which H holds title to the property, In any case in which a purported principal owns a controlling stock interest in its purported corporate agent, whether an agency relationship will be recognized for Federal income tax purposes is determined by reference to more than the presence of the usual incidents of an agency relationship. If a corporation is a true agent, its relations with its principal must not be dependent upon the fact that it is owned in substantial part by the principal. National Carbide Corporation v. Commissioner, 336 U.S. 422 (1949). The significant criteria that must be examined are whether "the so-called 'agent' would have made the agreement if the so-called 'principals' were not its owners, and conversely whether the 'principals' would have undertaken the arrangement if the 'agent' were not their corporate creature." Harrison Property Management Co., Inc. v. United States, 475 F.2d 623, 627 (Ct. Cl. 1973), cert. denied 414 U.S. 1130, reh. denied 415 U.S. 952 (1974). Thus, for a true agency relationship to exist, it must be shown that the principal's control over the corporation's functions in an agent's capacity rests on a relationship independent of any control attributable to stock ownership. In determining whether an agency relationship exists pursuant to that test, the Service has consistently taken the position that all the facts and circumstances must be considered. See Rev. Rul. 54-596, 1954-2 C.B. 51; Rev. Rul. 59-247, 1959-2 C.B. 14. In the instant case, the Declaration contains a specific acknowledgement by H that it holds record title to the project site and any improvements thereon on behalf of X. This is reiterated in the partnership agreement and the partnership certificate, and is consistent with H's certificate of incorporation. Knowledge of the existence of the agency relationship is not lim ited to the contracting parties but instead is made a matter of public record since the Declaration is filed in the public land records and since copies of the certificate of incorporation of H, the partnership agreement, the certificate of limited partnership of X and the loan documents are available at the offices of DHCR for public inspection. Although the foregoing is indicative of an agency relationship, as noted above, the existence of an agency relationship must not be dependent upon the controlling stockholders' ownership of the corporation. In National Carbide Corporation v. Commissioner, above, the claim of an agency relationship between the parent corporation (the purported principal) and its subsidiaries (the purported agents) was rejected because it rested on the control which the parent exercised over its subsidiaries through and by virtue of its stock ownership of the subsidiaries. The various indicia advanced in support of the claimed agency were equally consistent with and could be explained by the corporation-sole stockholder relationship. By contrast, the agency relationship in the instant case in respect of the project does not rest upon D's stock ownership of H. H is a party to the arrangement because of the New York statutory scheme that requires DHCR to supervise the development, construction and management of the project through a LPHC, that is, H in this case. This supervision and control of the project by DHCR through H is assured to DHCR through provisions in H's charter required by the New York statutes governing such projects. D is not free to remove these charter provisions by amendment. The control which D has over H through its stock ownership in respect of the project is subject to and limited by these charter provisions, and the statutes, rules and regulations of the State of New York and DHCR. If D, through its stock ownership, exercises control over H in a manner inconsistent with these charter provisions, statutes, rules and regulations, D's control of H may be divested by DHCR. Accordingly, it is concluded that the agency relationship between X and H expressed in the Declaration, partnership agreement, certificate of partnership, and other documents approved by DHCR, does not rest upon the corporation-stockholder relationship between H and D, and should be recognized as existing independently of that relationship by reason of the unique facts and circumstances described herein. Cf., Carver v. United States, 412 F.2d 233 (Ct. Cl. 1969). Therefore, the agency will be recognized for Federal income tax purposes. When a partnership is the owner of property and no partner of the partnership is personally liable for repayment of the liability to which the property is subject, all the partners of the partnership, including its limited. partners, shall be considered as sharing such liability under section 752(c) of the Code in the same ratio as they share partnership profits. See section 1.752-1(e) of the Income Tax Regulations. The second question to be resolved is whether any partner of X is personally liable for the repayment of the loan to HFA. H has no interest and will never have an interest in any item of income, gain, loss, deduction, credit