Rev. Rul. 54-566

A foundation which is exempt from Federal income tax under the provisions of section 101(6) of the Internal Revenue Code of 1939, received contributions from donors which were earmarked for a particular purpose. The donors took deductions for such contributions in their Federal income tax returns subject to the limitations of section 23(o) and (q) of that Code. Subsequently the Foundation abandoned the particular project and upon request of a donor, transferred his contribution to a Fund designated by that donor. Records of the Internal Revenue Service do not disclose that the Fund has applied for exemption. Held: The amount designated by the donor to be transferred to the Fund constituted taxable income to the donor for the year in which the transfer was made, to the extent of the portion hereof which was previously taken as a deduction by him. In the event the Fund qualifies as an organization of the type referred to in section 23(o) or (q) of the Code, contributions to it would qualify as an allowable deduction in the Federal income tax return of the donor subject to the statutory limitations.