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satisfied that the transfer fees enhance the equity interests of
petitioner’s members.22
The third factor is whether the payor has an opportunity to
profit from the appreciation in his investment. The CBOT
memberships are freely transferable, allowing the members to
realize a profit from any appreciation of their investment.23
22 Respondent relied heavily on Rev. Rul. 77-354, 1977-2
C.B. 50, arguing that it requires a finding here that the
transfer fees are not capital contributions. A revenue ruling is
nothing more than respondent’s litigation position, Stark v.
Commissioner, 86 T.C. 243, 250-251 (1986); however, the revenue
ruling cited actually supports petitioner’s position in this
case. In Rev. Rul. 77-354, the Internal Revenue Service
overruled its position in G.C.M. 4015, VII-1 C.B. 120 (1928), in
holding that a securities exchange’s initiation fees were not
capital contributions. The Service based its holding on the
facts that neither new members nor existing members derived any
enhanced equity value by virtue of the payment, the funds were
not earmarked or restricted in their use to capital expenditures,
and the fees bore no relation to the capital needs of the
exchange. Here, petitioner’s members do derive an enhanced
equity value by virtue of the payment of the transfer fee, the
funds are earmarked or restricted in their use to a capital
expenditure, and the fees bear a relation to the capital needs of
the exchange, the mortgage indebtedness. In earlier rulings, the
Service had concluded that fees paid by members to membership
organizations were capital contributions where members held
substantial equity rights in the organizations and the payments
enhanced the members’ collective interest in the organization.
Rev. Rul. 72-132, 1972-1 C.B. 21 (membership certificates sold by
an unincorporated securities exchange); Rev. Rul. 74-563, 1974-2
C.B. 38 (special assessments levied by a homeowners association
to pave a community parking lot); Rev. Rul. 75-371, 1975-2 C.B.
52 (special assessments levied by a condominium to replace the
outdoor furniture surrounding the swimming pool).
23 The facts of the case at hand are more compelling in
justifying capital contribution treatment than many of the above
cited cases because the CBOT members suffer no restriction on
their rights to retain the entire proceeds of sale of their
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