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    Internal Revenue Service
 Revenue Ruling

Rev. Rul. 72-552

1972-2 C.B. 525

IRS Headnote

The value of inter vivos transfers to a charitable corporation is
includible in the estate of the donor who, as president of the corporation,
retained power over the disposition of its funds; the value is also
includible in determining the marital deduction allowable and qualifies as
a charitable deduction. 

Full Text

Rev. Rul. 72-552 

Advice has been requested whether the value of certain inter vivos
transfers to a charitable corporation are includible in the deceased
transferor's gross estate for Federal estate tax purposes under the
circumstances described below. 

In 1964 and 1965 the decedent transferred property to a corporation formed
under the local membership corporation law as a nonprofit corporation
organized for purposes specified in section 501(c)(3) of the Internal
Revenue Code of 1954. At the decedent's death, the corporation was exempt
from income tax under section 501(a) of the Code. The decedent was one of
the organizing members of the corporation, one of its original directors,
and its president. Local law permits the members of a membership
corporation to adopt by-laws for the management of its business. The
by-laws of this corporation provided that the decedent's position as a
member was to continue until his death, resignation, or termination by the
other members. He continued in all of these positions until his death on
January 1, 1969. 

The corporation's by-laws control the actions of the corporate directors in
selecting beneficiaries to receive corporate property. Based on these
by-laws the board of directors authorized the decedent, as president, and
the vice president of the corporation to direct the disposition of its
funds for charitable purposes. 

At the decedent's death, 90 percent of the corporate assets had been
transferred to the corporation by him. The decedent's residuary bequest to
his wife was "* * * that fractional share of my residuary estate which
shall be needed to obtain the maximum marital deduction allowable in
determining the Federal estate tax upon my estate, after taking into
account all other items included in my gross estate for Federal estate tax
purposes (whether passing under this will or otherwise) which qualify for
said deduction." 

Section 2036(a) of the Code provides: 

GENERAL RULE.--The value of the gross estate shall include the value of all
property to the extent of any interest therein of which the decedent has at
any time made a transfer (except in case of a bona fide sale for an
adequate and full consideration in money or money's worth), by trust or
otherwise, under which he has retained for his life or for any period not
ascertainable without reference to his death or for any period which does
not in fact end before his death-- 

(1) the possession or enjoyment of, or the right to the income from, the
property, or, 

(2) the right, either alone or in conjunction with any person, to designate
the persons who shall possess or enjoy the income therefrom. 

Section 2055(a)(2) of the Code (prior to amendment by the Tax Reform Act of
1969, Public Law 91-172, C.B. 1969-3, 10) authorizes the allowance of a
deduction from the value of the gross estate for all bequests, legacies,
devises, or transfers to or for the use of any corporation organized and
operated exclusively for religious, charitable, scientific, literary or
educational purposes, no part of the net earnings of which inures to the
benefit of any private stockholder or individual and no substantial part of
the activities of which is carrying on propaganda or otherwise attempting
to influence legislation. 

Under the general rule provided by section 2056(c) of the Code, the value
of the decedent's adjusted gross estate, for the purpose of determining the
50 percent limitation on the amount allowable as a marital deduction, is
determined by subtracting from the entire value of the gross estate the
aggregate amount of the deductions allowed by section 2053 and 2054 of the
Code. 

The phrase "by trust or otherwise," as used in section 2036(a) of the Code,
includes transfers to corporations. See Estate of Oei T. Swan, et al. v.
Commissioner, 24 T.C. 829 (1955), affirmed on this issue, 247 F. 2d 144
(1957). The decedent's position as a member of the corporation gave him the
right, in conjunction with others, to designate the persons who shall
possess or enjoy the property transferred to the corporation and, by the
existence of this right with respect to the transferee corporation until
the time of his death, the decedent retained the right for purposes of
section 2036 of the Code. 

The charitable deduction provided by section 2055 of the Code is allowable
for the value of the property transferred by the decedent to the
corporation. The value of the adjusted gross estate, for purposes of
section 2056(c), does not reflect the adjustment for charitable deductions.


Accordingly, it is held that the value of the property transferred to the
charitable corporation is includible in the decedent's gross estate under
section 2036 of the Code since he, as a member of the corporation, had the
power to direct the disposition of its funds for charitable purposes. The
value of the transferred property is also includible in the value of the
decedent's adjusted gross estate in determining the maximum marital
deduction allowable under the limitation of section 2056(c). The value of
the transferred property also qualifies for the charitable deduction under
section 2055.