Internal Revenue Service
Revenue Ruling
Rev. Rul. 66-79
1966-1 C.B. 48
Sec. 170
IRS Headnote
Contributions to a domestic charity described in section 170(c)(2) of the
Internal Revenue Code of 1954 which are solicited for a specific project of
a foreign charitable organization are deductible under section 170 of the
Code where the domestic charity has reviewed and approved the project as
being in furtherance of its own exempt purposes and has control and
discretion as to the use of the contributions.
Revenue Ruling 63-252, C.B. 1963-2, 101, amplified.
Full Text
Rev. Rul. 66-79
The Internal Revenue Service has been requested to clarify Revenue Ruling
63-252, C.B. 1963-2, 101 with respect to the deductibility of contributions
to a domestic charitable corporation which may solicit contributions for a
specific project of a foreign charity in the manner presented below.
X corporation is a domestic charitable organization formed under the
nonprofit laws of the state of Y . It is exempt from Federal income tax as
being organized and operated exclusively for charitable, educational, and
scientific purposes described in section 501(c)(3) of the Internal Revenue
Code of 1954. Contributions to it are deductible since it is an
organization described in section 170(c)(2) of the Code.
The corporation's charter provides, in part, that in furtherance of its
educational, scientific, and charitable purposes it shall have the power to
receive and allocate contributions, within the discretion of the board of
directors, to any organization organized and operated exclusively for
charitable or educational purposes within the meaning of section 501(c)(3)
of the Code.
In contrast to the broad generality of the purposes stated in its charter,
the name X corporation suggests a purpose to assist a named foreign
organization. The individuals who organized X corporation had become
interested in furthering the work of the named foreign organization, a
corporation organized and operated in a foreign country exclusively for
charitable, scientific, and educational purposes. The individuals
concerned, who are United States citizens not acting on behalf of the
foreign organization, did not wish X corporation to function simply as a
fund raising medium for the foreign organization. Instead, they were
interested in raising funds for specific projects, such as scientific
research projects, to be carried out by the foreign organization, or
individuals connected with the foreign organization, pursuant to grants
previously reviewed and approved by the board of directors of X
corporation.
The bylaws of X corporation provide, in part, that: (1) The making of
grants and contributions and otherwise rendering financial assistance for
the purposes expressed in the charter of the organization shall be within
the exclusive power of the board of directors; (2) in furtherance of the
organization's purposes, the board of directors shall have power to make
grants to any organization organized and operated exclusively for
charitable, scientific or educational purposes within the meaning of
section 501(c)(3) of the Code; (3) the board of directors shall review all
requests for funds from other organizations, shall require that such
requests specify the use to which the funds will be put, and if the board
of directors approves the request, shall authorize payment of such funds to
the approved grantee; (4) the board of directors shall require that the
grantees furnish a periodic accounting to show that the funds were expended
for the purposes which were approved by the board of directors; and (5) the
board of directors may, in its absolute discretion, refuse to make any
grants or contributions or otherwise render financial assistance to or for
any or all the purposes for which funds are requested.
The bylaws also provide that after the board of directors has approved a
grant to another organization for a specific project or purpose, the
corporation may solicit funds for the grant to the specifically approved
project or purpose of the other organization. However, the board of
directors shall at all times have the right to withdraw approval of the
grant and use the funds for other charitable, scientific or educational
purposes.
In accordance with the provisions of its charter and bylaws, X corporation
at times solicits contributions which are to be used to provide grants to
the foreign organization mentioned above, or to individuals connected with
such foreign organization, for specific purposes approved by X
corporation's board of directors in accordance with its bylaws. At all
times all of the pertinent facts, including the fact that the board of
directors may withdraw its approval of a particular grant even after it has
been made, are available to any contributor not previously informed of such
facts should the contributor so request either before or after a
contribution has been made. The corporation refuses to accept contributions
so earmarked that they must in any event go to the foreign organization.
Section 170(a) of the Code provides, in part, that there shall be allowed
as a deduction any charitable contribution as defined in subsection (c),
payment of which is made within the taxable year.
Section 170(c) of the Code defines a charitable contribution as meaning, in
part, a contribution or gift to or for the use of a corporation, trust, or
community chest, fund or foundation which is organized and operated
exclusively for religious, charitable, scientific, literary, or educational
purposes or for the prevention of cruelty to children or animals. However,
the organization must be created or organized in the United States or in
any possession thereof, or under the law of the United States, any State or
Territory, the District of Columbia, or any possession of the United
States.
Revenue Ruling 63-252, C.B. 1963-2, 101, discusses the deductibility of
contributions by individuals to a charity organized in the United States
which thereafter transmits some or all of its funds to a foreign charitable
organization. Example (4) of that ruling concerns a domestic organization
described in section 170(c) of the Code which makes grants to a foreign
organization for purposes which the domestic organization has reviewed and
approved as in furtherance of its purposes. Contributions to the domestic
organization are not earmarked in any manner for a foreign organization and
the use of such contributions is subject to control by the domestic
organization. For these reasons, the domestic organization is considered to
be the recipient of such contributions within the meaning of section
170(c)(2) of the Code.
Under the provisions of its charter and bylaws, X corporation may make
grants to any organization organized and operated exclusively for
charitable, scientific, or educational purposes within the meaning of
section 501(c)(3) of the Code. An organization described in that section
can be either a domestic or a foreign organization. The operations of X
corporation bring it within the purview of example (4) of Revenue Ruling
63-252except for the manner in which it may solicit contributions for its
foreign grants. This raises a question as to whether the contributions are
earmarked for the foreign organization so as to prohibit a deduction under
section 170 of the Code.
Revenue Ruling 62-113, C.B. 1962-2, 10, holds that where gifts to an
organization described in section 170(c) of the Code are not earmarked by
the donor for a particular individual, the deduction will be allowable
where it is established that a gift is intended by the donor for the use of
the organization and not as a gift to an individual for whose benefit the
amount given may be used by the donee organization. The test in each case
is whether the organization has full control of the donated funds, and
discretion as to their use, so as to insure that they will be used to carry
out its functions and purposes.
In the instant case the domestic corporation may only solicit for specific
grants when it has reviewed and approved them as being in furtherance of
its purposes. Furthermore, under the terms of its bylaws the domestic
corporation may make such solicitations only on the condition that it shall
have control and discretion as to the use of the contributions received by
it. Therefore, contributions received by the domestic organization from
such solicitations are regarded as for the use of the domestic corporation
and not for the organization receiving the grant from the domestic
organization.
Accordingly, contributions paid to the domestic organization under the
circumstances described above are deductible, for Federal income tax
purposes, in the manner and to the extent provided by section 170 of the
Code.
Revenue Ruling 63-252 is hereby amplified.
