US Internal Revenue Service: irb97-05

8/14/2019 US Internal Revenue Service: irb97-05

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INCOME TAX

Rev. Rul. 977, page 14.Federal rates; adjusted federal rates; adjusted fed-eral long-term rate, and the long-term exempt rate.For purposes of sections 1274, 1288, 382, and othersections of the Code, tables set forth the rates forFebruary 1997.

T.D. 8690, page 5.Final regulations under section 170 of the Code provideguidance regarding the allowance of certain charitablecontribution deductions, the substantiation requirementsfor charitable contributions of $250 or more, and thedisclosure requirements for quid pro quo contributions inexcess of $75.

T.D. 8691, page 16.Final regulations under section 6335 of the Code relateto the sale of seized property.

Rev. Proc. 9713, page 18.Tax-exempt bonds; private activity bonds. This proce-dure sets forth conditions under which a managementcontract does not result in private business use undersection 141(b) of the Code. This procedure also appliesto determinations of whether a management contractcauses the test in section 14 5(a)(2)(B) to be met forqualified 501(c)(3) bonds.

Rev. Proc. 9714, page 20.Tax-exempt bonds; private activity bonds. This proce-dure sets forth conditions under which a research

agreement does not result in private business use undesection 141(b) of the Code. This procedure also applieto determinations of whether a research agreemecauses the test in section 145(a)(2)(B) of the Code tbe met for qualified 501(c)(3) bonds.

Rev. Proc. 9715, page 21.Tax-exempt bonds; private activity bonds. This proc

dure provides a program under which an issuer of stator local bonds may request a closing agreement regarding outstanding bonds to fail to meet certain requirments of sections 141 through 150 of the Code relatinto use of proceeds as a result of an action subsequento the issue date.

EXEMPT ORGANIZATIONS

Announcement 979, page 27.A list is given of organizations now classified as privatfoundations.

ADMINISTRATIVE

Rev. Proc. 9716, page 25.Domestic asset/ liability and investment yield percenages. This procedure provides the domestic assetliability percentages and domestic investment yield pecentages necessary for foreign companies conductininsurance business in the United States to compute thminimum effectively connected net investment incomunder section 8 42(b) for taxable years after Decemb31, 1995.

Finding Lists begin on page 31.Announcement of Disbarments and Suspensions begins on page 29.Monthly Index for January begins on page 33.

Bulletin No. 19975February 3, 1997

HIGHLIGHTS

OF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not be reliedupon as authoritative interpretations.


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Mission of the Service

The purpose of the Internal Revenue Service is tocollect the proper amount of tax revenue at the leastcost; serve the public by continually improving the

quality of our products and services; and perform in amanner warranting the highest degree of publicconfidence in our integrity, efficiency and fairness.

Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is toadminister the Internal Revenue Code. Tax policyfor raising revenue is determined by Congress.

With this in mind, it is the duty of the Service tocarry out that policy by correctly applying the lawsenacted by Congress; to determine the reasonablemeaning of various Code provisions in light of theCongressional purpose in enacting them; and toperform this work in a fair and impartial manner,with neither a government nor a taxpayer point of view.

At the heart of administration is interpretation of theCode. It is the responsibility of each person in theService, charged with the duty of interpreting thelaw, to try to find the true meaning of the statutoryprovision and not to adopt a strained construction inthe belief that he or she is protecting the revenue.The revenue is properly protected only when we as-certain and apply the true meaning of the statute.

The Service also has the responsibility of applyingand admi ni st eri ng t he l aw i n a r eas onabl e,practical manner. Issues should only be raised byexamining officers when they have merit, neverarbitrarily or for trading purposes. At the sametime, the examining officer should never hesitateto raise a meritorious issue. It is also importantthat care be exercised not to raise an issue or toask a court to adopt a position inconsistent withan established Service position.

Administration should be both reasonable andvigorous. I t should be conducted with as l it t ledelay as possible and with great courtesy andconsiderateness. It should never try to overreach,and should be reasonable within the bounds of lawand sound administration. It should, however, bevigorous in requiring compliance with law and itshould be relentless in its attack on unreal tax

devices and fraud.

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Introduction

The Internal Revenue Bulletin is the authoritative instru-ment of the Commissioner of Internal Revenue forannouncing official rulings and procedures of the Inter-nal Revenue Service and for publishing Treasury Deci-sions, Executive Orders, Tax Conventions, legislation,

court decisions, and other items of general interest. It ispublished weekly and may be obtained from the Superin-tendent of Documents on a subscription basis. Bulletincontents of a permanent nature are consolidated semi-annually into Cumulative Bulletins, which are sold on asingle-copy basis.

It is the policy of the Service to publish in the Bulletin allsubstantive rulings necessary to promote a uniformapplication of the tax laws, including all rulings thatsupersede, revoke, modify, or amend any of thosepreviously published in the Bulletin. All published rulingsapply retroactively unless otherwise indicated. Proce-

dures relating solely to matters of internal managementare not published; however, statements of internalpractices and procedures that affect the rights andduties of taxpayers are published.

Revenue rulings represent the conclusions of the Ser-vice on the application of the law to the pivotal factsstated in the revenue ruling. In those based on positionstaken in rulings to taxpayers or technical advice toService field offices, identifying details and informationof a confidential nature are deleted to prevent unwar-ranted invasions of privacy and to comply with statutory

requirements.

Rulings and procedures reported in the Bulletin do nothave the force and effect of Treasury DepartmentRegulations, but they may be used as precedents.Unpublished rulings will not be relied on, used, or citedas precedents by Service personnel in the disposition ofother cases. In applying published rulings and proce-dures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered, and Service personnel and others concerned arcautioned against reaching the same conclusions other cases unless the facts and circumstances asubstantially t he same.

The Bulletin is divided into four parts as follows:

Part I.1986 Code.

This part includes rulings and decisions based oprovisions of the Internal Revenue Code of 1986.

Part II.Treaties and Tax Legislation.This part is divided into two subparts as followSubpart A, Tax Conventions, and Subpart B, Legislatioand Related Committee Reports.

Part III.Administrati ve, Procedural, and Miscellaneou

To the extent practicable, pertinent cross references tthese subjects are contained in the other Parts anSubparts. Also included in this part are Bank SecrecAct Administrative Rulings. Bank Secrecy Act Administrtive Rulings are issued by the Department of thTreasurys Office of the Assistant Secretary (Enforcment).

Part IV.Items of General Interest.With the exception of the Notice of Proposed Rulemaing and the disbarment and suspension list included

this part, none of these announcements are consodated in the Cumulative Bulletins.

The first Bulletin for each month includes an index fothe matters published during the preceding montThese monthly indexes are cumulated on a quarterly ansemiannual basis, and are published in the first Bulletof the succeeding quarterly and semi-annual periodrespectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1 986

Section 42.Low-Income HousingCredit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for themonth of February 1997. See Rev. Rul. 977,page 14.

Section 57.Items of TaxPreference

What are the procedures under which an issuerof state or local bonds may request a closingagreement with respect to outstanding bonds (1) toprevent the interest on those bonds from beingincludible in gross income of bondholders or (2)to prevent the interest on those bonds from beingtreated as an item of tax preference for purposesof the alternative minimum tax for bondholders, ineach case as a result of an action subsequent tothe issue date that causes those bonds to fail tomeet certain requirements of 141 through 150of the Internal Revenue Code relating to use ofproceeds? See Rev. Proc. 9715, page 21.

Section 103.Interest on State andLocal Bonds

What are the conditions under which a manage-ment contract does not result in private businessuse under 141(b) or 145(a)(2)(B) of theInternal Revenue Code? See Rev. Proc. 9713,page 18.

What are the conditions under which a researchagreement does not result in private business useunder 141(b) or 145(a)(2)(B) of the InternalRevenue Code? See Rev. Proc. 9714, page 20.

