REVENUE RULE 92-49

1992-1 C.B. 433

Internal Revenue Service
Revenue Ruling

REPORTING ON COIN-OPERATED AMUSEMENTS 1992

26 CFR 301.7701-3; Partnerships.

Reporting on coin-operated amusements. An arrangement between an owner of coin-operated amusements and an owner of a business establishment may be a lease or a joint venture depending upon the particular facts. Rev. Rul. 57-7 amplified.

ISSUE

What reporting requirements apply for federal income tax purposes if an owner of coin-operated amusements arranges with the owner of a business establishment to place amusements on the business premise and divide the receipts from the amusements between themselves.

FACTS

Owners of coin-operated amusements arrange with owners of businesses to place amusements on their business premise. Coin- operated amusements include video games, pinball machines, jukeboxes, pool tables, slot machines, and other machines and gaming devices that are operated by coins or tokens inserted into the machines by individual users.

The arrangements between the owners of the coin-operated amusements and the business owners may be established pursuant to written or oral agreements, the terms of which may vary. Typically, income from the operation of the coin- operated amusements is divided between the owner of the coin-operated amusements and the owner of the business on a percentage basis.

LAW AND ANALYSIS

Section 604(a) of the Internal Revenue Code provides that all persons engaged in a trade or business and making payments in the course of the trade or business to another person of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments, not relevant here, dealt with by other Code sections), of $600 or more in any taxable year must render a true and accurate return to the Secretary setting forth the amount of the gains, profits, and income, and the name and address of the recipient of the payment.

Section 1.6041-3(c) of the Income Tax Regulations provides, in material part, that returns of information are not required under section 6041 of the Code with respect to payments to a corporation.

Section 6031(a) of the Code provides that every partnership (as defined in section 761(a)) must make a return for each taxable year, stating specifically the items of its gross income and the deductions allowable by subtitle A, and other information for the purpose of carrying out the provision of subtitle A as the Secretary may by forms and regulations prescribe. This partnership return must include the names and addresses of the individuals who would be entitled to share in the taxable income if distributed and the amount of the distributive share of each individual.

Sections 761(a) and 7701 (a)(2) of the Code define a partnership as a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not a corporation or a trust or estate.

Rev. Rul. 57-7, 1957-7 C.B. 435, describes an arrangement between the owner of coin-operated amusements and the occupant of premise that constitutes, based upon the particular facts, a lease of space by the occupant as lessor to the owner of the amusements as lessee. Rev. Rul. 57-7 holds that if the remuneration paid by the owner of the amusements to the occupant of the premises (if other than a corporation) in any taxable year amounts to $600 or more, the owner of the amusements must file, under section 6041 of the Code, an information return on Form 1099 to report that remuneration.

In Manchester Music Company, Inc. v. United States, 733 F.Supp. 473 (D.N.H. 1990), the court concluded that certain agreements between an owner of coin- operated amusements and owners of establishments where the amusements were placed constituted joint ventures. Therefore, the court held that the owner of the amusements was not required to file Forms 1099.

HOLDING

Whether an arrangement between an owner of coin-operated amusements and an owner of a business establishment is a lease or a joint venture is determined upon the particular facts. If the arrangement is a lease of either the amusements or the amusement space by a lessor other than a corporation, the lessee must file, under section 6041 of the Code, an information return on Form 1099 for any taxable year in which the lease payments aggregate $600 or more. However, if the arrangement is a joint venture, the joint venture must file, under section 6031, a partnership return on Form 1065 and must provide each partner with the information necessary to report the partner's distribute share of the taxable income.

APPLICATION

The Internal Revenue Service will continue to take the position that an arrangement like that in Rev. Rul. 57-7 is a lease of space upon which the amusements are placed. If a taxpayer, in good faith, takes the position that an equivalent arrangement is a lease and the requirements of section 6041 of the Code are met, the Service generally will not challenge the position; however, if the Service recharacterizes the arrangement as a joint venture, the taxpayer will not be subject to any penalties for failure to meet the requirements of section 6031. Nevertheless, if a taxpayer, in good faith, takes the position that such an arrangement is a joint venture and the reporting requirements of section 6031 are met, the Service generally will not challenge the position; however, if the Service recharacterizes the arrangement as a lease, the taxpayer will not be subject to any penalties for failure to meet the reporting requirements of section 6041.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 57-7 is amplified.

Rev. Rul. 92-49, 1992-1 C.B. 433