Internal Revenue Service
Rev. Rul. 77-160
1977-1 C.B. 351
Section 4941 -- Foundation Self-Dealing
Private foundation; self-dealing; church membership dues. Payment by a
private foundation of a disqualified person's church membership dues in
order to maintain that person's church membership is an act of self-dealing
under section 4941(d)(1)(E) of the Code.
Rev. Rul. 77-160
The Internal Revenue Service has been asked whether, under the
circumstances described below, payment by a private foundation of a
disqualified person's membership dues constitutes an act of self-dealing
within the meaning of section 4941(d)(1)(E) of the Internal Revenue Code of
Members of a congregation (classified as a church under section
170(b)(1)(A)(i) of the Code) pay dues for the purpose of supporting the
congregation. As a result, the members are entitled to hold office, vote in
congregational meetings to elect officers and conduct other business, and
otherwise participate in the religious activities of the congregation.
A member of the congregation maintained his membership status in the
congregation by virtue of dues paid on his behalf by a private foundation.
The member is a disqualified person with respect to the private foundation.
Section 4941(a)(1) of the Code imposes a tax on each act of self-dealing
between a disqualified person and a private foundation.
Under section 4941(d)(1)(E) of the Code, the term "self-dealing" includes
any direct or indirect transfer to, or use by or for the benefit of, a
disqualified person of the income or assets of a private foundation.
Section 53.4941(d)-2(f)(2) of the Foundation Excise Tax Regulations
provides that the fact that a disqualified person receives an incidental or
tenuous benefit from the use by a foundation of its income or assets will
not, by itself, make such use an act of self-dealing. Thus, the public
recognition a person may receive, arising from the charitable activities of
a private foundation to which such person is a substantial contributor,
does not in itself result in an act of self-dealing since generally the
benefit is incidental and tenuous.
Rev. Rul. 73-407, 1973-2 C.B. 383, holds that a contribution by a private
foundation to a public charity does not constitute an act of self-dealing
even though the contribution is conditioned upon the agreement of the
public charity to change its name to that of a substantial contributor to
the foundation. The Ruling is based upon section 53.4941(d)-2(f)(2) of the
regulations and indicates that the resulting benefit to the substantial
contributor is incidental and tenuous.
Other Revenue Rulings have considered the question of when a charitable
contribution deduction will be allowed under section 170 of the Code for
membership fees or dues. Rev. Rul. 68-432, 1968-2 C.B. 104, notes that
whether such fees or dues paid to an organization described in section
170(c) are deductible is a question of fact and will depend on such
considerations as the objectives and activities of the organization and the
nature and extent of the benefits or privileges conferred upon its members.
If any reasonably commensurate return privileges or facilities are made
available by reason of the membership payment, such payment is not a
charitable contribution. If, however, the rights and privileges of
membership are incidental to making the organization function according to
its charitable purposes and the only return benefit thereby attainable is
the satisfaction of participating in furthering the charitable cause, the
membership fee is a charitable contribution under section 170(c).
In Rev. Rul. 70-47, 1970-1 C.B. 49, the Service held that pew rents,
building fund assessments, and periodic dues paid to a church (an
organization described in section 170(c) of the Code) are all methods of
making contributions to the church, and such payments are deductible as
charitable contributions within the limitations set out in section 170.
Under Rev. Rul. 68-432 and Rev. Rul. 70-47, dues payments of the type
described above, if paid directly by the disqualified person, would be
deductible charitable contributions under section 170(c) of the Code. The
dues confer no significant rights on the individual members, and are paid
for the purpose of supporting the congregation and furthering its religious
Although any rights or benefits that the disqualified person receives from
the church by reason of that person's membership status might be described
as incidental or tenuous, it cannot be said that the benefit to the
disqualified person by reason of the private foundation's payment of the
membership dues is incidental or tenuous within the meaning of section
53.4941(d)-2(f)(2) of the regulations. The foundation's payment results in
a direct economic benefit to the disqualified person because that person
would have been expected to pay the membership dues had they not been paid
by the foundation.
Membership dues and fees, by their very nature, are usually paid by
individuals on a continuing basis. Even where no benefits are conferred on
the individual by reason of the payment of dues, the member is afforded the
opportunity to participate in the charitable program of the church or other
section 170(c) organizations to which the payments are made.
When membership fees or dues are paid by a private foundation on behalf of
a disqualified person, it may be presumed that the disqualified person is
being relieved of the obligation, whether or not legally enforceable, to
make such payment. The benefit conferred on the individual is not
incidental or tenuous, but is direct and economic in nature.
The payment of membership fees or dues by a private foundation on behalf of
a disqualified person may be distinguished from the making of a grant such
as that described in Rev. Rul. 73-407. Although the grant may result in
public recognition of a disqualified person, it is not a substitute for an
obligation of the disqualified person. Thus, the benefit derived is
tenuous, and is not economic in nature.
Accordingly, the payment of membership dues by the private foundation on
behalf of the disqualified person is an act of self-dealing under section
4941(d)(1)(E) of the Code.