What are the procedures under which an issuer

of state or local bonds may request a closingagreement with respect to outstanding bonds (1) toprevent the interest on those bonds from beingincludible in gross income of bondholders or (2)to prevent the interest on those bonds from beingtreated as an item of tax preference for purposesof the alternative minimum tax for bondholders, ineach case as a result of an action subsequent tothe issue date that causes those bonds to fail tomeet certain requirements of 141 through 150of the Internal Revenue Code relating to use ofproceeds? See Rev. Proc. 9715, page 21.

Section 141.Private ActivityBond; Qualified Bond



What are the procedures under which an issuerof state or local bonds may request a closingagreement with respect to outstanding bonds (1) toprevent the interest on those bonds from being

includible in gross income of bondholders or (2)to prevent the interest on those bonds from beingtreated as an item of tax preference for purposesof the alternative minimum tax for bondholders, ineach case as a result of an action subsequent tothe issue date that causes those bonds to fail tomeet certain requirements of 141 through 150of the Internal Revenue Code relating to use ofproceeds? See Rev. Proc. 9715, page 21.

26 CFR 1.1413: Definition of private businessuse.



26 CFR 1.14112: Remedial actions.


Section 142.Exempt FacilityBond


26 CFR 1.1422: Remedial actions.What are the procedures under which an issuer

of state or local bonds may request a closingagreement with respect to outstanding bonds (1) toprevent the interest on those bonds from beingincludible in gross income of bondholders or (2)to prevent the interest on those bonds from beingtreated as an item of tax preference for purposesof the alternative minimum tax for bondholders, ineach case as a result of an action subsequent tothe issue date that causes those bonds to fail tomeet certain requirements of 141 through 150of the Internal Revenue Code relating to use ofproceeds? See Rev. Proc. 9715, page 21.

Section 144.Qualified Small IssueBond; Qualified Student Loan Bond;Qualified Redevelopment Bond

What are the procedures under which an issuerof state or local bonds may request a closingagreement with respect to outstanding bonds (1) toprevent the interest on those bonds from beingincludible in gross income of bondholders or (2)

to prevent the interest on those bonds from beingtreated as an item of tax preference for purposesof the alternative minimum tax for bondholders, ineach case as a result of an action subsequent tothe issue date that causes those bonds to fail tomeet certain requirements of 141 through 150of the Internal Revenue Code relating to use ofproceeds? See Rev. Proc. 9715, page 21.



Section 145.Qualified 501(c)(3)Bonds

What are the conditions under which a manage-ment contract does not result in private businessuse under 141(b) or 145(a)(2)(B) of theInternal Revenue Code? See Rev. Proc. 9713,

page 18.


What are the procedures under which an issuerof state or local bonds may request a closingagreement with respect to outstanding bonds (1) toprevent the interest on those bonds from beingincludible in gross income of bondholders or (2)to prevent the interest on those bonds from beingtreated as an item of tax preference for purposesof the alternative minimum tax for bondholders, in

each case as a result of an action subsequent tothe issue date that causes those bonds to fail tomeet certain requirements of 141 through 150of the Internal Revenue Code relating to use ofproceeds? See Rev. Proc. 9715, page 21.

26 CFR 1.1452: Application of private activitybond regulations.


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What are the procedures under which an issuerof state or local bonds may request a closingagreement with respect to outstanding bonds (1) toprevent the interest on those bonds from beingincludible in gross income of bondholders or (2)to prevent the interest on those bonds from being

treated as an item of tax preference for purposesof the alternative minimum tax for bondholders, ineach case as a result of an action subsequent tothe issue date that causes those bonds to fail tomeet certain requirements of 141 through 150of the Internal Revenue Code relating to use ofproceeds? See Rev. Proc. 9715, page 21.

Section 147.Other RequirementsApplicable to Certain PrivateActivity Bonds

What are the procedures which an issuer ofstate or local bonds may request a closing agree-ment with respect to outstanding bonds (1) toprevent the interest on those bonds from being

includible in gross income of bondholders or (2)to prevent the interest on those bonds from beingtreated as an item of tax preference for purposesof the alternative minimum tax for bondholders, ineach case as a result of an action subsequent tothe issue date that causes those bonds to fail tomeet certain requirements of 141 through 150of the Internal Revenue Code relating to use ofproceeds? See Rev. Proc. 9715, page 21.



Section 170.Charitable, Etc.,Contributions and Gifts

26 CFR 1.170A1: Charitable, etc., contributionsand gifts; allowance of deduction.

T.D. 8690

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Parts 1 and 602

Deductibility, Substantiation, andDisclosure of Certain CharitableContributions

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations that provide guidanceregarding the allowance of certain chari-table contribution deductions, the sub-stantiation requirements for charitablecontributions of $250 or more, and thedisclosure requirements for quid pro quocontributions in excess of $75. Theregulations will affect organizations de-

scribed in section 170(c) and individualsand entities that make payments to theseorganizations.

EFFECTIVE DATE: These regulationsare effective December 16, 1996.

FOR FURTHER INFORMATIONCONTACT: Jefferson K. Fox of theOffice of Assistant Chief Counsel (In-come Tax and Accounting) at 2026224930 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in these final regulations has beenreviewed and approved by the Office ofManagement and Budget in accordancewith the requirements of the PaperworkReduction Act (44 U.S.C. 3507) undercontrol number 15451464. Responsesto this collection of information arerequired for charitable contribution de-ductions under section 170.

An agency may not conduct or spon-sor, and a person is not required to

respond to, a collection of informationunless the collection of information dis-plays a valid control number.

The estimated annual burden perrecordkeeper varies from three minutesto one hour, depending on individualcircumstances, with an estimated aver-age of six minutes.

Comments concerning the accuracy ofthis burden estimate and suggestions forreducing this burden should be sent tothe Internal Revenue Service, Attn:IRS Reports Clearance Officer, PC:FP,

Washington, DC 20224, and to the Of-fice of Management and Budget, Attn:Desk Officer for the Department of theTreasury, Office of Information andRegulatory Affairs, Washington, DC20503.

Books or records relating to this col-lection of information must be retainedas long as their contents may be mate-rial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential,as required by 26 U.S.C. 6103.

Background

This document contains amendmento the Income Tax Regulations (26 CFpart 1) that provide guidance relating (1) the substantiation rules for charitabcontributions under section 170(f)(8) the Internal Revenue Code of 198(Code), and (2) the disclosure requirments for quid pro quo contributio

under section 6115. Sections 170(f)(and 6115 were added to the Code bsections 13172 and 13173 of the Omnbus Budget Reconciliation Act of 199Pub. L. No. 10366, 107 Stat. 4519933 C.B. 43.

Temporary regulations (TD 8544) ana notice of proposed rulemaking crosreferencing the temporary regulationwere published in the Federal Registfor May 27, 1994 (59 FR 274527515). Those regulations primarily adressed substantiation of charitable contributions made by payroll deductioand substantiation of payments to charitable organization in exchange fgoods or services of insubstantial valuThe notice of proposed rulemaking indcated that comments would be consiered both on the issues addressed in thtemporary regulations, and on other isues arising under section 170(f)(8

A notice of proposed rulemaking (IA4494) addressing substantiation issuunder section 170(f)(8) other than cotributions made by payroll deductiowas published in the Federal Regist

for August 4, 1995 (60 FR 39896Included in these proposed regulatiowere the provisions that had originalappeared in the temporary regulationpublished on May 27, 1994, relating the substantiation of payments to chartable organizations in exchange fgoods or services of insubstantial valuIn drafting these proposed regulationthe IRS had the benefit of the commenreceived in response to the notice proposed rulemaking published in thFederal Register for May 27, 199Many of the suggestions offered in th

comments were incorporated into thproposed regulations.

