Rev. Rul. 79-99

ISSUE

Is the taxpayer entitled to a deduction for a charitable contribution under section 170 of the Internal Revenue Code of 1954?

FACTS

During the taxable year 1977, one of the taxpayer's children attended a school operated by a society for religious instruction associated with a local church. The society was an exempt organization described in section 170(c)(2) of the Code. The society did not have a formal schedule of tuition payments in order to operate the school, but rather solicited its funds from supporting churches in the area, parents of enrolled students, members who were not parents of students and other persons interested in the school. Those members who were parents with children in school were solicited in the same manner as non-parents. All monies received by the society were placed in a general operating fund without designation. No child was allowed to attend the society's school by reason of any contribution made, nor was any child denied acceptance to the school for lack of a contribution. Funds were solicited on the basis of what a person could afford to give rather than on a per capita basis.

During the taxable year 1977, the taxpayer made several donations to the organization, the total value of which was not in excess of the fair market value of the education provided to the taxpayer's child by the society.

LAW AND ANALYSIS

Section 170 of the Code provides, subject to certain limitations, a deduction for charitable contributions, payment of which is made within the taxable year.

Section 170(c)(2) of the Code provides, in part, that the term "charitable contribution" means a contribution or gift to or for the use of a corporation organized and operated exclusively for educational purposes.

A "gift" or "contribution," for purposes of section 170 of the Code, is a voluntary transfer of money or property made by the transferor without receipt or expectation of a financial or economic benefit therefor. To the extent the transferor receives, or can reasonably expect to receive, a financial or economic benefit for the money or property transferred, no deduction under section 170 is allowable. Rev. Rul. 76-185, 1976-1 C.B. 60.

In the instant case, it is immaterial that the payments to the society were not explicitly designated as tuition. Nor is it significant that the solicitations for funds to the society were based upon a member's ability to pay and that all contributions were placed in a general operating fund. However the payment is designated, and whatever the taxpayer's motive in making it, the test to be applied is whether the payment was, to any substantial extent, offset by the fair market value of services rendered to the taxpayer in the nature of tuition. If so, the payment, to the extent of the offset, should be regarded as non-deductible tuition. See Oppewal v. Commissioner, 468 F.2d 1000 (1st Cir. 1972) and Haak v. United States, 451 F. Supp. 1087 (W.D. Mich. 1978).

HOLDING

The taxpayer is not entitled to a charitable contribution deduction since the taxpayer's payments to the society do not exceed the fair market value of the child's education.