Rev. Rul. 68-432

Advice has been requested whether membership fees or subscriptions paid to a charitable, educational, scientific, or literary organization described in section 170(c)(2) of the Internal Revenue Code of 1954 in an amount out of proportion to the benefits or privileges offered may be deducted as charitable contributions under section 170 of the Code.

In the instant case, an organization of the type described in section 170(c)(2) of the Code maintains and operates a museum and library of art for the purpose of encouraging and developing the study of the fine arts and the application of arts in advancing general knowledge.

There are several classes of membership in the organization. Members of all classes receive equal privileges or benefits in the form of free admission to poetry evenings and advance exhibitions, reduced rates on subscriptions for concerts, discounts on the purchase of certain publications and articles, and invitations to selected lectures and other special events for members only.

Membership in the organization may be divided into two general groups. The first group consists of Annual and Family memberships for which yearly membership subscriptions of 2 x and 3 x dollars respectively are required to be paid. These payments have a reasonable relationship to the monetary value of the corresponding benefits that thereby become available to the individual persons or husband and wife teams who thereby acquire a right to utilize the privileges of such basic memberships.

The second group consists of Sustaining or Fellowship memberships for which annual subscription payments of 5 x and 20 x dollars respectively are made. Membership cards will be issued to the subscriber's spouse, if any, without the payment of anything beyond the basic subscription fee in either of the two major categories of memberships making up this second group.

Whether payments in the form of membership fees or dues to an organization described in section 170(c) of the Code are in whole or in part contributions 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 within the meaning of section 170 of the Code.

In determining whether any valuable return benefits are associated with such a membership, the test to be applied is whether such privileges are available and not whether they are in fact utilized. See Revenue Ruling 54-565, C.B. 1954-2, 95, which holds, in effect, that if membership in an organization bestows benefits or privileges upon members in return for the payment of the dues, such payment is not a contribution or gift and is not allowable as a deduction under section 170 of the Code.

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 obtainable is the satisfaction of participating in furthering the charitable cause, the membership fee is considered a contribution toward the support of the organization. See Rev. Rul. 55-70, C.B. 1955-1, 506. Such privileges as being associated with or being known as a benefactor of the organization are not significant return benefits that have a monetary value within the meaning of this Revenue Ruling.

It is recognized, however, that there may be instances where an organization may offer a type of membership for an amount substantially exceeding the value of any benefits or privileges offered. Whenever the discrepancy between the size of the membership contribution and the potential monetary benefit is so great as to make it reasonably clear that the payment is of a dual character, the Internal Revenue Service will give due consideration to the possible separation on a uniform basis of that portion of the total payment that may properly be treated as a charitable contribution under section 170 of the Code.

See Revenue Ruling 67-246, C.B. 1967-2,104, relating to the deductibility, as charitable contributions, of payments made by taxpayers in connection with admissions to or other participation in charitable fund-raising activities such as charity balls, bazaars, etc.

Since in the present case the respective amounts of the yearly fees required for the Annual and Family memberships are reasonably commensurate with the overall value of the various benefits associated with such memberships, no portion of such fees is deductible as a charitable contribution.

Since the benefits received by members for the Fellowship or Sustaining memberships are no greater than those received by members for the Annual or Family memberships, the respective corresponding excess cost of the Fellowship or Sustaining memberships is deductible under section 170 of the Code.

Revenue Ruling 54-565 is hereby modified to indicate that the payment of membership dues to a charitable organization is deductible as a charitable contribution to the extent such payment exceeds the monetary value of the benefits and privileges available by reason of such payment.