Final regulations (TD 8623) relatinto the substantiation of charitable contrbutions made by payroll deduction wepublished in the Federal Register fOctober 12, 1995 (60 FR 53126). Thefinal regulations did not include thprovisions relating to the substantiatioof payments to charitable organizatioin exchange for goods or services wiinsubstantial value that had appeared the temporary regulations published o

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May 27, 1994 and were also included inthe proposed regulations published onAugust 4, 1995. The temporary regula-tions published in the Federal Registerfor May 27, 1994, were removed. Forthe convenience of taxpayers, the finalregulations relating to the substantiationof charitable contributions made by pay-roll deduction ( 1.170A13(f)(11) and

(12)) that were published in the FederalRegister for May 27, 1994, have beenreprinted with the final regulationsadopted by this Treasury Decision.

Comments were received in responseto the notice of proposed rulemakingpublished on August 4, 1995, and apublic hearing was held on November 1,1995. After consideration of those com-ments, together with the relevant com-ments received in response to the noticeof proposed rulemaking published onMay 27, 1994, the proposed regulationsunder sections 170(f)(8) and 6115 are

adopted as revised by this TreasuryDecision.

Public Comments

Intent to Make a Charitable Contribu-tion

Section 1.170A1(h) of the final regu-lations incorporates the two-part testadopted by the Supreme Court in UnitedStates v. American Bar Endowment, 477U.S. 105 (1986), for determining de-ductibility under section 170(a) of apayment that is partly in consideration

for goods or services. A deduction is notallowed for a payment to charity inconsideration for goods or services ex-cept to the extent the amount of thepayment exceeds the fair market valueof the goods or services. In addition, adeduction is not allowed unless thetaxpayer intends to make a payment inexcess of the fair market value of thegoods or services.

Section 1.170A13(f)(6) provides thata charitable organization provides goodsor services in consideration for ataxpayers payment if, at the time of

payment, the taxpayer receives or ex-pects to receive goods or services inexchange. One commenter stated that acharitable organization has no way ofknowing what a taxpayer expects toreceive, and that the regulation requiresthe charity to determine its donors statesof mind. The commenter suggested thata payment be treated as made in consid-eration for goods or services if thedonee organization expects to provideand does provide services of which thedonor has been informed. Another com-

menter questioned whether donor appre-ciation events, such as banquets honor-ing contributors, are held inconsideration for charitable contribu-tio ns . T he c om me nter a ls o a sk edwhether invitations to occasional eventsnot disclosed to prospective donors untilafter they make their contributions arein exchange for the contributions.

The regulations follow American BarEndowment by incorporating a standardthat is based on the facts and circum-stances of each charitable contribution.When a donors contribution is made inresponse to an express promise of abenefit, the donor generally will have anexpectation of a quid pro quo. A donormay also have an expectation of a quidpro quo when the donor makes a contri-bution with knowledge that the charitabledonee has conferred a benefit on otherdonors making comparable contributions.For example, if a charity has a history of

sponsoring a dinner-dance for donorsmaking substantial contributions, a donormaking a substantial contribution mayhave an expectation of receiving an invi-tation to such an event. The expectationof a quid pro quo may exist even thoughthe donor is not aware of the exact natureof the quid pro quo (e.g., a donation to acharity that sponsors a donor appreciationevent of a different type every year). Thisstandard for determining a donors expec-tation of a quid pro quo disallows deduc-tions in situations where facts and cir-cumstances indicate that the donor

expected, at the time of his or herpayment to charity, that there would be aquid pro quo, even though there was noexplicit promise of one.

A commenter requested guidance onthe proper treatment of a payment inconsideration for a quid pro quo receivedin a year after the year of payment.Under section 1.170A13(f)(6), goods orservices provided by donee organizationsin consideration for a donors paymentinclude goods or services provided in ayear other than the year of payment.Accordingly, if a donor makes a payment

to a charitable organization in exchangefor goods or services, the donors deduct-ible charitable contribution for the yearof payment is limited to the amount, ifany, by which the payment exceeds thevalue of those goods or services, even ifthey are not available to the donor until asubsequent year.

Refusal of Benefits

Commenters asked for guidance onthe proper manner of substantiating a

contribution by a donor who refusesbenefits offered by a charitable organi-zation. One commenter suggested thatthe regulations indicate that when ataxpayer receives a right to quid pro quobenefits but does not use them, thetaxpayer is not necessarily allowed acharitable contribution deduction in thefull amount of the quid pro quo pay-

ment. Another suggested that a taxpayerwishing to deduct the full amount of aquid pro quo payment could check abox on a document to be sent to thecharity at the time of contribution toshow refusal of the benefit.

These comments are consistent withIRS views. Rev. Rul. 67 246, 19672C.B. 104, provides guidance relating tothe refusal of benefits offered by acharitable organization. The revenue rul-ing holds that a taxpayer choosing notto use tickets that were made availableto him is not entitled to a greater

contribution than would otherwise beallowed; i.e., the deduction is limited tothe amount paid in excess of the valueof the tickets received in exchange.19672 C.B. 106. A deduction in thefull amount of a taxpayers paymentmay be allowed, however, if the tax-payer properly rejects the right to thetickets. Rev. Rul. 67246 contains twoexamples (Examples 3 and 7) illustrat-ing ways that donors can effectivelyreject benefits offered by charitable or-ganizations. Example 7 illustrates that acheck-off box on a form provided by

the charity can be used to reject a ticketat the time of contribution. A taxpayerwho has properly rejected a benefitoffered by a charitable organization mayclaim a deduction in the full amount ofthe payment to the charitable organiza-tion, and the contemporaneous writtenacknowledgment need not reflect thevalue of the rejected benefit.

Certain Goods or Services Disregarded

Goods or services with insubstantialvalue

Under guidelines set forth in Rev.Proc. 9012, 19901 C.B. 471, and Rev.Proc. 9249, 19921 C.B. 987, certaingoods or services received in exchangefor a payment to a charity are treated ashaving insubstantial value and can there-fore be disregarded for the purpose ofdetermining the amount of a taxpayerspayment that is deductible as a chari-table contribution. Under these guide-lines, if a taxpayer makes a payment toa charitable organization in the contextof a fundraising campaign, and receives

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benefits with a fair market value of notmore than two percent of the amount ofthe payment (up to a maximum of $67,for 1996), the benefits received areconsidered to have insubstantial valuefor purposes of determining the amountof the taxpayers contribution. (The $67benefit limitation is adjusted annuallyfor inflation.)

Further, if a taxpayer makes a pay-ment of $33.50 or more to a charity andreceives only token items in return, theitems are considered to have insubstan-tial value if they (1) bear the charitysname or logo, and (2) have an aggregatecost to the charity of $6.70 or less. (The$33.50 and $6.70 amounts apply topayments made in 1996; these amountsare adjusted annually for inflation.) Inaddition, newsletters not of commercialquality and low-cost items provided forfree without an advance order are con-sidered to have insubstantial value.

Under section 1.170A13(f)(8)(i)(A)of the regulations, the same types ofgoods and services disregarded underthe guidelines of Rev. Procs. 9012 and9249 can be disregarded for purposesof substantiation under section 170(f)(8).One commenter asked whether the con-temporaneous written acknowledgmentprovided to a donor receiving goods orservices of insubstantial value shouldindicate that no goods or services werereceived. When a donee organizationprovides a donor only with goods orservices having insubstantial value under

Rev. Procs. 9012 and 9249, the con-temporaneous written acknowledgmentmay indicate that no goods or serviceswere provided in exchange for the do-no rs p ay me nt. S ee Ex ampl e 2, 1.170A13(f)(8)(ii).

