Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 54-46

1954-1 C.B. 237

Caution: Obsoleted by Rev. Rul. 69-227

IRS Headnote

The exemption from tax on admissions provided by section 1701(a)(1) of the Internal Revenue Code does not apply to charges for admission to affairs, all the proceeds of which inure to a scholarship fund controlled and administered by a nonexempt association.

Full Text

Rev. Rul. 54-46

Advice is requested whether the exemption from tax on admissions provided by section 1701(a)(1) of the Internal Revenue Code is applicable to charges for admission to affairs where the proceeds inure to a scholarship fund controlled and administered by a nonexempt association.

In the instant case, an association presents plays, all the proceeds of which inure to a scholarship fund. The fund is not a separate entity but is controlled and administered by the association as one of its activities and is used to provide a scholarship to an outstanding student of a university which qualifies for exemption under section 1701(a)(1)(A)(ii) of the Code. Neither the association nor the fund qualifies for exemption from income tax under section 101(6) of the Code as an educational or charitable organization.

Section 1701 of the Code provides in part as follows:

SEC. 1701. EXEMPTIONS FROM TAX.

No tax shall be levied * * * in respect of-

(a) CERTAIN RELIGIOUS, EDUCATIONAL, OR CHARITABLE ENTERTAINMENTS, ETC.-

(1) IN GENERAL.-* * * any admissions all the proceeds of which inure-

(A) exclusively to the benefit of-

*

(ii) an educational institution which is exempt under section 101(6) or which is an educational institution of a government or political subdivision thereof, if such organization normally maintains a regular faculty and curriculum and normally has a regularly organized body of pupils or students in attendance at the place where its educational activities are regularly carried on;

(iii) a corporation or any community chest, fund, or foundation organized and operated exclusively for charitable purposes, exempt under section 101(6), if such corporation or organization is supported, in whole or in part, by funds contributed by the United States or any State or political subdivision thereof, or is primarily supported by contributions from the general public;

* if no part of the net earnings thereof inures to the benefit of any private stockholder or individual;

Where an educational institution which qualifies for exemption under section 1701(a)(1)(A)(ii) of the Code controls and administers a scholarship fund as part of its institutional activities, the exemption provided by that section applies to charges for admission to affairs presented by any organization all the proceeds of which inure to such fund. See Rev. Rul. 163, C.B. 1953-2, 335. However, the exemption provided by that section does not apply to charges for admission to affairs where the proceeds of which inure to a scholarship fund which is controlled and administered by a nonexempt organization.

The exemption from tax on admissions provided by section 1701(a)(1)(A)(iii) of the Code, with respect to organizations operated exclusively for charitable purposes, applies to charges for admission to affairs, the proceeds of which inure to a scholarship fund where the fund is identifiable as a separate entity organized for charitable purposes, exempt under section 101(6) of the Code, and is primarily supported by contributions from the general public.

It is held that since, in the instant case, the scholarship fund is controlled and administered by an association which does not qualify as an educational institution under section 1701(a)(1)(A)(ii) of the Code, the exemption provided by that section does not apply. It is further held that, since the scholarship fund controlled and administered by the association is not identifiable as a separate entity meeting the specific requirements set forth in section 1701(a)(1)(A)(iii) of the Code, the exemption provided by that section with respect to charitable organizations does not apply. Accordingly, the charges for admission to plays presented by the association, the proceeds of which inure to its scholarship fund are subject to the admissions tax imposed by section 1700 of the Code.