or capital of X, nor will it have any beneficial interest in the receipts, investments or other property of X during the operation or upon the liquidation of X. Therefore, under these circumstances H will not be considered a partner of X for Federal income tax purposes. See Hubert M. Luna, 42 T.C. 1067 (1964). Since H is not considered a partner for Federal income tax purposes, the personal obligation of H to repay the loan to HFA is of no consequence in determining wheth er any partner of X is personally liable for repayment of the liability to which the project is subject. No party other than H signed the note; therefore, if the note is considered negotiable, only H may be held liable thereon. See N.Y. Uniform Commercial Code sec. 3-401 (1). Furthermore, whether or not the note is negotiable, an agreement that an agent enters into in his own name on behalf of a disclosed principal can contain a provision in which a third party agrees not to look to the principal for payment. In such a case the principal will not be liable for repayment of the underlying obligation. Restatement of the Law of Agency 2d sec. 150 Comment c. This rule and its result has been recognized in Huntington Pennysaver, Inc. v. Tire Supply Corporation of Long Island, 59 Misc. 2d 268, 298 N.Y.S. 2d 824 (Dist. Ct. Suffolk Co. 1969). At the closing of the HFA loan, HFA signed and delivered the HFA Letter and the HFA Attorney Letter, which were filed of record as noted above. As recognized in the HFA Attorney Letter, the legal effect of the HFA Letter under New York law is substantially the same as that cited in the above authorities, that is, the creditor, HFA, agrees that the disclosed principal, X, is not liable for repayment of the loan. Therefore, in the instant case, no person other than H is liable for repayment of the loan. Thus, whether or not the note is considered negotiable, neither X nor D could be held liable on the underlying obligation. Since X, the partnership, cannot be held personally liable, D, the only general partner recognized as such for Federal income tax purposes, may not be held personally liable as a partner. Thus, since no person who is considered a partner of X for Federal income tax purposes is personally liable for the obligation to HFA under the laws of New York governing the arrangement, D and the limited part with at least five years of service is entitled to not more than the full-time equivalent of two years of training if he is to be removed as a controller for specified reasons, such as an inability to maintain technical proficiency. The Secretary of Transportation is authorized to pay or reimburse the employee for all or part of the necessary expenses of such training. During the training period, the employee is retained at his last assigned grade and rate of basic pay as a controller and is entitled to the increases in basic pay authorized by law. Upon completion of the training, the employee may be assigned to non-controller duties in the Department of Transportation, released for transfer to another Executive agency, or involuntarily separated from government service. S. Rep. No. 92-774, 92d Cong., 2d Sess. (1972), states that the purpose of the Act is to improve the conditions of employment of air traffic controllers by offering job training and preferential retirement benefits to controllers removed from control work. The Report indicates that in the interest of public safety air traffic controllers should not be retained as controllers beyond the time they can perform satisfactorily, but that the qualifications of controllers for employment in other positions are not generally high. The Report further states that if the Government offers a controller an opportunity to train for other employment, the adjustment will be much easier for the employee, and the overall air traffic control program will be improved. Federal Aviation Administration Order 3410.11, "ATCS Second Career Program," September 7, 1972, establishes the procedures for implementation of the Act. The order provides that second career counseling and testing will be made available to an eligible employee after his removal from a controller's position. The counseling results and test records are to be used as a guide in selecting the individual employee's second career training program and in developing a training agreement. The training agreement, which is to specify the training objective, the length of training, and the type of training authorized, must be approved by the employee and a representative of the FAA. Although there are no specific restrictions concerning the type of training that an employee may receive, the order states that the training authorized should lead toward a second career and should benefit the employee and the program. The order provides that the FAA will pay for such items as the employee's tuition, books, and registration fees. The payments may be made either to the employee to reimburse him for the amounts expended for the items or directly to the training institution. If