Although an individual member's interest does not directly reflect the amount of transfer fees paid in connection with that membership, members' equity as a whole is increased by each transfer fee paid. See Concord Village, Inc. v. Commissioner, 65 T.C. at 156. We are satisfied that the transfer fees enhance the equity interests of petitioner's members.22 The third factor is whether the payor has an opportunity to profit from the appreciation in his investment. The CBOT memberships are freely transferable, allowing the members to realize a profit from any appreciation of their investment.23 Over 35 percent of petitioner's members do not trade on petitioner's exchange, but instead hold their interests for investment. The majority of these members lease their trading privileges to others, but approximately 16 percent of the members neither use their trading privileges nor lease them tions, petitioner must maintain a capital account for each member that directly reflects the actual amounts paid in respect of that particular membership interest. Petitioner is a corporation, not a partnership. There is no such requirement for corporations. A corporation is a separate legal entity, whereas a partnership is an aggregate of its partners. Partnership capital accounts reflect what each partner can draw from the partnership. A corporation does not have individual drawing accounts for each of its shareholders. Any shareholder simply has an ownership interest in this separate entity represented by the number of shares owned by him. 22 Respondent relies heavily on Rev. Rul. 77-354, 1977-2 C.B. 50, arguing that it requires a finding here that the transfer fees are not capital contributions. A revenue ruling is nothing more than respondent's litigation position, Stark v. Commissioner, 86 T.C. 243, 250-251 (1986); however, the revenue ruling cited actually supports petitioner's position in this case. In Rev. Rul. 77-354, the Internal Revenue Service overruled its position in G.C.M. 4015, VII-1 C.B. 120 (1928), in holding that a securities exchange's initiation fees were not capital contributions. The Service based its holding on the facts that neither new members nor existing members derived any enhanced equity value by virtue of the payment, the funds were not earmarked or restricted in their use to capital expenditures, and the fees bore no relation to the capital needs of the exchange. Here, petitioner's members do derive an enhanced equity value by virtue of the payment of the transfer fee, the funds are earmarked or restricted in their use to a capital expenditure, and the fees bear a relation to the capital needs of the exchange, the mortgage indebtedness. In earlier rulings, the Service had concluded that fees paid by members to membership organizations were capital contributions where members held substantial equity rights in the organizations and the payments enhanced the members' collective interest in the organization. Rev. Rul. 72-132, 1972-1 C.B. 21 (membership certificates sold by an unincorporated securities exchange); Rev. Rul. 74-563, 1974-2 C.B. 38 (special assessments levied by a homeowners association to pave a community parking lot); Rev. Rul. 75-371, 1975-2 C.B. 52 (special assessments levied by a condominium to replace the outdoor furniture surrounding the swimming pool). 23 The facts of the case at hand are more compelling in justifying capital contribution treatment than many of the above-cited cases because the CBOT members suffer no restriction on their rights to retain the entire proceeds of the sale of their interests. Some of the members' interests in the cases discussed above, even those allowing capital contribution treatment, were subject to such a restriction. Cf. Concord Village, Inc. v. Commissioner, 65 T.C. 142 (1975); United Grocers, Ltd. v. United States, 308 F.2d 634 (9th Cir. 1962); Washington Athletic Club v. United States, 614 F.2d 670 (9th Cir. 1980); Affiliated Govt. Employees Distrib. Co. v. Commissioner, 37 T.C. 909 (1962), affd. 322 F.2d 872 (9th Cir. 1963); Oakland Hills Country Club v. Commissioner, 74 T.C. 35 (1980). The restriction on the amount of profit a member can make from his transfer of an interest attenuates the members' financial interest in the equity of the organization. There is no such restriction in the case at hand. to third parties, apparently expecting to realize a profit on the ultimate disposition of their memberships. The transfer fees are used to amortize the debt on a revenue-raising asset, the CBOT building. Petitioner leases 80 to 85 percent of the space in the CBOT building to third parties. The leases generate substantial rental income to petitioner. The CBOT building also houses the trading floor, which generates transaction fees, petitioner's primary source of revenue. It is clear that members' payments of assessments to finance initial construction of those assets would have been contributions to capital because they would have increased the members' equity in petitioner and directly paid for capital assets used for the production of income in petitioner's trade or business, and there would have been no tenable argument that the payments were in consideration for goods or services. The transfer fees, paid at the time of the acquisition of a membership, reduce the principal of the mortgage debt on the CBOT building each year. The periodic collection of the transfer fees is the equivalent of installment payments for the building. We fail to see a significant difference where petitioner's members make their capital contributions in "installments instead of all at once." See Lake Forest, Inc. v. Commissioner, T.C. Memo. 1963-39; see also sec. 49.42432(a), Excise Tax Regs., supra note 18, which equate amounts paid to retire mortgage indebtedness incurred to finance construction or reconstruction of capital improvements with exempt payments for capital improvements. Petitioner's members have not paid dues since at least 1990. The dues were eliminated because of a surplus in petitioner's operating revenues, largely attributable to petitioner's lease revenues and transaction fees. The nonpayment of dues is a form of additional profit to the members. See Minnequa Univ. Club v. Commissioner, T.C. Memo. 1971-305. The transfer fees, therefore, help finance the major sources of