Rev. Rul. 86-63

1986-1 C.B. 88, 1986-17 I.R.B. 6.

CHARITABLE CONTRIBUTION; ATHLETIC SCHOLARSHIP PROGRAM

Published: April 28, 1986

Section 170.-Charitable, etc., Contributions and Gifts, 26 CFR 1.170A-

1:Charitable, etc., contributions and gifts, allowance of deduction

  Charitable contribution; athletic scholarship program. Guidelines concerning whether payments to athletic scholarship programs are charitable contributions under section 170 of the Code when the payments afford the right to purchase preferred seating at a university's home football games. Rev. Rul. 84-132 is clarified, distinguished, and superseded.

ISSUE

  Whether payments to athletic scholarship programs are charitable contributions under section 170 of the Internal Revenue Code in situations where the payments afford the right to purchase preferred seating at football games.

FACTS

  Situation 1. Taxpayer A, an individual, made a payment of $300 to a particular athletic scholarship program maintained by a university, an organization described in section 170(c)(2) of the Code. A minimum payment of

$300 is required to become a 'member' of the program. The only benefit afforded members is that they are permitted to purchase, by paying the stated price of

$120, a season ticket to the university's home football games in a designated area in the stadium. Because the games are regularly sold out well in advance, tickets to the games covered by the season ticket would not have been readily available to A if A had not made the payment to the program. The $300 membership fee is paid annually, and a member is required to make a separate

$300 payment for each season ticket the member purchases. The university did not inform its donors of the fair market value of the right to purchase a season ticket in the designated area.

  Situation 2. The facts are the same as in Situation 1 except that taxpayer B, an individual, made a payment of $500 to the program, even though only a $300 payment is required to become a 'member' of the program. The additional $200 did not result in any benefit to B other than that afforded members paid $300.

  Situation 3. Taxpayer C, an individual, made a payment of $300 to an athletic scholarship program of a university, an organization described in section

170(c)(2). This payment entitled C to become a 'member' of the program and, as a member, to purchase a season ticket, for an additional payment of the stated price, in a designated area in the stadium. Tickets are offered to members before season tickets go on sale to the public. Seating reasonably comparable to that available to C as a result of membership in the program would have been readily available to C even if C had not made the payment to the program.

  Situation 4. Taxpayer D, an individual, made a payment of $300 to an athletic scholarship program of a university, an organization described in section

170(c)(2). This payment entitled D to become a 'member' of the program and, as a member, to purchase a season ticket to the university's home football games, for an additional payment of the stated price, in a designated area of the stadium. The membership fee is paid annually and a member is required to make a separate $300 payment for each season ticket the member purchases. Although the games are not regularly sold out, seating reasonably comparable to that available to do as a result of membership in the program would not have been readily available to D if D had not made the payment to the program. The university reasonably estimated that the fair market value of the right to purchase a season ticket in the designated area of the stadium would be x dollars, and advised prospective members that the additional ($300 - x dollars) was being solicited as a contribution. In making the estimate, the university considered the level of demand for tickets, the general availability of seats, the relative desirability of seats based on their types, locations, and views, and other relevant factors.

LAW AND ANALYSIS

  Section 170(a) of the Code allows. subject to certain limitations, a deduction for contributions and gifts to or for the use of organizations described in section 170(c), payment of which is made within the taxable year.

  A contribution for purposes of section 170 of the code is a voluntary transfer of money or property that is made with no expectation of procuring financial benefit commensurate with the amount of the transfer. See section

1.170A-1(c)(5) of the Income Tax Regulations and H.R. Rep. No. 1337, 83d Cong.,

2d Sess. A44 (1954).

  Rev. Rul. 67-246, 1967-2 C.B. 104, sets forth various examples concerning the deductibility, as charitable contributions under section 170 of the Code, of payments made by taxpayers in connection with admission to or other participation in fund-raising activities for charitable organizations. The revenue ruling provides that to be deductible as a charitable contribution for federal income tax purposes under section 170, a payment to or for the use of a qualified charitable organization must be a gift. No gift exists for such purposes unless, among other requirements, there is a payment of money or transfer of property without adequate consideration. Where consideration in the form of substantial privileges or benefits is received in connection with payments by patrons of fund-raising activities, there is a presumption that the payments are not gifts. See also Rev. Rul. 76-185, 1976-1 C.B. 60.

  Rev. Rul. 67-246 explains that, if a charitable contribution deduction is claimed with respect to a payment for which such consideration is received, the burden is on the taxpayer to establish that the amount paid is not the purchase price of the privileges or benefits and that part of the payment, in fact, does qualify as a gift. In showing that a gift has been made, it is essential for the taxpayer to establish that the portion of the payment that is claimed as a gift represents the excess of the total amount paid over the fair market value of any substantial privileges or benefits received in return.

  Rev. Rul. 67-246 states that, if payments solicited for a charitable fund- raising activity are designed to be partly a gift and partly the purchase price of certain privileges or benefits, the organization conducting the activity should employee procedures that make clear not only that a gift is being solicited in connection with the activity, but also the amount of the gift being solicited. To do this, the amount properly attributable to the purchase of privileges or benefits and the amount solicited as a gift should be determined in advance of solicitation. In making such a determination, the fair market value of any substantial privileges or benefits attributable to the purchase must be taken into account. After making such a determination the charitable organization should notify its donors of the amounts allocable to each component of the payment.

  In the four situations described above taxpayers made payments to athletic scholarship programs of organizations described in section 170(c)(2). Each taxpayer's payment entitled the taxpayer to become a member of an athletic scholarship program. The taxpayer has made a charitable contribution only if, and only to the extent that, the payment made exceeded the value of any substantial privileges or benefits afforded by membership in the program.

HOLDING

  In Situations 1 and 2, because tickets to the games covered by the season ticket would not otherwise have been readily available to A and B, the right to purchase a season ticket in a designated area in the stadium was a substantial benefit. This substantial benefit was afforded to A and B because each paid the minimum membership fee of $300. Accordingly, a presumption arises that the $300 reflects the value of the benefit received. Unless the taxpayer can establish that $300 exceeded the value of the benefit received, no part of the $300 payment is a charitable contribution under section 170 of the Code.

  In Situation 2, however, the additional $200 contributed by B resulted in no additional substantial benefit and thus, is a charitable contribution.

  In Situation 3, although the taxpayer was entitled to purchase a ticket before tickets went on sale to the public and although the ticket was for seating in a designated area, reasonably comparable seating would have been readily available to C even if C had not made a payment to the program. Although C received the benefit of obtaining a ticket early and of sitting with other program members, the benefit was not substantial. Accordingly, the entire

$300 is a charitable contribution.

  In Situation 4, because reasonably comparable seating would not otherwise have been readily available to D, the right to purchase a season ticket in a designated area in the stadium was a substantial benefit. This substantial benefit was afforded to D because D paid the minimum membership fee of $300. Accordingly, a presumption arises that the $300 reflects the value of the benefit received. The university, however, after taking all relevant facts and circumstances into account, reasonably estimated the fair market value of the benefit as x dollars. Because the university solicited the other ($300 - x dollars) as a contribution and the x dollar figure reflected the fair market value of the benefit provided, ($300 - x dollars) of D's $300 payment is a charitable contribution.

EFFECT ON OTHER REVENUE RULINGS

  Rev. Rul. 84-132, 1984-2 C.B. 55, is clarified, distinguished, and superseded.

Rev. Rul. 86-63, 1986-1 C.B. 88, 1986-17 I.R.B. 6.