Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 67-95

1967-1 C.B. 144

IRS Headnote

In the case of an organization exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954, subject to the provisions of section 503 of the Code, and not a trust created under the will of a decedent dying before January 1, 1951, income accumulated prior to 1950 will be considered for purposes of determining whether the organization has unreasonably accumulated income in violation of the provisions of section 504 of the Code.

Full Text

Rev. Rul. 67-95

An organization exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954 and subject to the provisions of section 503 of the Code has asked whether income accumulated prior to 1950 will be considered for purposes of determining whether it has unreasonably accumulated income in violation of the provisions of section 504 of the Code.

The organization has accumulated a portion of its income since 1945. In 1966 a question was raised whether the income accumulated had become unreasonable in amount in order to carry out the organization's exempt purposes. The contention was made by the organization that income accumulated prior to 1950, the year of enactment of section 3814 of the Internal Revenue Code of 1939, the predecessor to section 504 of the 1954 Code, should not be considered in determining whether an unreasonable accumulation existed. The organization is not a trust created under the will of a decedent dying before January 1, 1951.

Section 504 of the Code provides that any organization described in section 501(c)(3) of the Code to which section 503 of the Code is applicable shall be denied exemption under section 501 of the Code for the taxable year if amounts accumulated out of income during the taxable year or any prior taxable year and not actually paid out by the end of the taxable year are unreasonable in amount or duration in order to carry out the charitable, educational, or other purpose or function constituting the basis for such organization's exemption under section 501(c)(3) of the Code.

Section 1.504-1(b)(1) of the Income Tax Regulations provides that any organization described in section 501(c)(3) of the Code other than an organization described in section 503(b)(1) through (5), inclusive, shall not be exempt under section 501(a) of the Code if the amounts accumulated out of income during the taxable year, or any prior taxable year, and not actually paid out for exempt purposes by the end of the taxable year, are unreasonable.

Both the statute and regulations promulgated thereunder specifically refer to amounts accumulated out of income during the taxable year or any prior taxable year and no relevant exception was provided for this type organization in either section 3814 of the 1939 Code or section 504 of the 1954 Code to exclude income accumulated prior to the enactment of that section. See Erie Endowment v. United States, 316 F. 2d 151 (1963); Danforth Foundation v. United States, 222 F. Supp 761 (1963); and Stevens Brothers Foundations, Inc. v. Commissioner, 39 T.C. 93 (1962), affirmed in part, 324 F. 2d 633 (1963).

In view of the foregoing, amounts accumulated prior to 1950 by the organization will be considered in determining whether the organization has unreasonably accumulated income in violation of the provisions of section 504 of the Code.