Internal Revenue Service
Revenue Ruling sm

Rev. Rul. 71-241

1971-1 C.B. 372

IRS Headnote

A separate constructive sale price must be established for batteries bearing a subsidiary's brand name that are sold to the subsidiary in intercompany sales; Revenue Ruling 70-44 amplified.

Full Text

Rev. Rul. 71-241

Revenue Ruling 70-44, C.B. 1970-1, 228, discusses the method of computing manufacturers excise tax under the constructive sale price provisions of section 4216(b)(1)(C) of the Internal Revenue Code of 1954 in a situation where a manufacturer of heavy-duty truck batteries makes intercompany sales of physically similar batteries bearing different brand names. Revenue Ruling 70-44 amplified Revenue Ruling 62-68, C.B. 1962-1, 216.

Under the situation described in Revenue Ruling 70-44, X, the manufacturing corporation sells its entire output of a certain type of battery to Y, a wholly-owned sales subsidiary of X. Sales to Y are otherwise than at arm's length and at less than fair market price. Y resells the batteries to independent wholesale distributors. Some of the batteries are imprinted with the brand name of X, while others are imprinted with the brand names of M and O, two of Y's unrelated vendees. All of the batteries are physically similar. Revenue Ruling 70-44 holds that a separate constructive sale price must be established for each of the differently branded articles.

Held, if in addition to X's intercompany sales to Y of batteries imprinted with X's brand name and with the brand names of M and O, X sells physically similar batteries to Y imprinted with Y's brand name, a separate constructive sale price must also be established for Y brand batteries, in the manner set forth in Revenue Ruling 70-44.

Revenue Ruling 70-44 is hereby amplified.