AUXILIARY POLICE ORGANIZATION IS POLITICAL SUBDIVISION.

UIL Number(s) 0115.00-00, 0170.07-05, 0170.09-01

                                             Date: March 12, 1993

This is in reply to your September 8, 1992, letter requesting a ruling that (1) the income of the Organization is excluded from gross income for federal income tax purposes, and (2) donations made to the Organization are deductible by contributors as charitable contributions to a governmental unit under section 170(c) of the Internal Revenue Code.

FACTS

The Organization is an Auxiliary Police organization that was formed by the Emergency Management Council of Township X pursuant to State Y law, to augment the Township X Police Department. The Organization's primary purpose is to assist Township X officials and police officers in protecting the health, safety, and welfare of Township X residents during emergency situations. Activities undertaken by Organization members include rendering assistance in the evacuation or relocation of residents, disseminating warnings and instructions to the public, providing traffic and crowd control, and performing crime prevention patrols.

A volunteer who wishes to become a candidate for membership in the Organization must be at least 18 years of age, a citizen of the United States, a resident of Township X, physically and morally fit, a holder of a valid State Y driver's license, and a holder of a valid Red Cross First Aid Certificate. In addition, each member must take an oath of loyalty. After meeting these eligibility requirements, a candidate must also successfully complete a basic training course consisting of 28 to 36 hours of police and First Aid Training. In addition, each member of the Organization must engage in regularly scheduled training operations and classes, totaling eight hours per month. Most training operations are conducted in Township X under the direct control and supervision of the Township X Police Department.

Since its inception, the Organization has derived its income primarily from Township X and donations from charitable organizations in the community. In addition, it benefitted from the proceeds of an annual community event that it sponsored. In recent years, however, funding from Township X and community donations has failed to keep pace with the Organization's increasing financial needs. Moreover, the sponsored community event is no longer held due to liability concerns. As a result, the Organization has decided to seek additional contributions from the residents of Township X to meet its expenses.

The Organization is financially accountable to Township X, which supervises and ultimately controls its operations in accordance with the laws of State Y. In addition, the Organization is also financially accountable to the County Z Prosecutor with respect to fund-raising solicitations.

Pursuant to the standard operating procedure guidelines promulgated for Auxiliary Police by State Y's Office of Emergency Management, no remuneration -- monetary or otherwise -- is paid to auxiliary police officers for performing their duty. No part of the funds contributed to the Organization, or the earnings thereon, inures to the benefit of any individual or member of the Organization. Prior to Year 1, Organization funds were used to pay the expenses of certain social events sponsored by the Organization, the invitees of which included Organization members, Township X officials, and Township X Police officers. In Year 1 and future years, Organization funds will not be used for any social activity that is not a part of the Organization's procedures relating to the proper internal governance of the Organization or the required training of Organization members.

Upon dissolution of the Organization, unless otherwise provided by law to be distributed to State Y or a political subdivision thereof for a public purpose, all assets of the Organization remaining after discharging its liabilities shall be distributed to Township X, to be used exclusively for public purposes related to law enforcement.

LAW AND ANALYSIS

Section 115 of the Code states that gross income does not include income derived from any public utility or the exercise of any essential governmental function and accruing to a State or any political subdivision thereof.

Section 115 of the Code applies to organizations and arrangements that are separate entities, that is, organizations that are not integral parts of the government of a state or a political subdivision thereof. However, section 115 does not apply to the states or their political subdivisions, such as counties, cities, or towns.

Generally, the activities conducted directly by states and their political subdivisions are not subject to federal income tax. Rev. Rul. 71-131, 1971-1 C.B. 28, and Rev. Rul. 71-132, 1971-1 C.B. 29. Likewise, income derived directly by an organization that is an integral part of a state or a political subdivision thereof, generally is not subject to federal income tax. Rev. Rul. 77-261, 1977-2 C.B. 45, clarified by Rev. Rul. 78-316, 1978-2 C.B. 304.

The term "political subdivision" is not defined in the Code. However, section 1.103-1(b) of the Income Tax Regulations provides that the term "political subdivision" denotes any division of any state or local governmental unit that is a municipal corporation, or which has been delegated the right to exercise a portion of the sovereign power of the governmental unit.

The three generally acknowledged sovereign powers are the police power, the power to tax, and the power of eminent domain. Estate of Shamberg, 3 T.C. 131, 143, aff'd, 144 F.2d 998 (2nd Cir. 1944), cert. denied, 323 U.S. 792 (1945). It is not necessary that all three of these powers be delegated in order to treat an entity as a political subdivision for purposes of the Code. Rather, all of the facts and circumstances must be taken into consideration, including the public purposes of the entity and the extent to which it is subject to control by a governmental body. Rev. Rul. 77-164, 1977-1 C.B. 20.

Township X is a political subdivision of State Y. The Police Department is an integral part of Township X. The Organization was organized to assist the Police Department in carrying out police functions in Township X. The Organization operates under the direction and supervision of the Township x Police Department. The Organization is an integral part of the Police Department, and thus by extension an integral part of the Township. Accordingly, the Organization's income is not subject to federal income tax.

Section 170(a)(1) of the Code provides, subject to certain limitations, a deduction for contributions and gifts to or for the use of organizations described in section 170(c).

Section 170(c)(1) of the Code defines a "charitable contribution" as a contribution or gift to or for the use of a State, a possession of the United States, any political subdivision of a State or any possession of the United States, the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.

Section 170(b)(1)(A) of the Code provides that a contribution made by an individual "to" a governmental unit referred to in section 170(c)(1) shall be allowed a deduction to the extent that the aggregate of the contribution does not exceed 50 percent of the taxpayer's contribution base for the taxable year.

The Organization was organized by Township X's Emergency Management Council. Organization members are trained under the supervision and control of the Township X Police Department, and are subject to the rules and regulations of the Department. Upon the Organization's dissolution all remaining assets will be distributed to Township X. Because the Organization assists local officials and police in protecting the residents in its geographic area during emergency situations, it was formed for exclusively public purposes. Accordingly, the Organization, as an integral part of a political subdivision within the meaning of section 170(c)(1) of the Code, qualifies to receive contributions deductible under section 170(a).

CONCLUSION

Based on the information submitted, we conclude that the Organization is an integral part of Township X. Accordingly, the Organization's income is not subject to federal income tax.

Moreover, contributions made to the Organization for exclusively public purposes are deductible by the contributors under section 170(a) of the Code.

Except as specifically ruled above, no opinion is expressed regarding any tax consequences related to the Organization or its contributors.

This letter ruling is directed solely to the taxpayer who requested it. Section 6110(j)(3) of the Code provisions that it may not be used or cited as precedent.

                                   Sincerely yours,