[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR220.124]

[Page 30-31]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 220--CREDIT BY BROKERS AND DEALERS (REGULATION T)--Table of Contents
 
Sec. 220.124  Installment sale of tax-shelter programs as ``arranging'' for credit.

    (a) The Board has been asked whether the sale by brokers and dealers 
of tax-shelter programs containing a provision that payment for the 
program may be made in installments would constitute ``arranging'' for 
credit in violation of this part 220. For the purposes of this 
interpretation, the term ``tax-shelter program'' means a program which 
is required to be registered pursuant to section 5 of the Securities Act 
of 1933 (15 U.S.C. section 77e), in which tax benefits, such as the 
ability to deduct substantial amounts of depreciation or oil exploration 
expenses, are made available to a person investing in the program. The 
programs may take various legal forms and can relate to a variety of 
industries including, but not limited to, oil and gas exploration 
programs, real estate syndications (except real estate investment 
trusts), citrus grove developments and cattle programs.
    (b) The most common type of tax-shelter program takes the form of a 
limited partnership. In the case of the programs under consideration, 
the investor would commit himself to purchase and the partnership would 
commit itself to sell the interests. The investor would be entitled to 
the benefits, and become subject to the risks of ownership at the time 
the contract is made, although the full purchase price is not then 
required to be paid. The balance of the purchase price after the 
downpayment usually is payable in installments which range from 1 to 10 
years depending on the program. Thus, the partnership would be extending 
credit to the purchaser until the time when the latter's contractual 
obligation has been fulfilled and the final payment made.
    (c) With an exception not applicable here, Sec. 220.7(a) of 
Regulation T provides that:

    A creditor [broker or dealer] may arrange for the extension or 
maintenance of credit to or for any customer of such creditor by any 
person upon the same terms and conditions as those upon which the 
creditor, under the provisions of this part, may himself extend

[[Page 31]]

or maintain such credit to such customer, but only such terms and 
conditions * * *

    (d) In the case of credit for the purpose of purchasing or carrying 
securities (purpose credit), Sec. 220.8 of the regulation (the 
Supplement to Regulation T) does not permit any loan value to be given 
securities that are not registered on a national securities exchange, 
included on the Board's OTC Margin List, or exempted by statute from the 
regulation.
    (e) The courts have consistently held investment programs such as 
those described above to be ``securities'' for purpose of both the 
Securities Act of 1933 and the Securities Exchange Act of 1934. The 
courts have also held that the two statutes are to be construed 
together. Tax-shelter programs, accordingly, are securities for purposes 
of Regulation T. They also are not registered on a national securities 
exchange, included on the Board's OTC Margin List, or exempted by 
statute from the regulation.
    (f) Accordingly, the Board concludes that the sale by a broker/
dealer of tax-shelter programs containing a provision that payment for 
the program may be made in installments would constitute ``arranging'' 
for the extension of credit to purchase or carry securities in violation 
of the prohibitions of Secs. 220.7(a) and 220.8 of Regulation T.

[37 FR 6568, Mar. 31, 1972]