petitioner's revenues and directly increase the members' profit potential from their investment. We conclude that the transfer fees are primarily paid with an investment motive. Although there may be some attenuated and incidental senses in which the transfer fees may be paid in consideration for services rendered and to be rendered, we hold, on balance, that the transfer fees paid to petitioner are paid primarily to reduce petitioner's mortgage debt, which was incurred to finance capital improvements. The transfer fees are, therefore, nontaxable contributions to petitioner's capital and are not includable in gross income. To reflect the foregoing, Decision will be entered for petitioner. STEPHEN R. AND MARY K. HERBEL, PETITIONERS V. RESPONDENT JERRY R. AND CAROLYN M. WEBB, PETITIONERS v. RESPONDENT Docket Nos. 22079-93, 22080–93. Filed June 5, 1996. M, a subch. S corporation, purchased working interests in various gas wells that were subject to a gas purchase contract with A. To avoid litigation over a so-called take or pay provision in the contract, M and A entered into a settlement agreement under which A paid $1,850,000 to M in 1988 but reserved the right to recoup the payment from future gas purchases under the contract. The settlement agreement further provided that M would pay any unrecouped amount to A in cash in the event that it terminated the contract or the wells became substantially depleted. M did not report the payment as income in 1988. R determined that A's payment to M was an advance payment for gas and is includable in M's income in 1988, the year received. Sec. 1.451-1(a), Income Tax Regs. Ps, shareholders of M, filed a motion for summary judgment in which they argue that, under general tax principles, the subject payment is a deposit in the nature of a loan and is not includable in income in 1988 under Commissioner Indianapolis Power & Light Co., 493 U.S. 203 (1990). Ps further argue that A's right of recoupment is a production payment under sec. 636(a), with the result that the transaction must be treated as a loan. In support thereof, Ps assert that sec. 1.636-3(a)(1), Income Tax Regs., is invalid to the extent it limits the definition of production payment to interests which are economic interests in the mineral in place. Held, A's payment is an advance payment for the purchase of gas under the gas purchase contract and is includable in M's income in the year received. Held, further, sec. 1.636-(a)(1), Income Tax Regs., is valid, and A's right of recoupment is not a production payment under sec. 636(a). Frederick R. Parker, Jr., and W. Deryl Medlin, for petition ers. Martin M. Van Brauman and Josh O. Ungerman, for respondent. OPINION WHALEN, Judge: These consolidated cases are before the Court to decide petitioners' motion for summary judgment. The issue presented by petitioners' motion is whether a payment received in settlement of a contractual dispute involving a so-called take or pay contract for the purchase and sale of natural gas is includable in petitioners' income in the year received, as respondent contends, or whether the payment is a deposit in the nature of a loan, as petitioners contend. In addition to petitioners' motion for summary judgment and memorandum in support thereof, respondent's notice of objection and memorandum in support thereof, and petitioners' reply, the parties have filed a stipulation of facts in each of the consolidated cases, together with exhibits attached thereto. The stipulations and accompanying exhibits are incorporated by this reference. The facts set forth in this opinion are taken from the pleadings and the stipulations of facts. Background Respondent issued a notice of deficiency to Stephen R. and Mary K. Herbel, petitioners in the case at docket No. 2207993, in which respondent determined the following deficiency in, and additions to, their 1988 tax: All section references are to the Internal Revenue Code as in effect during 1988, unless stated otherwise. Respondent also issued a notice of deficiency to Jerry R. and Carolyn M. Webb, petitioners in the case at docket No. 22080-93, in which respondent determined the following deficiency in, and additions to, their 1988 tax: All petitioners resided in Shreveport, Louisiana, at the time they filed their petitions with this Court. Petitioners owned all of the outstanding stock of Malibu Petroleum, Inc. (Malibu). Malibu had been incorporated under Texas law on or about February 18, 1988, to engage in the business of exploring for and producing oil and natural gas. During 1988, petitioners Stephen and Mary Herbel owned 10 percent of Malibu's outstanding stock, and petitioners Jerry and Carolyn Webb owned 90 percent of Malibu's stock. Mr. Herbel was Malibu's president. For Federal income tax purposes, Malibu was an S corporation within the meaning of section 1361(a)(1). Malibu and each petitioner reported income and deductions for Federal income tax purposes using the cash receipts and disbursements method of accounting. At various times during 1988, Malibu acquired the interests of Regency Exploration, Inc. (Regency), and others in certain gas wells located in Sebastian County, Arkansas, that were covered by a gas purchase contract dated January 2, 1981, between Revere Corp., an Arkansas corporation, as seller, and Arkansas Louisiana Gas Co. (Arkla) as buyer. In this opinion, we refer to the gas purchase contract as the contract. Section 9 of the contract provides as follows: Section 9. QUANTITIES. (A)(1) The following phrases are used in this agreement with the following meanings: (a) "Daily Deliverability," with respect to a particular well, refers to the average daily rate at which the well can lawfully deliver gas under the conditions of this contract as determined by a 5-day test, such 5-day tests to be conducted by Buyer from time to time as operations may indicate to be necessary. The results of a particular 5-day test shall be effective hereunder from the completion of the test until the completion of the next such test. (b) "Average Daily Volume," with respect to a particular well, refers to 75% of the Daily Deliverability of that well as in effect from time to time. (c) "Contract Annual Volume," with respect to a particular well, refers to an annual volume equal to the cumulative total of the Average Daily |