the selected training is available only in an area beyond commuting distance of the employee's home station, the employee will be reassigned to such area and reimbursed for his per diem expenses or for the expenses of moving his family and household goods, whichever is less. Section 61 (a) of the Internal Revenue Code of 1954 provides that unless otherwise excluded by law, gross income means all income from whatever source derived, including compensation for services. Section 117(a) of the Code provides that in the case of an individual gross income does not include any amount received as a scholarship or as a fellowship grant. Section 1.117-3 of the Income Tax Regulations explains that a scholarship generally means an amount paid or allowed to, or for the benefit of, a student to aid him in pursuing his studies and that a fellowship grant means an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research. However, section 1.117-4(c) (1) of the regulations states, in part, that any amount that represents compensation for past em ployment services shall not be considered to be an amount received as a scholarship or fellowship grant for the purpose of section 117 of the Code. In the instant case the amounts paid under 5 U.S.C. section 3381 to employees of the Department of Transportation for their expenses, or paid directly to educational institutions on behalf of the employees, are paid by the Federal Government in its capacity as an employer. The payments are made to a specified class of employees for the purpose of ameliorating the effects of the employees' removal from their positions. The instant case is thus distinguishable from situations where payments to individuals undergoing training or retraining are excludable from gross income because the payments are made from a general welfare fund in the interest of the general welfare and not for services rendered. See, for example, Rev. Rul. 63-136, 1963-2 C.B. 19, which holds that benefit payments made to individuals being trained or retrained under Federal legislation designed to aid the redevelopment of areas of unemployment and to deal with the problems of unemployment resulting from technological and structural changes in the economy are not includible in gross income. Furthermore, since the amounts paid represent compensation for past employment services, they are not excludable from gross income under section 117 of the Code. Accordingly, it is held that the payments made to, or on behalf of, employees of the Department of Transportation pursuant to 5 U.S.C. section 3381 are includible in the gross incomes of the employees under section 61(a) of the Code. It is further held that such payments are "wages" for purposes of the Collection of Income Tax at Source on Wages under section 3401 of the Code. 26 CFR 1.61-1: Gross income. (Also Sections 1221, 1222, 3231, 3401, 7805; 1.1221-1, 1.1222-1, 31.3231 (e)-1, 31.3401(a)-1, 301.7805-1.) Lump-sum payment; employment seniority rights relinquished. A lump-sum payment received by a railroad employee as consideration for relinquishing employment seniority rights is ordinary income in the taxable year of receipt and hereafter these payments will constitute compensation for purposes of the RRTA and wages for purposes of income tax withholding; Rev. Rul. 58-301 distinguished and Rev. Rul. 59-227 modified and superseded. Rev. Rul. 75-44 Advice has been requested whether, under the circumstances described below, a lump-sum payment received by a railroad employee in recognition of his agreement to relinquish certain rights with respect to his employment acquired through prior service as an employee is ordinary income rather than gain from the sale or exchange of a capital asset and is "compensa tion for services" under the Railroad Retirement Tax Act and "wages" for purposes of the Collection of Income Tax at Source on Wages (chapters 22 and 24, respectively, subtitle C, Internal Revenue Code of 1954). Because of his past service under a general contract of employment, the employee had acquired both the rights to security in his employment and to additional pay or other recognition for longevity. He then entered into an agreement with his employer to perform a different type of work and to refrain from asserting the employment rights he had previously acquired. In consideration thereof the employer agreed to pay him a lump sum. It is the general rule that income from a transaction is not income from the sale or exchange of a capital asset unless the subject matter of the transaction is a capital asset within the meaning of section 1221 of the Code and disposed of in the manner required by section 1222. In this connection, Rev. Rul. 58-301, 1958-1 C.B. 23, holds, in part, that a lumpsum payment received by an employee as consideration for the cancellation of his employment contract is gross income to the recipient in the taxable year of receipt and is not gain from the sale of a capital asset. However, that Revenue Ruling also holds that under the facts of that case the amount received by the