REVENUE RULE 92-51

1992-2 C.B. 102, 1992-27 I.R.B. 9.

Internal Revenue Service
Revenue Ruling

SETTLEMENT FUNDS AND SIMILAR FUNDS

Published: June 12, 1992

Section 468B.  Special Rules for Designated Settlement Funds

(See Also section 641; 1.641(a)-1)

Settlement funds and similar funds. Rev. Rul. 71-119, Rev. Rul. 70-567, and Rev. Rul. 64-131, to the extent of its third fact situation, are rendered obsolete by section 468B(g) of the Code. Rev. Rul. 82-117 and Rev. Rul. 76-50 are modified to delete references to Rev. Rul. 70-567, Rev. Rul. 64-131, and any inference that the income earned on funds or assests described therein is not subject to current tax.

Rev. Rul. 71-119, 1971-1 C.B. 163, Rev. Rul. 70-567, 1970-2 C.B. 133, and Rev. Rul. 64-131, 1964-1 C.B. 485, to the extent of its third fact situation, hold or imply that the income earned on funds or accounts described therein is not subject to current income tax, but is included in the income of the distributees of the fund in the year in which they become entitled to the funds.

Section 468B(g) of the Internal Revenue Code (which replaced section 1807(a)(7)(D)(i) of the Tax Reform Act of 1986) provides, in part, that nothing in any provision of law shall be construed as providing that an escrow account, settlement fund, or similar fund is not subject to current income tax. Section 468B(g) applies to accounts or funds established after August 16, 1986. The relevant legislative history states that section 1807(a)(7)(D)(i) of the Tax Reform Act of 1986 "reverses the finding in Rev. Rul. 71-119" for accounts or funds established after August 16, 1986. See H.R. Conf. Rep. No. 841, 99th Cong., 2d Sess. II-845 n.2 (1986), 1986-3 C.B. (Vol. 4) II-845 n.2.

Section 468B(g) of the Code renders obsolete Rev. Rul. 71-119 and Rev. Rul. 70-567 for funds or accounts that are established after August 16, 1986. Section 468B(g) also renders obsolete Rev. Rul. 64- 131 to the extent of its third fact situation, which implies that income earned from accounts established for funds deposited pending the termination of litigation is not subject to current income tax.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 71-119 and Rev. Rul. 70-567 are obsolete. Rev. Rul. 64-131 is obsolete in part (to the extent of its third situation). Rev. Rul. 82-177, 1982-2 C.B. 365, and Rev. Rul. 76-50, 1976-1 C.B. 378, are modified to delete references to Rev. Rul. 70-567, Rev. Rul. 64-131, and any inference that the income earned on funds or accounts is not subject to current income tax.

DRAFTING INFORMATION

The principal author of this revenue ruling is Lisa Bernardini of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Ms. Bernardini on (202) 377-7973 (not a toll-free call).

Rev. Rul. 92-51, 1992-2 C.B. 102, 1992-27 I.R.B. 9.