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Under the "homeless income" doctrine, these amounts are
not currently reportable by anyone until subsequent
events determine who will ultimately receive them.
Since the funds held in the Escrow Accounts did
not belong to the issuing Dealerships, the interest
which accrued on the accounts is not chargeable to them
either.
If the Court determines that it must develop its own
rules to implement Code �468B(g), it should treat the
Escrow Accounts as separate taxable entities
(presumably trusts). Under either alternative, no
investment income can be currently charged to the
Dealerships.
Prior to 1986 a number of cases and rulings suggested that
the earnings of a litigation settlement fund, receivership, or
escrow account that did not qualify as a trust for Federal income
tax purposes were not taxable until the identity of the person
entitled to receive the income could be determined. See, e.g.,
North Am. Oil Consol. v. Burnet, 286 U.S. 417 (1932); Rev. Rul.
71-119, 1971-1 C.B. 163; Rev. Rul. 70-567, 1970-2 C.B. 133; Rev.
Rul. 64-131, 1964-1 C.B. (Part 1) 485. Section 468B was enacted
as part of the Tax Reform Act of 1986, Pub. L. 99-514, sec.
1807(a)(7), 100 Stat. 2814, to clarify the tax consequences of
certain settlement funds established pursuant to a court order
for payment of tort liabilities ("designated settlement fund").
Sec. 468B(a), (b), (d)(2). The statute provides that a
designated settlement fund is a separate taxable entity subject
to current taxation on its net income at the maximum fiduciary
rate. Sec. 468B(b). A provision relating to the taxation of
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