Internal Revenue Service
Revenue Ruling
Rev. Rul. 79-323
1979-2 C.B. 106
Section 170
IRS Headnote
Charitable contributions; industrial commission. An industrial commission,
established by a state legislature to study the problems of industrial life
in a particular geographic area, is composed of representatives appointed
by elected officials from each participating municipality and is authorized
to provide for the housing of industries, acquire land, borrow money, sell
property, issue bonds, and establish a per capita assessment. Its
activities are subject to review by the state and member municipalities.
Amounts contributed to the commission are deductible charitable
contributions.
Full Text
Rev. Rul. 79-323
ISSUE
Are amounts paid to an industrial commission under the circumstances
described below deductible as charitable contributions under section 170 of
the Internal Revenue Code?
FACTS
A state legislature established a commission to study the problems of
industrial life in a particular geographic area. The commission is to
maintain, where possible, the industries already located in the area and
invite and attract additional industries in order to diversify the area's
industrial base. The area in which the commission functions includes
several municipalities that are political subdivisions of the state. The
commission membership is made up of representatives appointed by elected
officials from each of the municipalities that have chosen to participate
in the activities of the commission. The representatives' terms of
appointment are limited and a member municipality may withdraw at any time
upon giving proper notice. Also, the commission can be terminated by the
state legislature at any time.
To accomplish its goals the commission is authorized to erect new buildings
or otherwise provide for the housing of industries. It may acquire land by
purchase, gift, or otherwise, borrow money, sell property, and issue
revenue bonds. The commission may also establish a per capita assessment,
limited in amount, against all the municipalities, for the purpose of
covering operating expenses. Finally, the commission may make studies of
existing resources and determine what resources can be brought to the area
in order to increase economic growth.
The financial and other activities of the commission are subject to review
by the state and the member municipalities, and the purposes for which
moneys are spent by the commission must be consistent with the intent of
the state legislature in establishing the commission.
LAW AND ANALYSIS
Section 170 of the Code provides, subject to certain limitations, a
deduction for contributions or gifts to, or for the use of, organizations
described in section 170(c), payment of which is made within the taxable
year.
Section 170(c) of the Code defines the term "charitable contribution" to
include contributions of gifts to or for the use of a state, a possession
of the United States, or any political subdivision of any one of the
foregoing, or the United States or the District of Columbia but only if the
contribution or gift is made exclusively for public purposes.
With regard to the requirement that the gift be for "exclusively public
purposes," Rev. Rul. 67-446, 1967-2 C.B. 119, concludes that contributions
to a city to enable it to furnish new facilities outside the city to two
railroads in exchange for the railroads' removal of their inner city
facilities and relinquishment of their right of way through the city are
allowable deductions under section 170(c)(1) of the Code. See Rev. Rul.
69-90, 1969-1 C.B. 63, which reaches a similar conclusion in connection
with the construction of a public parking lot.
The commission, by promoting the general economic health of a region and by
maintaining and attracting industry, benefits the residents of the region
either directly by increased payments by industries for services and
materials or indirectly through the general influx of money into the area.
Therefore, the commission serves an exclusively public purpose.
Generally, in order for contributions to be "to or for the use of" a
governmental entity, the contributions must be made either directly to the
governmental entity or to an organization acting on behalf of such
governmental entity, provided that there are sufficient assurances that the
contributions will be used solely for the benefit of the general public.
Such assurances ordinarily exist if there is a substantial governmental
check on the autonomy of such an organization.
In the present case, the commission was established by a state legislature
and can be terminated by the state legislature at any time. The commission
is composed of representatives appointed by elected officials from each of
the municipalities that have chosen to participate in the activities of the
commission. The activities of the commission are subject to review by the
state and participating municipalities. The commission is acting on behalf
of and is subject to substantial control by the state and the participating
municipalities; and there is, therefore, a substantial governmental check
on its autonomy.
Furthermore, there is no indication that gifts to the commission will inure
to the benefit of private interests except indirectly in the course of
advancing the public purposes of promoting the economic health and
stability of the area.
HOLDING
Amounts paid to the commission in this case are for "exclusively public
purposes," and, therefore, are deductible as charitable contributions under
section 170(c)(1) of the Code, subject to the percentage limitations of
section 170(b)(1)(B).