employee is not subject to the provisions of section 3121 of the Federal Insurance Contributions Act (chapter 21, subtitle C of the Code) and section 3402 of the Code, relating to income tax withholding. Section 3231 (e) of the Railroad Retirement Tax Act provides, in part, that the term "compensation" means any form of money remuneration earned by an individual for services rendered as an employee to one or more employers. Section 3401 (a) of the Code, relating to income tax withholding, defines "wages" as all remuneration for services performed by an employee for his employer, with exceptions not material here. In the instant case, the employee had acquired his relinquished employment rights through his previous performance of services whereas in Rev. Rul. 58-301, the contractual rights relinquished were acquired in the original negotiation of the contract canceled. In Rev. Rul. 58-301, the lumpsum payment was primarily in consideration of the cancellation of the employee's original contract rights. rather than primarily in consideration of the past performance of services through which the relinquished employment rights were acquired. Unlike the cited Revenue Ruling, the present case does not involve the cancellation of an employment contract which, at the outset, bound the parties for a specific period of time. Instead, the instant case is one of an employment contract which contemplated a relation between the parties that was to continue indefinitely, but that, except as might otherwise be specially provided under certain circumstances, was generally terminable by either party without liability to the other solely for the failure to maintain the relationship for a specified period. Hence, in this case, the amount received by the employee was a lumpsum settlement for the past performance of services reflected in the employment rights he was giving up, and was money remuneration for his services. Accordingly, the lump-sum amount received by the employee is ordinary income to him in the taxable year of receipt and is "compensation" for purposes of the Railroad Retirement Tax Act and "wages" for purposes of income tax withholding. Rev. Rul. 59-227, 1959-2 C.B. 13, which held that a lump-sum payment such as that in the instant case, received by a railroad employee, is gross income to the recipient in the taxable year of receipt but is not compensation for services rendered for purposes of the Railroad Retirement Tax Act or for purposes of the Collection of Income Tax at Source on Wages, is hereby modified with respect to the holdings applicable to the Railroad Retirement Tax Act and the Collection of Income Tax at Source on Wages and, as so modified, is superseded by this Revenue Ruling, which sets forth the holdings applicable to all the issues discussed in Rev. Rul. 59-227. However, pursuant to the authority contained in section 7805 (b) of the Code, lump-sum amounts such as those in the instant case will be treated as "compensation" and "wages" for purposes of asserting the taxes under the Railroad Retirement Tax Act and the Collection of Income Tax at Source on Wages, respectively, only if paid on and after February 18, 1975, the date of publication of this ruling in the Internal Revenue Bulletin. Rev. Rul. 58-301 is distinguished and Rev. Rul. 59-227 is modified and superseded. 26 CFR 1.61-1: Gross income. Back pay award; National Labor Relations Board. A NLRB award for pay lost due to an illegal discharge caused by a labor organization is includible in the recipient's gross income even though such award does not constitute wages for employment tax purposes; Rev. Rul. 57-55 amplified. Rev. Rul. 75-64 Advice has been requested whether amounts received under the circumstances described below are includible in income under section 61 of the Internal Revenue Code of 1954. A, an individual, filed a complaint against U, a labor organization, with The National Labor Relations Board for the alleged misconduct of U in causing A's employer to discharge him. The Board held that A was illegally discharged and ordered that U award. him 50 x dollars for lost pay he would have received had he not been illegally discharged. U made the payment pursuant to the order of The National Labor Relations Board. Under The National Labor Relations Act, 29 U.S.C. section 160 (1970), as amended, The National Labor Relations Board is empowered to remedy the illegal discharge of an employee by directing reinstatement and requiring the payment of back pay by the employer or labor organization, as the case may be, responsible for such improper discharge. Depending on the circumstances, an aggrieved employee would file a complaint against both his employer and labor organization jointly or against either one separately. In any event, the Board's jurisdiction in a particular case is limited to the party or parties against whom a complaint has been brought. In Rev. Rul. 57-55, 1957-1 C.B. 304, it is held that the payment of back pay by either the employer or the labor organization pursuant to an order by The National Labor