| September 11, 1989 | |
| Publications Division | Specialty Rulings |
| Roy C. Shultis, Director | Directorate |
| J.E. Harms | |
| Attention: G.J. O'Reilley | 957-2108 |
| File No. 74288 |
Subject: Publication of Advance Income Tax 24(1) (the "Ruling")
This is in response to your memorandum of August 29, 1989 in which you requested our comments as to the suitability of the Ruling for publication. In our view, the Ruling is not suitable for publication for the following reason.
Since the date that the Ruling was issued the administrative practice of the Department regarding the classification of accounts receivable, inventory and prepaid expenses for the purposes of paragraph 55(3)(b) has been refined to implement the statements contained in the (yet to be published) paper on section 55 by R.J.L. Read presented at the 1988 CTF tax conference. Our current practice is to treat all inventory, receivables and prepaid expenses of a corporation initially as cash or near cash property for the purpose of netting current liabilities that are not related to any particular cash or near cash property against all assets of that type. The net fair market value of the inventory, receivables and prepaid expenses so determined will then, depending on the circumstances, be classified either as business property or cash or near cash property.
The procedures outlined in the Ruling, while consistent with previous practice, are inconsistent with our current practice in that the real property inventory appears to have been treated as business property for all purposes and not as near cash property for the purposes of determining its net fair market value as a business property.
We are not suggesting that the Ruling is technically incorrect or that the result would have been any different had the procedure in the Ruling conformed to our current practice. However, as the Ruling post-dates the delivery of the 1988 paper by R.J.L. Read and the procedure for categorizing assets therein does not conform to our current practice developed to implement the statements made in the 1988 paper, we think that publication of the Ruling might create confusion in the minds of taxpayers and their advisors. In our view the potential for confusion outweighs any benefits that might flow from its publication.
M.A. Hiltzfor Director GeneralReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch