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    Internal Revenue Service
 Revenue Ruling

Rev. Rul. 63-73

1963-1 C.B. 35

Sec. 162

Sec. 170

IRS Headnote

Amounts paid by a corporation to a charitable organization for the use of
its name and cooperation in connection with the corporation's advertising
program are not gifts or contributions but constitute allowable deductions
under section 162(a) of the Internal Revenue Code of 1954 without regard to
the limitations imposed by section 170 of the Code, provided such payments
are reasonable in amount. 

Full Text

Rev. Rul. 63-73 

Advice has been requested whether amounts paid by a corporation to a
charitable organization for the use of its name and cooperation in
connection with the corporation's advertising program are deductible as
ordinary and necessary business expenses. 

In the instant case, as a part of an advertising campaign designed to
promote additional sales and net profits, a corporation entered into an
agreement with an organization contributions to which would be deductible
under section 170 of to Internal Revenue Code of 1954. The agreement
provides that the corporation will pay the charitable organization a
certain amount on each unit of a specified product manufactured by it for
which a label is mailed to the organization by the purchaser of the
product. In return for these payments, the organization agreed to permit
the use of its name in connection with the advertising and, through its
president, undertook to secure testimonial letters from prominent
individuals for use in the camgaign. 

Section 162 of the Internal Revenue Code of 1954 provides, in part, as
follows: 

(a) IN GENERAL.-There shall be allowed as a deduction all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on
any trade or business * * * 

* 

(b) CHARITABLE CONTRIBUTIONS AND GIFTS EXCEPTED.-No deduction shall be
allowed under subsection (a) for any contribution or gift which would be
allowable as a deduction under section 170 were it not for the percentage
limitations, the dollar limitations, or the requirements as to the time of
payment, set forth in such section. 

Section 1.162-1 of the Income Tax Regulations provides, in part, that among
the items included in business expenses are advertising and other selling
expenses. 

Section 1.162-15 of the regulations provides, in part, that no deduction is
allowable under section 162(a) of the Code for a contribution or gift by an
individual or a corporation if any part thereof is deductible under section
170 of the Code. However, this limitation applies only to payments which
are in fact contributions or gifts to organizations described in section
170 of the Code. 

The obligation by the organization in this case to permit its name to be
used in connection with the corporation's advertising campaign is
considered sufficient consideration for the amounts received and such
amounts are not in fact contributions or gifts within the meaning of
section 170 of the Code. 

Based on the facts of this case, it is held that the amounts paid by the
corporation to the charitable organization are not gifts or contributions
but constitute ordinary and necessary business expenses, deductible under
section 162(a) of the Code without regard to the limitation imposed by
section 170 of the Code, providing such payments are reasonable in amount.