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the amount of petitioner's gross income would without dispute
satisfy the 85-percent test for each of the years involved, and
petitioner is qualified as a tax-exempt entity. As a result,
petitioner would be entitled to summary judgment with respect to
the deficiencies determined by the Commissioner. The deficiency
notice contains a number of adjustments, all of which would
become irrelevant if petitioner were held to be a tax-exempt
corporation.
1. History
"Communication services" is not defined in the Code or the
Regulations. However, the history of the treatment of telephone
cooperatives gives some insight into whether "communication
services" include B & C services.
In Rev. Rul. 74-362, 1974-2 C.B. 170, 171, the IRS ruled
that amounts due a cooperative telephone company for services
rendered to a nonmember long-distance company must be treated as
nonmember income under the 85-percent test. Section 501(c)(12)
provided, as it does now, that a mutual or cooperative telephone
company was tax exempt "only if 85 percent or more of the income
consists of amounts collected from members for the sole purpose
of meeting losses and expenses." As a result of the ruling, most
telephone cooperatives stood to lose their tax-exempt status.
In response, Congress added subparagraph B to section
501(c)(12). In the legislative history of section 501(c)(12)(B),
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