Tuesday May 7, 2024

Rev. Rul. 92-81

GiftLaw Note: In Rev. Rul. 90-103, 1990-2 C.B. 159, the IRS addressed the issue of a pooled income fund that could potentially hold depreciable or depletable interests. In the ruling, the IRS stated that a pooled income fund governing instrument must include provisions for a depreciation or depletion reserve under generally accepted accounting principles (GAAP). If the pooled income fund agreement did not exclude the potential for depreciable or depletable assets, then the document "must provide for the creation of a depreciation reserve pursuant to GAAP." Rev. Rul. 90-103 did not specify, however, whether contributions to a pooled income fund that is not reformed to comply with the ruling would qualify for a charitable deduction.

Rev. Rul. 92-81, 1992-2 C.B. 119 modified Rev. Rul. 90-103 by providing the situations under which contributions to a pooled income fund that holds depreciable or depletable property would qualify for a charitable deduction.

Rev. Rul. 92-81, 1992-2 C.B. 119

Rev. Rul. 90-103, 1990-2 C.B. 159, holds that the governing instrument of a new pooled income fund that is created after February 15, 1991, or an existing pooled income fund that accepts donations after February 15, 1991, must either prohibit the fund from accepting or investing in depreciable or depletable property or require that the trustee establish a depreciation or depletion reserve in accordance with Generally Accepted Accounting Principles with respect to all depreciable or depletable property held by the fund. Rev. Rul. 90-103 does not specify whether contributions to a pooled income fund that is not reformed to comply with the requirements of Rev. Rul. 90- 103 qualify for a charitable deduction.

A pooled income fund that does not comply with the requirements of Rev. Rul. 90-103 and that accepts additional contributions after February 15, 1991, ceases to qualify under section 642(c)(5) of the Internal Revenue Code if the fund holds depreciable or depletable property after that date. Contributions made to the fund before February 16, 1991, qualify for a charitable deduction whether or not the fund is reformed to incorporate the requirements of Rev. Rul. 90- 103. The Service will not challenge the deductibility of contributions made after February 15, 1991, to a fund that holds depreciable or depletable property if the fund disposes of such property before January 1, 1993, or if the fund is properly reformed. Contributions made to an unreformed pooled income fund that was created before February 16, 1991, and that has never held depreciable or depletable property will not be challenged if, after the contribution, the fund acquires and holds depreciable or depletable property, provided that the contributor had no expectation that the fund would accept and hold such property.

Contributions made after February 15, 1991, to a fund that holds depreciable or depletable property after December 31, 1992, qualify for a charitable deduction if the pooled income fund incorporates the requirements of Rev. Rul. 90-103 in a reformation described in section 170(f)(7), 2055(e)(3), 2106(a)(2)(E), or 2522(c)(4). If the reformation takes place after the contribution is made, the contribution qualifies for a charitable deduction for the year in which the contribution is made if the reformation is retroactive to include the year of the contribution. Additions to the reserve, beginning with the year in which the first contribution after February 15, 1991, is received, are to be determined for all depreciable and depletable property held by a pooled income fund in accordance with Generally Accepted Accounting Principles.

The effective date rule of Rev. Rul. 90-103 is modified to read as follows:

EFFECTIVE DATE

This revenue ruling is effective with respect to all pooled income funds created after February 15, 1991, and all existing pooled income funds that hold depreciable or depletable property after December 31, 1992.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 90-103 is modified.

DRAFTING INFORMATION

The principal author of this revenue ruling is John McQuillan of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact John McQuillan on (202) 622-3090 (not a toll-free call).