Rev. Rul. 73-356

Advice has been requested as to the tax treatment of amounts received and amounts expended by Congressmen A and B, who use the cash receipts and disbursements method of accounting, in connection with publication and distribution of newsletters, reports, and questionnaires they send to constituents under the circumstances described below.

Situation (A).--Congressman A sends out a newsletter at regular intervals to report to his constituents on matters of general interest such as taxes, social security, foreign relations, and other subjects pertaining to the affairs of the Federal Government and on such matters as his activities and findings in connection with an official inspection trip to foreign countries. To help defray the expenses of producing, printing, and preparing it for mailing, he offers constituents subscriptions to the newsletter for a reasonable price, and sends it to subscribers only. The subscription proceeds are available to Congressman A upon their receipt, but he applies all such proceeds to the expenses associated with publication of the newsletter. From his personal funds, he pays the remaining cost of publishing and distributing it. The annual out-of-pocket cost to the Congressman of publishing and distributing the newsletter is less than his annual salary.

Situation (B).--Congressman B sends legislative reports to his constituents from 12 to 15 times a year to keep them informed regarding the affairs of the Federal Government and his official activities. He also sends out questionnaires from time to time seeking the opinions of his constituents on various issues. To help defray the costs involved, Congressman B solicits contributions, by notation on the reports and by telephone requests initiated by a member of his staff, to be used solely for the printing and related costs of these reports and questionnaires. However, he sends the reports and questionnaires to constituents whether or not they contribute. Contributions received by him in response to these requests are available to him upon receipt but he retains no part of them for his personal services in preparing the materials. They are deposited in a bank account that is segregated from all other funds maintained by Congressman B's office, no part of which account is ever used for campaign purposes. If the fund is insufficient to pay the expenses of publishing and distributing the reports and questionnaires, the Congressman pays the remainder from his own personal funds. Any excess in the fund at the end of any particular year is carried over to the following year to be used for the same purpose. The annual cost to the Congressman of publishing and distributing these materials is less than his annual salary.

Section 61 of the Internal Revenue Code of 1954 provides, in part, that the term gross income means "all income from whatever source derived," including, among other things, gross income from business, compensation for services, fees, commissions, and similar items.

Section 102(a) of the Code provides, in pertinent part, that gross income does not include the value of property acquired by gift. A gift is generally defined as a voluntary transfer of property by its owner to another with donative intent and without consideration. If a payment proceeds primarily from the incentive of anticipated benefit of an economic nature to the payor, it is not a gift. Where the payment is in return for services rendered, it is irrelevant that the donor receives no economic benefit from it. See Commissioner v. Duberstein, 363 U.S. 278 (1960), 1960-2 C.B. 428. Moreover, when a payment is made by a customer to a taxpayer who provides services to assure continuation of those services, that payment is not a gift even though not made in consideration for past or current services. See Publishers New Press, Inc., 42 T.C. 396 (1964), acq., 1964-2 C.B. 7.

Under the facts of Situation (A), the subscription fees are given as direct payment for the publications, and such funds are available to Congressman A upon receipt. Therefore, the subscription proceeds received by Congressman A must be included in his gross income under section 61 of the Code.

Under the facts of Situation (B), although the contributions described are not given as payment for the publications, they are made to assure the continued publication of the materials. Therefore, such amounts are not gifts within the meaning of section 102 of the Code.

The performance of the official duties of a Congressman in his trade or business as an elected official includes keeping his constituents informed with respect to the affairs of the Federal Government and his own official actions, and seeking opinions from them on pertinent issues. Thus, any amount received by a Congressman for the purpose of defraying part of the cost of reporting to constituents or of seeking opinions from his constituents is a substantial benefit to him in that it offsets a portion of the cost to him of performing the duties of his office. Therefore, such amounts received by Congressman B must be included in his income under section 61 of the Code in the year received.

Furthermore, section 162(a) of the Code provides for the deduction of all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 7701(a)(26) provides that the term "trade or business" includes the performance of the functions of a public office.

I.T. 4095, 1952-2 C.B. 90, holds that expenses incurred by a Congressman in printing and addressing a letter to his constituents, which letter consists principally of a report of his activities and findings in connection with an official inspection trip to foreign countries but also contains a brief personal message, qualify as ordinary and necessary business expenses.

Inasmuch as it is considered an appropriate part of the official duties of a Congressman to keep his constituents informed with respect to the affairs of the Federal Government and his official actions, and to seek opinions from them on pertinent issues, the amounts expended in issuing such publications are ordinary and necessary business expenses within the meaning of section 162(a) of the Code. However, under section 62 relating to adjusted gross income, with exceptions not here relevant, expenses attributable to the performance of a trade or business as an employee are deductible only in computing taxable income. Accordingly, these expenses are deductible in the year paid by Congressmen A and B in the situations described above only if they itemize their deductions.

I.T. 4095 is hereby superseded, since its substance is incorporated in this Revenue Ruling.