The opinion
Whitaker, J., dissenting: I do not believe there is any basis in the statute or the regulations thereunder for the adoption of a "bright-line” test at the level of 85 percent as articulated by respondent in Rev. Rul. 73-248, 1973- 1 C.B. 295 . The majority opinion effectively adopts this bright-line test and applies it to the facts before us. While arguably the majority felt impelled to reach this result by the rule of Golsen v. Commissioner, 54 T.C. 742 , 756-758 (1970), affd. 445 F.2d 985 (10th Cir. 1971), cert. denied 404 U.S. 940 (1971), and the opinion of the eighth circuit in West Central Cooperative v. United States, 758 F.2d 1269 (8th Cir. 1985), affg. per curiam an unreported District Court opinion, I do not agree that approval of Rev. Rul. 73-248 is so required. And certainly Golsen does not mandate independent adoption of that test by this Court.
Insofar as pertinent, respondent’s regulations provide as follows:
(2) An association which has capital stock will not for such reason be denied exemption (i) * * \ and (ii) if substantially all of such stock (with the exception noted below) is owned by producers who market their products or purchase their supplies and equipment through the association. Any ownership of stock by others than such actual producers must be satisfactorily explained in the association’s application for exemption. The association will be required to show that the ownership of its capital stock has been restricted as far as possible to such actual producers. If by statutory requirement all officers of an association must be shareholders, the ownership of a share of stock by a nonproducer to qualify him as an officer will not destroy the association’s exemption. Likewise, if a shareholder for any reason ceases to be a producer and the association is unable, because of a constitutional restriction or prohibition or other reason beyond the control of the association, to purchase or retire the stock of such nonproducer, the fact that under such circumstances a small amount of the outstanding capital stock is owned by shareholders who are no longer producers will not destroy the exemption. The restriction placed on the ownership of capital stock of an exempt cooperative association shall not apply to nonvoting preferred stock, provided the owners of such stock are not entitled or permitted to participate, directly or indirectly, in the profits of the association, upon dissolution or otherwise, beyond the fixed dividends. [Sec. 1.521-l(a)(2), Income Tax Regs.]
The statute and regulations have been in effect, substantially unchanged, since the Revenue Act of 1926. 1 In fact, insofar as here pertinent, the regulations have been little changed since the version approved on December 20, 1924. See art. 22, Regs. 65, as amended by T.D. 3658, III — 2 C.B. 242 . The statute has consistently imposed on cooperatives having capital stock the requirement that "substantially all” voting stock must be owned by producers who market through the cooperative.
The term "substantially all” now appears in the Internal Revenue Code over 50 times and is used in regulations over 100 times. In varying contexts, the term has been defined as a fixed percentage ranging from 99 percent (sec. 1.103 — 15(d)(2), Income Tax Regs.) to a combination of 70 and 90 percent (sec. 1.279-5(d)(2), Income Tax Regs.). Both 85 percent and 80 percent also have been adopted by respondent many times to define "substantially all.” If there is any rationale for the varying percentages, it is not readily discernible.
If one concentrated solely on section 521(b)(2), with its emphasis upon voting control, one might logically be led to the congressionally enacted voting control test in section 368(c)(1) which requires "at least 80 percent of the total combined voting power * * * and at least 80 percent of the total number of shares.” Rather than focusing on defining "substantially all,” however, we should grant great deference to respondent’s regulations which are about to acquire "senior citizen” status. 2 The crucial import of those regulations is to be found in the following two sentences:
Any ownership of stock by others than such actual producers must be satisfactorily explained in the association’s application for exemption. The association will be required to show that the ownership of its capital stock has been restricted as far as possible to such actual producers. [Sec. 1.521-l(a)(2), Income Tax Regs.]
This is a facts-and-circumstances, not a bright-line, test. The examples given — an officer required to have capital stock in order to qualify and a restriction on the ability of the association to recapture stock of a nonproducer — show that respondent, and we must now presume the Congress, intended that each cooperative should essentially be owned and controlled by its producers, and that "substantially all” was not intended to be reflected as a percentage. The regulations allow that amount of nonproducer ownership, and only that amount, reasonably required by the particular circumstances. Thus, the issue which should have been addressed by the majority is whether the cooperatives reasonably justified the extent of stock ownership by nonactive producers.
This Court has in earlier cases recognized the propriety of failing to establish a bright line. We have simply defined outer limits. See Farmers Co-Operative Creamery v. Commissioner, 21 B.T.A. 265, 269 (1930), where we held that 91 percent satisfies the requirements of section 521, and Co-Operative Grain & Supply Co. v. Commissioner, T.C. Memo. 1973-164 , on remand 407 F.2d 1158 (8th Cir. 1969), revg. in part and remanding T.C. Memo. 1967-132 , where we held that neither 78 percent nor 72 percent satisfies the requirement. Between those outer limits, at least until respondent promulgated Rev. Rul. 73-248, supra, the test was entirely one of facts and circumstances, as demanded by respondent’s regulations. While the majority suggests that the 85-percent test is not entirely rigid, the regulations are in fact largely abrogated, first by respondent and now by the majority.
The majority commits another error of policy by according to a revenue ruling substantially the stature normally accorded to a regulation. "[A] 'Revenue Ruling’ is an official interpretation by the Service, issued only by the National Office and published in the Internal Revenue Bulletin for the information and guidance of taxpayers, Service personnel, and others concerned.” Rogovin, "The Four R’s: Regulations, Rulings, Reliance, and Retroactivity — A View From Within,” 43 Taxes 756 , 764 (1965). As Mr. Rogovin points out, revenue rulings and letter rulings are merely part of respondent’s rulings program. While certainly useful, these statements of respondent’s position "are not entitled to any particular weight.” Anselmo v. Commissioner, 80 T.C. 872 , 883 n. 13 (1983), affd. 757 F.2d 1208 (11th Cir. 1985). The Fifth Circuit has well said: "A ruling is merely the opinion of a lawyer in the agency and must be accepted as such. It may be helpful in interpreting a statute, but it is not binding on the Secretary or the courts. It does not have the effect of a regulation or a Treasury Decision.” Stubbs, Overbeck & Associates, Inc. v. United States, 445 F.2d 1142, 1146-1147 (5th Cir. 1971).
The majority speculates (see note 10) that Rev. Rul. 73-248 was issued in response to the evident displeasure of the eighth circuit in Co-Operative Grain & Supply Co. v. Commissioner, supra, at the lack of specific guidance in the form of "regulations or rulings.” If respondent wished to establish a bright-line test, at 85 or any other percentage, the only appropriate way to do so would be by the promulgation of an amending regulation which would have allowed interested cooperatives to comment at a public hearing. The fixing of a safe harbor or perhaps establishment of outer limits (if wide enough) by revenue ruling may be appropriate since more easily accomplished than by regulation promulgation. In any event, such a bright-line test is justified largely for administrative convenience. Its establishment is an appropriate function for the Congress or the Treasury Department by regulation but not for this or any other Court. The majority simply encourages avoidance of the regulation process.
Sterrett, J., agrees with this dissent. The legislative history of this statute is fully described in Co-Operative Grain & Supply Co. v. Commissioner, 407 F.2d 1158 (8th Cir. 1969), revg. in part and remanding T.C. Memo. 1967-132 .
As stated in Helvering v. Winmill, 305 U.S. 79, 83 (1938):
"Treasury regulations and interpretations long continued without substantial change, applying to unamended or substantially reenacted statutes, are deemed to have received Congressional approval and have the effect of law.”