Rev. Rul. 82-164

ISSUE

Whether, under the facts described below, A will be eligible to elect to have section 305(e) of the Internal Revenue Code apply to the qualified reinvested dividends of X.

FACTS

TR is a trust which holds less than 5 percent of the shares of the common stock of X, a qualified public utility corporation within the meaning of section 305(e)(3) of the Code. A is an individual citizen of the United States and the grantor of TR. By reason of the application of various rules contained in sections 671 through 678 of the Code, A is treated as the owner of all of the property held by TR, including the X stock.

X has adopted a plan for the issuance of qualified reinvested dividends within the meaning of section 305(e) of the Code. All of the requirements of section 305(e) will be met by X.

LAW AND ANALYSIS

Section 305(e) of the Code will apply only if a shareholder elects on the shareholder's federal income tax return under sections 305(e)(2)(B) and 305(e)(8), but not all shareholders are eligible for the election. Section 305(e)(11) provides that individuals who are trusts or estates, nonresident aliens, or who own 5 percent or more in the corporation are ineligible to make a section 305(e)(8) election. Corporations are also ineligible to make the election. However, section 671 under subpart E of subchapter J provides the general rule that in cases where the grantor or another person is regarded as the owner of any portion of a trust, there shall be included in computing in the grantor's or other person's taxable income and credits those items of income, deductions, and credits against the tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account in computing the taxable income or credits against the tax of an individual. Thus, if a grantor is treated as the owner for purposes of computing his or her income, then that person should be considered an individual (and not a trustee acting on behalf of a trust) for purposes of section 305(e)(11). Compare section 5c. 128-1(f)(3) of the Temporary Income Tax Regulations.

HOLDING

By virtue of the fact that under subpart E of subchapter J of the Code, A is treated as the owner of all the property held by TR, including the X stock, A is eligible to elect to have section 305(e) apply to the qualified reinvested dividends of X.