 3520-A) to be filed
 by a grantor or transferor subject to 
tax
 under Sec.  
679. Generally, the return must be filed by the 15th
 day of the 4th month following the end of the tax
 year of the grantor.
Pensions
•
 
Model plans. The IRS has announced that a  
restated model money purchase pension plan is
 now available for corporate employers to use in
 replacing their existing money purchase plans.
 (IR-1877, 8/23/77.) The model plan, if adopted in
 its entirety and without changes, will automatically
 meet the qualification requirements of Sec. 401(a).
 The adoption procedures and limitations on the
 use of the model plan can be found in Rev. Proc.
 77-15, IRB 1977-21, 25.
•
 
IRS information. The IRS has announced (IR-  
1873, 8/17/77) that less information reporting will
 be required of IRA sponsors beginning in 1978.
Form 5498, Statement of Account for Participants
 
in Individual Retirement Accounts or Annuities,
 and Form 5499, Annual Summary and Transmittal
 of Individual Retirement Arrangement Statements,
 are no longer 
required.
 However, additional infor ­
mation will be reported on Form 1099-MISC, State
­ment for Recipients of Miscellaneous Income.
•
 
Church and gov’t plans. The IRS has extended  
the due date and has reduced reporting require
­ments for certain returns (Form 5500 or Form
 5500-C) required to be filed by governmental
 units and churches maintaining employee benefit
 plans. (IR-1875, 8/18/77.) Governmental units and
 churches will have until Dec. 31, 1977, to file 1975
 returns and any 1976 returns due before that date.
 Form 5588, Application for Extension of Time, must
 be used to obtain additional time to file returns
 due after Dec. 31, 1977.
•
 
Appeal procedures. The IRS has issued Rev.  
Proc. 77-25, which sets forth the instructions for
 
the
 appeal of proposed adverse determination let ­
ters issued by Key District Offices on the qualifi
­cation of employee plans involving Secs. 401, 403
 (a), and 405(a). Rev. Proc. 77-25 modifies Rev.
 Proc. 72-6.
People
•
 
Treasury General Counsel. Robert H. Mund-  
heim has been confirmed by the Senate as Gen
­eral Counsel for the Treasury. Mr. Mundheim has
 been professor of law at the University of Pennsyl
­vania Law School and professor of finance at the
 Wharton School.
•
 
Deputy Tax Counsel. Treasury Secretary Blum ­
enthal has appointed John M. Samuels as Deputy
 Tax Legislative Counsel. Mr. Samuels has been a
 special consultant to the Treasury Department
 since June. Before joining 
the
 Department, he had  
been a partner in the New York City law firm of
 Dewey, Ballantine, Bushby, Palmer and Wood.
•
 
Director of collection. Kenneth E. Luke has  
been promoted to Director of the IRS Collection
 Division in Washington. He succeeds Thomas L.
 Davis, who was appointed Director of the Pitts
­burgh IRS District. Mr. Luke, who has been with
 the IRS since 1951, was most recently the Assist
­ant Director of the Collection Division. tta
THE TAX ADVISER, OCTOBER 1977 621
2
Tax Adviser, Vol. 8 [1977], Iss. 10, Art. 7
https://egrove.olemiss.edu/tax_adviser/vol8/iss10/7


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