Another commenter stated that therules in Rev. Procs. 9012 and 9249for goods or services of insubstantialvalue are unduly restrictive and preventcharitable organizations from recogniz-ing longstanding, generous contributorswith suitable gifts of appreciation. An-other argued that the costs of token

items received by a taxpayer during theyear from a charity should not be aggre-gated. Sections 1.170A13(f)(8)(B) and1.170A 13(f)(9)(i) provide that certainmembership benefits provided in ex-change for a payment of $75 or lessmay be disregarded for purposes ofdetermining whether any quids pro quowere provided to the donor. For pur-poses of sections 170(f)(8) and 6115,these provisions supplement the catego-ries of goods or services treated ashaving insubstantial value under the

guidelines of Rev. Procs. 9012 and9249. The IRS and Treasury believethat application of the guidelines of Rev.Procs. 9012 and 9249, together withthe membership benefit provisions in thefinal regulations, strikes an appropriatebalance between administrative andcompliance concerns under sections170(f)(8) and 6115. Accordingly, the

guidelines of Rev. Procs. 9012 and9249 have not been modified.

Membership Benefits

The regulations provide limited reliefwith respect to certain types of benefitscustomarily provided to donors in ex-change for membership payments. Twotypes of membership benefits offered inexchange for a payment of $75 or lessmay be disregarded: (1) free admissionto members-only events with a per-person cost to the charity that is nohigher than the standard for low-costarticles under section 513(h)(2)(C)($6.70 for 1996); and (2) rights orprivileges that can be exercised fre-quently during the membership period(other than rights or privileges describedin section 170(l), governing rights topurchase tickets for college athleticevents).

Some commenters said that the termfrequently, when read in conjunctionwith the examples, provided sufficientclarity and appropriate flexibility. Other

commenters expressed concern aboutuse of the term frequently, stating that itwas vague and imprecise. For smallerorganizations, they argued, in determin-ing whether a right of free admission toa series of events can be frequentlyexercised, consideration should be givento the number of events held by theorganization each year. The IRS andTreasury believe that a charity can makea determination that a right or privilegeis frequently exercisable by reference tothe examples that were in the proposedregulations and are adopted in the final

regulations.A commenter suggested that the $75

payment amount in the special rules formembership benefits should be indexedfor inflation. The IRS and Treasurybelieve that it is important for themembership payment amount to be anumber that can be easily rememberedby charities and donors. For this reason,annual inflation adjustments are not ad-visable. However, the IRS and Treasurywill consider increases to this $75 figurein the future.

A commenter asked whether the ruthat allows taxpayers to disregard cetain membership benefits applies to dicounts offered by a donee organizatiofor purchases from retailers workinwith the charity to provide discounts members. These discounts are to btreated like any other rights or privilegand, therefore, may be disregarded f

purposes of section 170(f)(8) if they cabe exercised frequently during the membership period.

Goods or services provided to a dnors employees

Prior to publication of the proposeregulations, several commenters askefor guidance on the proper method valuation of goods or services provideby charitable organizations to employeof donors. The final regulations follothe proposed regulations and provithat goods or services provided to donors employees can be disregarded

they consist of the types of benefits thcould be disregarded when providedirectly to a donor (i.e., goods or sevices with insubstantial value and cetain annual membership benefits). Fany other types of goods or servicprovided to employees of a donor maing a contribution of $250 or more, thcontemporaneous written acknowledment must describe the goods or sevices, but need not include the donorganizations good faith estimate their fair market value.

A commenter stated that the speci

rule for goods or services provided employees of a donor should also bavailable for partners in a partnership. the final regulations, the exception fgoods or services provided to a donoremployees has been modified to includpartners in a donor-partnership.

A commenter was concerned abocharities that receive funds from a prvate foundation established by a busness entity. The commenter suggestethat such charities should be permitteto provide benefits to employees of thbusiness entity without any tax cons

quences. Because this suggestion raisissues beyond the scope of this regultion (including issues relating to thself-dealing rules under section 4941this suggestion was not adopted.

A commenter stated that when employees receive benefits as a result of aemployers charitable contribution, would be easier for the charity (raththan the employer) to estimate the famarket value of the benefits. Anothcommenter stated that when employereceive benefits that cannot be disr

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garded under section 170, the employer/donor is likely to deduct the value ofthose benefits as a business expenseunder section 162. Because employersmay claim the full amount of theirpayments to charityincluding thevalue of the benefitsas a deduction,the commenter suggested that employersshould be relieved of the burden of

valuing such benefits, and that the fullamount of such payments should bedeductible under section 170.

The IRS and Treasury recognize thatin cases where employee benefits cannotbe disregarded for purposes of section170, employers may nevertheless seek todeduct their costs pursuant to section162. For deductions under section 170,however, United States v. American Bar

Endowment, supra, limits the allowablededuction to the amount of the employ-ers payment in excess of the value ofemployee benefits. Accordingly, if the

employee benefits cannot be disre-garded, their value must be subtractedfrom the amount of the employerspayment to determine the correctamount of the charitable contributiondeduction. Although valuation may bedifficult, the IRS and Treasury continueto believe that the employer is in abetter position than the charity to beresponsible for valuation of benefits pro-vided to employees.

Payments for the right to purchasetickets to college athletic events

A commenter asked for clarification

regarding the applicability of the sub-stantiation requirements to payments forthe right to purchase tickets to collegeathletic events. Section 170(l) providesthat payments to colleges or universitiesfor the right to purchase tickets toathletic events are partially (eighty per-cent) deductible as charitable contribu-tions. The final regulations have beenmodified to clarify how sections170(f)(8) and 6115 apply to paymentsdescribed in section 170(l).

For purposes of section 170(f)(8),twenty percent of the amount paid for

the right to purchase tickets for seatingat college or university athletic events istreated as the fair market value of suchright. When the total payment for theright to purchase tickets to college ath-letic events is $312.50 or more, theportion of the payment treated as acharitable contribution will be $250 ormore, and substantiation will be requiredunder section 170(f)(8). For purposes ofsection 6115, twenty percent of theamount paid for the right to purchasetickets for seating at college or univer-

sity athletic events is treated as a goodfaith estimate of the fair market value ofthis right.

Rules Applicable to Corporations

Several commenters suggested thatsubchapter C corporations (C corpora-tions) should be relieved of the substan-tiation requirements. Some indicated that

C corporations should be exempt; othersargued for a de minimis exception for Ccorporations making substantial contri-butions. Under a de minimis exception,deductions for all of a C corporationscharitable contributions would be al-lowed if the corporation had contempo-raneous written acknowledgments sub-stantiating most, or substantially all, ofits contributions. These commentersstated that the substantiation require-ments were enacted to deter individu-alsnot businessesthat had claimedcharitable contribution deductions for

the full amounts of their payments tocharitable organizations, even thoughthey had received quids pro quo inexchange. They suggested that the IRSexercise the authority provided in sec-tion 170(f)(8)(E) and make the substan-tiation requirements inapplicable to Ccorporations. The final regulations donot adopt these suggestions. The IRSand Treasury believe that exempting Ccorporations from the substantiation re-quirements could, in fact, encourageabuses and would therefore conflict withthe purpose of section 170(f)(8).

Meaning of Contemporaneous

A commenter asked whether a tax-payer may file an amended income taxreturn to claim a charitable contributiondeduction if the taxpayer obtained thecontemporaneous written acknowledg-ment for the contribution after timelyfiling the original return. Section170(f)(8)(C) provides that a written ac-knowledgment is contemporaneous ifobtained on or before the earlier of (1)the date that the taxpayer files the return

for the year in which the contributionwas made, or (2) the due date (includingextensions) for filing the return for thattaxable year. A written acknowledgmentobtained after a taxpayer files the origi-nal return for the year of the contribu-tion is not contemporaneous within themeaning of the statute.

Substantiation of Multiple Contributions

Several commenters asked whetherthe substantiation requirements apply tomultiple contributions totaling $250 or

more made to a single charity during asingle year, when each contribution isless than $250. The conference reportaccompanying the Omnibus BudgetReconciliation Act of 1993 indicates thatseparate payments will be treated asseparate contributions and will not beaggregated for purposes of applying the$250 threshold. H.R. Conf. Rep. No.

