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 Rev. Rul. 79-9

1979-1 C.B. 125

Section 301

IRS Headnote

Charitable contribution by closely held corporation. A charitable contribution by a closely held corporation is taxable as a distribution to the corporation's shareholders only if property or economic benefit is received by the shareholders or their families as a result of the contribution; Rev. Ruls. 68-658 and 75-335 revoked.

Full Text

Rev. Rul. 79-9

In view of the acquiescence in Knott v. Commissioner, 67 T.C. 681 (1977), acq., page 1, this Bulletin, Rev. Rul. 68-658, 1968-2 C.B. 119 and Rev. Rul. 75-335, 1975-2 C.B. 107 are revoked.

Rev. Rul. 68-658 states that a charitable contribution by a corporation to an organization described in section 170(c)(2) of the Internal Revenue Code of 1954 is taxable to the sole shareholder as a distribution of property under section 301 (constructive dividend) if the contribution serves only the personal interests of the shareholder. Rev. Rul. 75-335 also applies this standard to a charitable contribution by a closely held corporation.

The United States Tax Court in Knott held that property or an economic benefit must be received by the controlling shareholders or their families as a result of the corporation's charitable contribution in order for the contribution to be treated as a constructive dividend to the shareholders. The Internal Revenue Service will follow the Knott decision.

Rev. Rul. 68-658 and Rev. Rul. 75-335 are revoked because the standard for constructive dividend treatment set forth therein does not require that the shareholders or their families receive property or an economic benefit as a result of the corporation's charitable contribution.