Rev. Rul. 77-232

The Internal Revenue Service has reconsidered its position announced in Rev. Rul. 59-152, 1959-1 C.B. 54, that contributions by members and other donors to or for the use of an integrated State Bar are deductible in computing taxable income in the manner and to the extent provided by section 170 of the Internal Revenue Code of 1954 and are deductible for Federal estate tax and gift tax purposes under the provisions of sections 2055(a)(1) and 2522(a)(1), respectively.

Rev. Rul. 59-152 states that the integrated State Bar of a certain state was created by statute as a public corporation. This State Bar works with the Supreme Court of the state in implementing certain statutory rules regarding the practice of law in the state with respect to the admission, suspension, disbarment, and reprimanding of attorneys. In addition, the State Bar promotes the professional interests of members.

Section 170 of the Code provides 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, subject to the limitations provided in that section.

Section 170(c)(1) of the Code defines, in part, a charitable contribution as a contribution "to or for the use of" a state or a political subdivision thereof, but only if the contribution or gift is made for "exclusively public purposes."

Section 2055(a)(1) of the Code provides, in part, that in determining the taxable estate of a decedent, there shall be deducted from the gross estate the amount of all bequests, legacies, devises, or transfers to or for the use of any state, or any political subdivision thereof for exclusively public purposes.

Section 2522(a)(1) of the Code provides that in computing taxable gifts for the calendar quarter, there shall be allowed as a deduction in the case of a citizen or resident the amount of all gifts made during such quarter to or for the use of any state, or any political subdivision thereof, for exclusively public purposes.

In this case the integrated State Bar has certain public purposes principally in the areas of admission, suspension, disbarment, and reprimand of attorneys licensed to practice in the state. However, it also has certain private purposes such as the encouragement of stimulating discussion among attorneys and the protection of the professional interests of members of the State Bar. Thus, the State Bar is a dual purpose organization.

The State Bar is not an arm of the state because it is a separate entity and has private as well as public purposes. It is not a political subdivision because it has no meaningful sovereign powers. Compare Rev. Rul. 73-563, 1973-2 C.B. 24, which holds that a rapid transit authority created by an act of the state legislature and empowered to issue bonds, exercise police powers, and realize the benefits of taxes imposed and the power of eminent domain exercised by participating local governmental bodies, qualifies as a political subdivision of the state within the meaning of section 1.103-1 of the Income Tax Regulations. Therefore, contributions to the State Bar are not "to" a state or a political subdivision thereof.

Contributions to the State Bar are also not for the use of a state or a political subdivision thereof since there are no restrictions imposed by the donor or by the bar itself that require that the state or a political subdivision thereof will benefit from the contributions. Such contributions can be used for the private purposes of the State Bar and its members.

In addition to the above, when an organization has both public and private purposes, unrestricted contributions to that organization cannot be said to be made for exclusively public purposes. In such situations there is nothing to insure that contributions will be used in furtherance of whatever public functions the organization might perform. See Rev. Rul. 56-329, 1956-2 C.B. 125, which holds that contributions to an organization or fund to be used for the purpose of acquiring, erecting, and maintaining a building that is used by a fraternal organization in carrying on its fraternal and other activities, are not contributions for exclusively charitable purposes, even though some of the activities in which the fraternal organization engages may be of a charitable nature.

Accordingly, the contributions made to the State Bar by members and other donors are not deductible as charitable contributions as defined in section 170(c)(1) of the Code. Similarly, such contributions are not deductible for Federal estate tax and gift tax purposes under the provisions of sections 2055(a)(1) and 2522(a)(1).

Compare Rev. Rul. 54-243, 1954-1 C.B. 92, which holds that under certain conditions, an organization exempt under a section other than section 101(6) of the Internal Revenue Code of 1939 (section 501(c)(3) of the 1954 Code) may establish a separate fund exclusively for religious, charitable, scientific, literary, or educational purposes, apart from its other funds, and that contributions to that fund would be deductible by donors under section 23(o) and (q) of the 1939 Code (section 170 of the 1954 Code).

Under the authority contained in section 7805(b) of the Code this Revenue Ruling will not be applied to such contributions made to a State Bar prior to July 5, 1977, the date this Revenue Ruling is published in the Internal Revenue Bulletin.

Rev. Rul. 59-152 is hereby revoked.