213, 103d Cong., 1st Sess. 565, n. 29(1993). If there is no separate paymentof $250 or more, substantiation undersection 170(f)(8) is not required, even ifthe sum of the separate payments is$250 or more. Section 1.170A13(f)(1)has been modified to clarify this. Acommenter asked whether there must bea separate contemporaneous written ac-knowledgment for each contribution of$250 or more. Section 1.170A13(f)(1)has been modified to clarify that formultiple contributions of $250 or moreto one charity, one acknowledgment that

reflects the total amount of the taxpay-ers contributions to the charity for theyear is sufficient.

Form of Substantiation

Commenters asked whether a contem-poraneous written acknowledgment mustbe in any particular format. As long as itis in writing and contains the informa-tion required by law, a contemporaneouswritten acknowledgment may be in anyformat. One commenter suggested thatthe regulations should allow charities to

report charitable contributions directly tothe IRS on Form 990 or 990PF. Sec-tion 170(f)(8) authorizes the Secretary toprescribe regulations allowing donee or-ganizations to satisfy the requirementsof section 170(f)(8) by filing a returnthat includes the information describedin section 170(f)(8)(B). The IRS andTreasury have decided not to implementthis suggestion at this time. However, inan effort to reduce paperwork and tax-payer burdens, the IRS will examinewhether any existing IRS forms can bemodified to assist in their use in sub-

stantiating charitable contributions.A commenter asked for guidance on

the proper method of substantiating pay-ments by corporations that agree tomatch employee contributions to charity.When an employee makes a charitablecontribution that is eligible for a corpo-rate matching payment, some charitiesroutinely send the participating corpora-tion a letter, notifying the corporation ofthe employees gift and thanking it inadvance for the matching payment thecharity expects to receive. Commenters

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suggested that this letter be treated asmeeting the corporations requirementsunder section 170(f)(8). This suggestionhas not been adopted, because letterssent in advance of a contribution do notsubstantiate the contribution. The ac-knowledgment under section 170(f)(8)must include information about what hasbeen contributed. The acknowledg-

ment cannot be completed until after thecharitable contribution has been made.(See section 1.170A1(b), which statesthat ordinarily a contribution is made atthe time delivery is effected.)

Out-of-Pocket Expenses

The proposed regulations allowed vol-unteers who incurred unreimbursed out-of-pocket expenses while performingservices for a charity to substantiatetheir contributions with a statement thatdescribed the services and the date theywere performed. The acknowledgment

was not required to list the amount ofthe unreimbursed expense. Several com-menters suggested an exemption fromthe substantiation requirements forunreimbursed out-of-pocket expenses in-curred incident to the rendition of ser-vices to a donee organization. Exemp-tion is appropriate, they argued, becausethe requirements are burdensome, par-ticularly since a donee organization isoften unaware of the amount and natureof expenses incurred by volunteers per-forming services on behalf of the char-ity, or the exact dates on which the

volunteer services were performed. Thefinal regulations eliminate the require-ment that the contemporaneous writtenacknowledgment include the date onwhich services were performed for thecharity. However, to carry out the pur-poses of the statute, volunteers claiminga charitable contribution deduction foran unreimbursed expense of $250 ormore are still required to obtain substan-tiation confirming the type of servicesthey performed for the charity.

Good Faith Estimate

Section 170(f)(8) requires a writtenacknowledgment furnished by a charityto a donor to include a good faithestimate of the value of any goods orservices provided to the donor. Section6115(a)(2) similarly requires a writtendisclosure statement provided to a donormaking a quid pro quo contribution ofmore than $75 to include a good faithestimate of the value of goods or ser-vices provided to the donor. The regula-tions define a good faith estimate as an

estimate of the fair market value of thegoods or services. A taxpayer can gener-ally rely on the good faith estimateprovided by a charity.

A commenter stated that the regula-tions should contain an example illus-trating how charities can compute thefair market value of goods or services.We have not adopted this suggestion.

There is no single correct way to deter-mine fair market value; a charitableorganization may use any reasonablemethodology (e.g., comparison withcomparable retail prices, mark-up fromwholesale cost) to determine the fairmarket value. Examples 1 and 2 ofsection 1.61151(a)(3) illustrate thisrule.

A commenter recommended that theregulations state that a donor does nothave to use the good faith estimateprovided by a charitable organization ifthe donor believes another estimate is

more accurate. The regulations do notmandate that a donor use the estimateprovided by a donee organization incalculating the deductible amount. In-deed, when a taxpayer knows or hasreason to know that an estimate isinaccurate, the taxpayer may not treatthe donee organizations estimate as thefair market value.

A commenter suggested that the regu-lations indicate that recognition items,such as plaques or trophies with anhonorees name inscribed, should beconsidered to have little, if any, fair

market value. This suggestion has notbeen adopted. Inscribed plaques andtrophies may have some value, eventhough the value may be less than cost.In addition, see 1.170A13(f)(8)(i)(A)regarding goods or services with insub-stantial value.

Another commenter asked whetherthe listing of a donors name in aprogram at a charity-sponsored eventhas a substantial value. An acknowledg-ment in such a program, which identi-fies rather than promotesa donor, isan inconsequential benefit with no sig-

nificant value. See Rev. Rul. 68432,19682 C.B. 104, 105, holding that[s]uch privileges as being associatedwith or being known as a benefactor ofthe [charitable] organization are not sig-nificant return benefits that have mon-etary value.

Contributions to a Split-Interest Trust

Section 1.170A13(f)(13) of the pro-posed regulations provides that section170(f)(8) does not apply to a transfer of

property to a charitable remaindun it ru st ( as de fin ed i n s ec tio664(d)(2)). A commenter observed ththere are two other types of unitrusts addition to the type described in sectio664(d)(2), and that these unitrusshould be treated similarly. The finregulations have been modified to prvide that the substantiation requiremen

of section 170(f)(8) do not apply transfers to unitrusts described in sectio664(d)(3) or section 1.6643(a)(1)(i)(bas well as to unitrusts described section 664(d)(2).

Section 1.170A13(f)(13) of the prposed regulations provides that sectio170(f)(8) applies to a transfer to pooled income fund. Commenters rquested further guidance on the propway to substantiate contributions pooled income funds. The final regultions have been modified to require, the case of a transfer of cash or oth

property to a pooled income fund, ththe written acknowledgment of thcharitable organization maintaining thfund include a statement that the cash oother property was transferred to thorganizations pooled income fund anstate whether any goods or services, addition to the income interest in thfund, were provided to the transferoThe contemporaneous written acknowedgment need not include an estimate othe value of the income interest in thpooled income fund. The final regultions also provide guidance on th

proper method of substantiating a dduction claimed by a taxpayer who hpurchased an annuity from a charitaborganization.

Special Analyses

It has been determined that this Tresury decision is not a significant regultory action as defined in ExecutivOrder 12866. Therefore, a cost-benefanalysis is not required. It also has beedetermined that section 553(b) of thAdministrative Procedure Act (5 U.S.

chapter 5) does not apply to theregulations, and because the notice proposed rulemaking preceding thregulations was issued prior to Marc29, 1996, the Regulatory Flexibility A(5 U.S.C. chapter 6) does not apply. Se5 U.S.C. section 601, Pub. L. N104121 section 245. Pursuant to setion 7805(f) of the Internal RevenuCode, the notice of proposed rulemakinpreceding these regulations was submited to the Chief Counsel for Advocacof the Small Business Administration f

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comment on the impact of the proposedregulations on small businesses.

Drafting Information

The principal author of these regula-tions is Jefferson K. Fox, Office of theAssistant Chief Counsel (Income Taxand Accounting), Internal Revenue Ser-vice. However, other personnel from the

IRS and the Treasury Department par-ticipated in their development.

* * * * *

26 CFR Part 602

Reporting and recordkeeping require-ments.

Adoption of Amendments to the Regula-tions

Accordingly, 26 CFR parts 1 and 602are amended as follows:

PART 1INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding a newentry in numerical order for Section1.170A1 and revising the entry forSection 1.170A13 to read as follows:

Authority: 26 U.S.C. 7805

Section 1.170A1 also issued under 26U.S.C. 170(a).

