Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 66-72

1966-1 C.B. 58

Sec. 243
Sec. 671
Sec. 676

IRS Headnote

Where a trust empowers the corporate grantor to revest title to stock in the grantor, dividends received on such stock are considered as received by the corporate grantor and such grantor is eligible for the dividends received deduction provided in section 243 of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 66-72

Advice has been requested whether a corporation is eligible for the dividends received deduction, in accordance with section 243 of the Internal Revenue Code of 1954, under the circumstances described below.

Three directors or officers of X corporation, using assets of X , acquired on its behalf all of the stock of Y corporation. The same three individuals then executed a trust indenture declaring themselves trustees of Y corporation stock. Under the trust indenture the trustees vote the stock and hold the stock on the condition that all dividends received are payable directly to X to be used in X's business as its own funds or to be distributed as dividends by X to its stockholders.

The trust is to last for a period of 30 years after the death of the last trustee at which time the stock of Y is to be distributed ratably to the then stockholders of X . However, at any time before the end of such period, the board of directors of X may require the trustees to sell the stock of Y and distribute the proceeds as directed by such board of directors.

Section 676(a) of the Code provides the general rule that the grantor of a trust shall be treated as the owner of any portion of the trust if at any time the power to revest in the grantor title to such portion is exercisable by the grantor.

In the instant case X corporation has retained power to retake the trust principal at any time. The income of the trust belongs to X . It is concluded, therefore, that the trust is a revocable trust within the meaning of section 676(a) of the Code. X , in substance, is the grantor.

Items of income, deductions and credits attributable to any portion of the trust which are treated as owned by the grantor are taken into account for income tax purposes on the income tax return of the grantor. Such items should not be reported by the trust on Form 1041, U.S. Fiduciary Income Tax Return (for Estates and Trusts), but should be shown on a separate statement to be attached to that Form (section 1.671-4 of the Income Tax regulations).

Accordingly, dividends received from stock held by the trust are considered as received by X and are, therefore, eligible for the dividends received deduction provided in section 243 of the Code.