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B.T.A. 400 (1931); Paducah & Ill. R.R. v. Commissioner, 2 B.T.A.
1001 (1925); G.C.M. 4015, VII-1 C.B. 120 (1928), revoked by Rev.
Rul. 77-354, 1977-2 C.B. 50.
Respondent postulates that, under section 1.118-1, Income
Tax Regs., a payment cannot be a contribution to capital unless
it is voluntary, pro rata, and required by the corporation to
conduct its business, as described by the somewhat circumscribed
example in the regulations.11 Respondent argues that the
transfer fees are not contributions to capital because they are
not needed by petitioner to conduct its business, and are neither
voluntary nor pro rata.
That the transfer fees are neither voluntary nor pro rata is
not dispositive of whether the fees are capital contributions.
Mandatory payments to a corporation may qualify as capital
contributions, Concord Village, Inc. v. Commissioner, 65 T.C.
11 Sec. 1.118-1. Contributions to the capital of
a corporation.--
In the case of a corporation, section 118 provides
an exclusion from gross income with respect to any
contribution of money or property to the capital of the
taxpayer. Thus, if a corporation requires additional
funds for conducting its business and obtains such
funds through voluntary pro rata payments by its
shareholders, the amounts so received being credited to
its surplus account or to a special account, such
amounts do not constitute income, although there is no
increase in the outstanding shares of stock in the
corporation. * * * However, the exclusion does not
apply to any money or property transferred to the
corporation in consideration for goods or services
rendered * * *. [Emphasis added.]
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