Section 1.170A13 also issued under 26U.S.C. 170(f)(8). * * *

Par. 2. Section 1.170A1 is amended

as follows:1. Paragraph (h) is redesignated as

paragraph (j).

2. Paragraph (i) is redesignated asparagraph (k) and is revised.

3. Paragraph (h) is added.

4. Paragraph (i) is added and re-served.

The additions and revisions read asfollows:

1.170A1 Charitable, etc., contribu-tions and gifts; allowance of deduction.

* * * * *(h) Payment in exchange for consid-

eration(1) Burden on taxpayer toshow that all or part of payment is acharitable contribution or gift. No partof a payment that a taxpayer makes toor for the use of an organization de-scribed in section 170(c) that is inc on si de ra ti on f or ( as d ef in ed i n 1.170A13(f)(6)) goods or services(as defined in 1.170A13(f)(5)) is acontribution or gift within the meaningof section 170(c) unless the taxpayer

(i) Intends to make a payment in anamount that exceeds the fair marketvalue of the goods or services; and

(ii) Makes a payment in an amountthat exceeds the fair market value of thegoods or services.

(2) Limitation on amount deduct-ible(i) In general. The charitable con-tribution deduction under section 170(a)

for a payment a taxpayer makes partlyin consideration for goods or servicesmay not exceed the excess of

(A) The amount of any cash paid andthe fair market value of any property(other than cash) transferred by thetaxpayer to an organization described insection 170(c); over

(B) The fair market value of thegoods or services the organization pro-vides in return.

(ii) Special rules. For special limitson the deduction for charitable contribu-tions of ordinary income and capital

gain property, see section 170(e) and 1.170A4 and 1.170A4A.(3) Certain goods or services disre-

garded. For purposes of section 170(a)and paragraphs (h)(1) and (h)(2) of thissection, goods or services described in 1.170A13(f)(8)(i) or 1.170A13(f)(9)(i) are disregarded.

(4) Donee estimates of the value ofgoods or services may be treated as fairmarket value(i) In general. For pur-poses of section 170(a), a taxpayer mayrely on either a contemporaneous writ-ten acknowledgment provided under

section 170(f)(8) and 1.170A13(f) ora written disclosure statement providedunder section 6115 for the fair marketvalue of any goods or services providedto the taxpayer by the donee organiza-tion.

(ii) Exception. A taxpayer may nottreat an estimate of the value of goodsor services as their fair market value ifthe taxpayer knows, or has reason toknow, that such treatment is unreason-able. For example, if a taxpayer knows,or has reason to know, that there is anerror in an estimate provided by an

organization described in section 170(c)pertaining to goods or services that havea readily ascertainable value, it is unrea-sonable for the taxpayer to treat theestimate as the fair market value of thegoods or services. Similarly, if a tax-payer is a dealer in the type of goods orservices provided in consideration forthe taxpayers payment and knows, orhas reason to know, that the estimate isin error, it is unreasonable for thetaxpayer to treat the estimate as the fairmarket value of the goods or services.

(5) Examples. The following ex-amples illustrate the rules of this para-graph (h).

Example 1. Certain goods or services disre-garded. Taxpayer makes a $50 payment to CharityB, an organization described in section 170(c), inexchange for a family membership. The familymembership entitles Taxpayer and members ofTaxpayers family to certain benefits. These ben-efits include free admission to weekly poetryreadings, discounts on merchandise sold by B in

its gift shop or by mail order, and invitations tospecial events for members only, such as lecturesor informal receptions. When B first offers itsmembership package for the year, B reasonablyprojects that each special event for members willhave a cost to B, excluding any allocable over-head, of $5 or less per person attending the event.Because the family membership benefits are disre-garded pursuant to 1.170A13(f)(8)(i), Taxpayermay treat the $50 payment as a contribution orgift within the meaning of section 170(c), regard-less of Taxpayers intent and whether or not thepayment exceeds the fair market value of thegoods or services. Furthermore, any charitablecontribution deduction available to Taxpayer maybe calculated without regard to the membershipbenefits.

Example 2. Treatment of good faith estimate atauction as the fair market value. Taxpayer attendsan auction held by Charity C, an organizationdescribed in section 170(c). Prior to the auction, Cpublishes a catalog that meets the requirements fora written disclosure statement under section6115(a) (including Cs good faith estimate of thevalue of items that will be available for bidding).A representative of C gives a copy of the catalogto each individual (including Taxpayer) who at-tends the auction. Taxpayer notes that in thecatalog Cs estimate of the value of a vase is$100. Taxpayer has no reason to doubt the accu-racy of this estimate. Taxpayer successfully bidsand pays $500 for the vase. Because Taxpayerknew, prior to making her payment, that theestimate in the catalog was less than the amount

of her payment, Taxpayer satisfies the requirementof paragraph (h)(1)(i) of this section. BecauseTaxpayer makes a payment in an amount thatexceeds that estimate, Taxpayer satisfies the re-quirements of paragraph (h)(1)(ii) of this section.Taxpayer may treat Cs estimate of the value ofthe vase as its fair market value in determining theamount of her charitable contribution deduction.

Example 3. Good faith estimate not in error.Taxpayer makes a $200 payment to Charity D, anorganization described in section 170(c). In returnfor Taxpayers payment, D gives Taxpayer a bookthat Taxpayer could buy at retail prices typicallyranging from $18 to $25. D provides Taxpayerwith a good faith estimate, in a written disclosurestatement under section 6115(a), of $20 for thevalue of the book. Because the estimate is within

the range of typical retail prices for the book, theestimate contained in the written disclosure state-ment is not in error. Although Taxpayer knowsthat the book is sold for as much as $25, Taxpayermay treat the estimate of $20 as the fair marketvalue of the book in determining the amount ofhis charitable contribution deduction.

(i) [Reserved]

* * * * *

(k) Effective date. In general this sec-tion applies to contributions made intaxable years beginning after December31, 1969. Paragraph (j)(11) of this sec-

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tion, however, applies only to out-of-pocket expenditures made in taxableyears beginning after December 31,1976. In addition, paragraph (h) of thissection applies only to payments madeon or after December 16, 1996. How-ever, taxpayers may rely on the rules ofparagraph (h) of this section for pay-ments made on or after January 1, 1994.

P ar. 3 . S ec ti on 1 .1 70A 1 3 isamended by revising paragraph (f) toread as follows:

1.170A13 Recordkeeping and returnrequirements for deductions for chari-table contributions.

* * * * *

(f) Substantiation of charitable con-tributions of $250 or more(1) In gen-eral. No deduction is allowed undersection 170(a) for all or part of anycontribution of $250 or more unless thetaxpayer substantiates the contribution

with a contemporaneous written ac-knowledgment from the donee organiza-tion. A taxpayer who makes more thanone contribution of $250 or more to adonee organization in a taxable yearmay substantiate the contributions withone or more contemporaneous writtenacknowledgments. Section 170(f)(8)does not apply to a payment of $250 ormore if the amount contributed (as de-termined under 1.170A1(h)) is lessthan $250. Separate contributions of lessthan $250 are not subject to the require-ments of section 170(f)(8), regardless of

whether the sum of the contributionsmade by a taxpayer to a donee organiza-tion during a taxable year equals $250or more.

(2) Written acknowledgment. Exceptas otherwise provided in paragraphs(f)(8) through (f)(11) and (f)(13) of thissection, a written acknowledgment froma donee organization must provide thefollowing information

(i) The amount of any cash the tax-payer paid and a description (but notnecessarily the value) of any propertyother than cash the taxpayer transferred

to the donee organization;(ii) A statement of whether or not thedonee organization provides any goodsor services in consideration, in whole orin part, for any of the cash or otherproperty transferred to the donee organi-zation;

(iii) If the donee organization pro-vides any goods or services other thanintangible religious benefits (as de-scribed in section 170(f)(8)), a descrip-tion and good faith estimate of the valueof those goods or services; and

(iv) If the donee organization pro-vides any intangible religious benefits, astatement to that effect.

