upr000160 174

Mr. W. &• House 2 April 2, 1952 The regulations under this Section which were referred to by Mr. Sutton are found in Title 26, Code of Feder­al Regulations, Section 29.22(b)(4) and provide? "The tens *political subdivision,* within the meaning of the exemption, denotes any division of the State of Territory which is a municipal corporation, or to which has been delegated the right to exercise part of the sovereign power of the State or Territory, As thus de­fined, a political subdivision of a State or Territory may or may not, for the purpose of exemption, include special assessment districts so created, such as road, water, sewer, gas, light, reclamation, drainage, irrigation, levee, school, harbor, port improvement, and similar districts and divisions of a State of Territory As I see it, there are two problems involved? (1} Whether the Las Yegas Water District is a political subdivision of the State of Ne­vada; and (2) whether a transfer of the water production . and distribution system of the Railroad Company and its subsidiary to the District would be ^fpr exclusively public purposes'1. The provisions of subparagraph (1) of paragraph (q) of Section 23 of the Internal Revenue Code were first in­serted by the 1942 Revenue Act, and I am unable to find any decision under this section construing the meaning of the words "political subdivision" or of the words "for exclusively public purposes". There have been a number of cases arising under Sec­tion 22(b)(4)(A) of the Internal Revenue Code, only two of which deal with the nature of a political subdivision# I have examined several other Federal statutes which re­fer to a state or its political subdivision and find on­ly one District Court case dealing with the question of the characteristics of a political subdivision. None of the cases mentioned have reached the Supreme Court and