Thursday April 25, 2024

Rev. Rul. 74-523

GiftLaw Note: Charitable estate deductions under Sec. 2055 are permitted for all transfers to qualified exempt domestic charities and to foreign charities for "exclusively charitable purposes." In Old Colony Trust Company v. United States, a deduction was permitted for a gift to a Canadian hospital. In Kaplin v. United States, a gift of a coin collection to a museum in Israel was entitled to a charitable estate tax deduction. However, if the transfer to the foreign charity is not for "exclusively charitable purposes," the Service will deny the deduction.

Rev. Rul. 74-523, 1974-2 C.B. 304

Charitable bequest to foreign government or political subdivision. A deduction is allowable under section 2055 of the Code with respect to a transfer of property to a foreign government or political subdivision thereof for exclusively charitable purposes.

The Internal Revenue Service will follow the decisions of the United States Courts of Appeals in the cases of Old Colony Trust Company v. United States, 438 F. 2d 684 (1st Cir. 1971), and Kaplun v. United States, 436 F. 2d 799 (2d Cir. 1970). The Service will also follow the decision of the United States Court of Claims in the case of National Savings and Trust Company v. United States, 436 F. 2d 458 (Ct. Cl. 1971).

In Edwards v. Phillips, 373 F.2d 616 (1967), cert. denied 389 U.S. 834 (1967), the U.S. Court of Appeals for the 10th Circuit held that the estate tax charitable deduction was not allowable with respect to a bequest to a public school in Denmark. In view of the Service's decision to follow the more recent court decisions cited above, the Service will no longer rely on the decision of the 10th Circuit.

In Old Colony Trust Company v. United States, the charitable deduction was held allowable with respect to a transfer to a hospital corporation owned by a Canadian municipality. In Kaplun v. United States, the charitable deduction was held allowable for a bequest of a coin collection to the State of Israel for a permanent display in a museum. In National Savings and Trust Company v. United States, the deduction was held allowable for a bequest to a German city on the condition that it be used for the construction or improvement of a home for the aged.

The Service will continue to disallow a deduction under section 2055 of the Internal Revenue Code of 1954 with respect to a bequest of property to a foreign government or political subdivision thereof where the use of such property is not limited to exclusively charitable purposes within the meaning of sections 2055(a)(2) and 2055(a)(3).

For the allowability of charitable contribution deductions with respect to foreign donees under section 170 of the Code, see Rev. Rul. 63-252, 1963-2 C.B. 101 and Rev. Rul. 66-79, 1966-1 C.B. 48.