Relations Board where the employer is a sole or joint respondent constitutes "wages" for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act and for purposes of the Collection of Income Tax at Source on Wages (chapters 21, 23 and 24 respectively, subtitle C, Internal. Revenue Code of 1954). However, the Revenue Ruling further holds that where the labor organization is the sole respondent, as in the instant case, the payment of back pay under an order of the Board does not constitute "wages" for purposes of the Federal Insurance Contribution Act, the Federal Unemployment Tax Act and for purposes of the Collection of Income Tax at Source on Wages. Section 1.61-1(a) of the Income Tax Regulations defines the term "gross income" as all income from whatever source derived unless excluded by law. There is no provision in the Code or regulations that would specifically exclude the payment made by U from the gross income of A. Accordingly, the amount of 50 x dollars received by A from the labor organization is includible in his gross income for Federal income tax purposes even though such payment does not constitute "wages" for purposes of the Federal Insurance Contribution Act, the Federal Unemployment Tax Act and for purposes of the Collection of Income Tax at Source on Wages. Rev. Rul. 57-55 is amplified. 26 CFR 1.61-1: Gross income. Foreign rental profits; currency conversion. A U.S. calendar year individual whose rental profits from property he owns in a foreign country are deposited in that coun try and periodically transferred to him in the U.S. should, before deducting depreciation, convert the transfers into dollars at the exchange rate in effect on each transfer date and may compute the rate for any unremitted profit by dividing by 12 the total of the closing rates of exchange for all months in the year. Depreciation computed in dollars is separately determined. Rev. Rul. 75-90 A United States individual calendar year taxpayer owns an apartment building in foreign country R. A bank located in R acts as agent for the taxpayer in administering the income and expenses of the apartment building. For 1974, as well as for all prior years, the taxpayer realized a net profit from his ownership of this rental property. The income is received and the expenses are paid in the currency of R. During the year 1974, over 100 separate transactions were recorded in the taxpayer's account held by the bank. The taxpayer arranges about once a year for the transfer to the United States of part or all (depending on need) of the accumulated funds in the bank account. Foreign exchange fluctuated constantly during 1974. For each of the taxable years prior to 1974 the unremitted rental profit in R currency was converted to United States dollars by use of the exchange rate at December 31. For the taxable year 1974, the taxpayer requested that he be permitted to convert his rental profit by use of an average monthly exchange rate. rates The taxpayer was granted permission to compute his rental income as follows: From the rental profit for the taxable year computed in R currency without deducting depreciation, subtract any remittances computed in R currency during the taxable year to determine the unremitted profit expressed in R currency. Convert the remittances in R currency to dollars at the rate of exchange on each date of the remittance and convert the unremitted profit in R currency to dollars by using a simple average exchange rate determined by dividing the sum of the closing rate of exchange for each of the calendar months ending in 1974 by 12. From the sum of these two amounts expressed in dollars subtract depreciation computed in dollars by reference to the basis of the property as of the date of acquisition by using the rate of exchange of the foreign currency used in the acquisition of the property on such date. The remainder is the rental income expressed in United States dollars to be taxed in 1974. Any further change in the method of determining the profit of rental property located in country R in terms of dollars would be a change in method of accounting under section 446(e) of the Internal Revenue Code of 1954 that would again require the consent of the Commissioner of Internal Revenue. 26 CFR 1.61-1: Gross income. Campaign contributions; service promised contributor. Payments to a political campaign specified by a candidate or officeholder in exchange for his promise, not of a traditional and legitimate political nature, to perform a service for the contributor do not qualify as excludable political expense contributions and must be included in the gross income of the political candidate or officeholder. Rev. Rul. 75-103 Advice has been requested whether, under the situations described below, payments made to political campaigns are includible in the gross income of the political candidate or officeholder. It is emphasized that these situations. are not intended to be exhaustive but rather serve to demonstrate that it is necessary under section 61 of the Internal Revenue Code of 1954 to as |