(3) Contemporaneous. A written ac-knowledgment is contemporaneous if itis obtained by the taxpayer on or beforethe earlier of

(i) The date the taxpayer files theoriginal return for the taxable year in

which the contribution was made; or(ii) The due date (including exten-sions) for filing the taxpayers originalreturn for that year.

(4) Donee organization. For purposesof this paragraph (f), a donee organiza-tion is an organization described insection 170(c).

(5) Goods or services. Goods or ser-vices means cash, property, services,benefits, and privileges.

(6) In consideration for. A donee or-ganization provides goods or services inconsideration for a taxpayers payment

if, at the time the taxpayer makes thepayment to the donee organization, thetaxpayer receives or expects to receivegoods or services in exchange for thatpayment. Goods or services a doneeorganization provides in considerationfor a payment by a taxpayer includegoods or services provided in a yearother than the year in which the tax-payer makes the payment to the doneeorganization.

(7) Good faith estimate. For purposesof this section, good faith estimatemeans a donee organizations estimate

of the fair market value of any goods orservices, without regard to the mannerin which the organization in fact madethat estimate. See 1.170A1(h)(4) forrules regarding when a taxpayer maytreat a donee organizations estimate ofthe value of goods or services as the fairmarket value.

(8) Certain goods or services disre-garded(i) In general. For purposes ofsection 170(f)(8), the following goods orservices are disregarded

(A) Goods or services that have in-substantial value under the guidelines

provided in Revenue Procedures 9012,19901 C.B. 471, 9249, 19921 C.B.987, and any successor documents. (See 601.601(d)(2)(ii) of the Statement ofProcedural Rules, 26 CFR part 601.);and

(B) Annual membership benefits of-fered to a taxpayer in exchange for apayment of $75 or less per year thatconsist of

(1) Any rights or privileges, otherthan those described in section 170(l),that the taxpayer can exercise frequently

during the membership period. Eamples of such rights and privilegmay include, but are not limited to, freor discounted admission to the organiztions facilities or events, free or dicounted parking, preferred access goods or services, and discounts on thpurchase of goods or services; and

(2) Admission to events during th

membership period that are open only members of a donee organization anfor which the donee organization resonably projects that the cost per perso(excluding any allocable overhead) atending each such event is within thlimits established for low cost articlesunder section 513(h)(2). The projectecost to the donee organization is detemined at the time the organization firoffers its membership package for thyear (using section 3.07 of RevenuProcedure 9012, or any successdocuments, to determine the cost of an

items or services that are donated).(ii) Examples. The following eamples illustrate the rules of this pargraph (f)(8).

Example 1. Membership benefits disregardPerforming Arts Center E is an organizatidescribed in section 170(c). In return for a pament of $75, E offers a package of basic membeship benefits that includes the right to purchatickets to performances one week before they on sale to the general public, free parking in Egarage during evening and weekend performanceand a 10% discount on merchandise sold in Egift shop. In return for a payment of $150,offers a package of preferred membership benefthat includes all of the benefits in the $75 packaas well as a poster that is sold in Es gift shop f$20. The basic membership and the preferrmembership are each valid for twelve months, anthere are approximately 50 performances of vaous productions at E during a twelve-monperiod. Es gift shop is open for several houeach week and at performance times. F, a patrof the arts, is solicited by E to make a contribtion. E offers F the preferred membership benefin return for a payment of $150 or more. F maka payment of $300 to E. F can satisfy tsubstantiation requirement of section 170(f)(8) obtaining a contemporaneous written acknowledment from E that includes a description of tposter and a good faith estimate of its fair markvalue ($20) and disregards the remaining membeship benefits.

Example 2. Contemporaneous written acknowedgment need not mention rights or privileges thcan be disregarded. The facts are the same as Example 1, except that F made a payment of $3and received only a basic membership. F csatisfy the section 170(f)(8) substantiation requirment with a contemporaneous written acknowledment stating that no goods or services weprovided.

Example 3. Rights or privileges that cannot exercised frequently. Community Theater Groupis an organization described in section 170(Every summer, G performs four different playEach play is performed two times. In return formembership fee of $60, G offers its members fradmission to any of its performances. No

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members may purchase tickets on a performanceby performance basis for $15 a ticket. H, anindividual who is a sponsor of the theater, issolicited by G to make a contribution. G tells Hthat the membership benefit will be provided inreturn for any payment of $60 or more. H choosesto make a payment of $350 to G and receives inreturn the membership benefit. Gs membershipbenefit of free admission is not described inparagraph (f)(8)(i)(B) of this section because it isnot a privilege that can be exercised frequently(due to the limited number of performances of-fered by G). Therefore, to meet the requirementsof section 170(f)(8), a contemporaneous writtenacknowledgment of Hs $350 payment must in-clude a description of the free admission benefitand a good faith estimate of its value.

Example 4. Multiple memberships. In Decemberof each year, K, an individual, gives each of hersix grandchildren a junior membership in DinosaurMuseum, an organization described in section170(c). Each junior membership costs $50, and Kmakes a single payment of $300 for all sixmemberships. A junior member is entitled to freeadmission to the museum and to weekly films,slide shows, and lectures about dinosaurs. Inaddition, each junior member receives a bi-monthly, non-commercial quality newsletter withinformation about dinosaurs and upcoming events.Ks contemporaneous written acknowledgmentfrom Dinosaur Museum may state that no goodsor services were provided in exchange for Kspayment.

(9) Goods or services provided toemployees or partners of donors(i)Certain goods or services disregarded.For purposes of section 170(f)(8), goodsor services provided by a donee organi-zation to employees of a donor, or topartners of a partnership that is a donor,in return for a payment to the organiza-tion may be disregarded to the extentthat the goods or services provided to

each employee or partner are the sameas those described in paragraph (f)(8)(i)of this section.

(ii) No good faith estimate required for other goods or services. If a tax-payer makes a contribution of $250 ormore to a donee organization and, inreturn, the donee organization offers thetaxpayers employees or partners goodsor services other than those described inparagraph (f)(9)(i) of this section, thecontemporaneous written acknowledg-ment of the taxpayers contribution isnot required to include a good faith

estimate of the value of such goods orservices but must include a descriptionof those goods or services.

(iii) Example. The following exampleillustrates the rules of this paragraph(f)(9).

Example. Museum J is an organization de-scribed in section 170(c). For a payment of $40, Joffers a package of basic membership benefits thatincludes free admission and a 10% discount onmerchandise sold in Js gift shop. Js othermembership categories are for supporters whocontribute $100 or more. Corporation K makes apayment of $50,000 to J and, in return, J offers

Ks employees free admission for one year, atee-shirt with Js logo that costs J $4.50, and a giftshop discount of 25% for one year. The freeadmission for Ks employees is the same as thebenefit made available to holders of the $40membership and is otherwise described in para-graph (f)(8)(i)(B) of this section. The tee-shirtgiven to each of Ks employees is described inparagraph (f)(8)(i)(A) of this section. Therefore,the contemporaneous written acknowledgment ofKs payment is not required to include a descrip-tion or good faith estimate of the value of the freeadmission or the tee-shirts. However, because thegift shop discount offered to Ks employees isdifferent than that offered to those who purchasethe $40 membership, the discount is not describedin paragraph (f)(8)(i) of this section. Therefore, thecontemporaneous written acknowledgment of Kspayment is required to include a description of the25% discount offered to Ks employees.

(10) Substantiation of out-of-pocketexpenses. A t ax pa ye r who i nc ur sunreimbursed expenditures incident tothe rendition of services, within themeaning of 1.170A1(g), is treated ashaving obtained a contemporaneouswritten acknowledgment of those expen-

ditures if the taxpayer(i) Has adequate records under para-

graph (a) of this section to substantiatethe amount of the expenditures; and

(ii) Obtains by the date prescribed inparagraph (f)(3) of this section a state-ment prepared by the donee organizationcontaining

(A) A description of the services pro-vided by the taxpayer;

(B) A statement of whether or not thedonee organization provides any goodsor services in consideration, in whole or

in part, for the unreimbursed expendi-tures; and

(C) The information required byparagraphs (f)(2)(iii) and (iv) of thissection.

(11) Contributions made by payrolldeduction (i) Form of substantiation.A contribution made by means of with-holding from a taxpayers wages andpayment by the taxpayers employer toa donee organization may be substanti-ated, for purposes of section 170(f)(8),by both

(A) A pay stub, Form W2, or otherdocument furnished by the employerthat sets forth the amount withheld bythe employer for the purpose of pay-ment to a donee organization; and

(B) A pledge card or other documentprepared by or at the direction of thedonee organization that includes a state-ment to the effect that the organizationdoes not provide goods or services inwhole or partial consideration for anycontributions made to the organizationby payroll deduction.

(ii) Application of $250 threshold.For the purpose of applying the $250threshold provided in section170(f)(8)(A) to contributions made bythe means described in paragraph(f)(11)(i) of this section, the amountwithheld from each payment of wagesto a taxpayer is treated as a separatecontribution.

(12) Distributing organizations as do-nees. An organization described in sec-tion 170(c), or an organization describedin 5 CFR 950.105 (a Principal Com-bined Fund Organization for purposes ofthe Combined Federal Campaign) andacting in that capacity, that receives apayment made as a contribution istreated as a donee organization solelyfor purposes of section 170(f)(8), even ifthe organization (pursuant to the donorsinstructions or otherwise) distributes theamount received to one or more organi-zations described in section 170(c). This

paragraph (f)(12) does not apply, how-ever, to a case in which the distributeeorganization provides goods or servicesas part of a transaction structured with aview to avoid taking the goods orservices into account in determining theamount of the deduction to which thedonor is entitled under section 170.

(13) Transfers to certain trusts. Sec-tion 170(f)(8) does not apply to a trans-fer of property to a trust described insection 170(f)(2)(B), a charitable re-mainder annuity trust (as defined insection 664(d)(1)), or a charitable re-

mainder unitrust (as defined in section6 64 (d )( 2) o r ( d) (3 ) o r 1 .6 64(3)(a)(1)(i)(b)). Section 170(f)(8) doesapply, however, to a transfer to a pooledincome fund (as defined in section642(c)(5)); for such a transfer, the con-temporaneous written acknowledgmentmust state that the contribution wastransferred to the donee organizationspooled income fund and indicatewhether any goods or services (in addi-tion to an income interest in the fund)were provided in exchange for the trans-fer. The contemporaneous written ac-

knowledgment is not required to includea good faith estimate of the incomeinterest.

(14) Substantiation of payments to acollege or university for the right to

purchase tickets to athletic events. Forpurposes of paragraph (f)(2)(iii) of thissection, the right to purchase tickets forseating at an athletic event in exchangefor a payment described in section170(l) is treated as having a value equalto twenty percent of such payment. Forexample, when a taxpayer makes a

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payment of $312.50 for the right topurchase tickets for seating at an athleticevent, the right to purchase tickets istreated as having a value of $62.50. Theremaining $250 is treated as a charitablecontribution, which the taxpayer mustsubstantiate in accordance with the re-quirements of this section.

(15) Substantiation of charitable con-

tributions made by a partnership or anS corporation. If a partnership or an Scorporation makes a charitable contribu-tion of $250 or more, the partnership orS corporation will be treated as thet ax pa ye r f or p ur po se s o f s ec ti on170(f)(8). Therefore, the partnership orS corporation must substantiate the con-tribution with a contemporaneous writ-ten acknowledgment from the doneeorganization before reporting the contri-bution on its income tax return for theyear in which the contribution was madeand must maintain the contemporaneous

written acknowledgment in its records.A partner of a partnership or a share-holder of an S corporation is not re-quired to obtain any additional substan-tiation for his or her share of thepartnerships or S corporations chari-table contribution.

(16) Purchase of an annuity. If ataxpayer purchases an annuity from acharitable organization and claims acharitable contribution deduction of$250 or more for the excess of theamount paid over the value of theannuity, the contemporaneous written

acknowledgment must state whether anygoods or services in addition to theannuity were provided to the taxpayer.The contemporaneous written acknowl-edgment is not required to include agood faith estimate of the value of theannuity. See 1.170A1(d)(2) for guid-ance in determining the value of theannuity.

(17) Substantiation of matched pay-ments(i) In general. For purposes ofsection 170, if a taxpayers payment to adonee organization is matched, in wholeor in part, by another payor, and the

taxpayer receives goods or services inconsideration for its payment and someor all of the matching payment, thosegoods or services will be treated asprovided in consideration for the taxpay-ers payment and not in considerationfor the matching payment.

(ii) Example. The following exampleillustrates the rules of this paragraph(f)(17).

Example. Taxpayer makes a $400 payment toCharity L, a donee organization. Pursuant to amatching payment plan, Taxpayers employer

matches Taxpayers $400 payment with an addi-tional payment of $400. In consideration for thecombined payments of $800, L gives Taxpayer anitem that it estimates has a fair market value of$100. L does not give the employer any goods orservices in consideration for its contribution. Thecontemporaneous written acknowledgment pro-vided to the employer must include a statementthat no goods or services were provided inconsideration for the employers $400 payment.The contemporaneous written acknowledgmentprovided to Taxpayer must include a statement ofthe amount of Taxpayers payment, a descriptionof the item received by Taxpayer, and a statementthat Ls good faith estimate of the value of theitem received by Taxpayer is $100.

(18) Effective date. This paragraph (f)applies to contributions made on or afterDecember 16, 1996. However, taxpayersmay rely on the rules of this paragraph(f) for contributions made on or afterJanuary 1, 1994.

Par. 4. Section 1.61151 is addedunder the undesignated centerheading

Miscellaneous Provisions to read as fol-lows:

1.61151 Disclosure requirements forquid pro quo contributions.

(a) Good faith estimate defined(1)In general. A good faith estimate of thevalue of goods or services provided byan organization described in section170(c) in consideration for a taxpayerspayment to that organization is an esti-mate of the fair market value, within themeaning of 1.170A1(c)(2), of thegoods or services. The organization mayuse any reasonable methodology inmaking a good faith estimate, providedit applies the methodology in good faith.If the organization fails to apply themethodology in good faith, the organiza-tion will be treated as not having metthe requirements of section 6115. Seesection 6714 for the penalties that applyfor failure to meet the requirements ofsection 6115.

(2) Good faith estimate for goods orservices that are not commercially avail-able. A good faith estimate of the valueof goods or services that are not gener-ally available in a commercial transac-tion may be determined by reference tothe fair market value of similar orcomparable goods or services. Goods orservices may be similar or comparableeven though they do not have theunique qualities of the goods or servicesthat are being valued.

(3) Examples. The following ex-amples illustrate the rules of this para-graph (a).

Example 1. Facility not available on a commer-cial basis. Museum M, an organization describedin section 170(c), is located in Community N. Inreturn for a payment of $50,000 or more, M

allows a donor to hold a private event in a roolocated in M. Private events other than those heby such donors are not permitted to be held in MIn Community N, there are four hotels, O, P,and R, that have ballrooms with the same capacas the room in M. Of these hotels, only O andhave ballrooms that offer amenities and atmsphere that are similar to the amenities aatmosphere of the room in M (although O andlack the unique collection of art that is displayin the room in M). Because the capacity, ameties, and atmosphere of ballrooms in O and P acomparable to the capacity, amenities, and atmsphere of the room in M, a good faith estimate the benefits received from M may be determinby reference to the cost of renting either tballroom in O or the ballroom in P. The cost renting the ballroom in O is $2500 and, therefora good faith estimate of the fair market value the right to host a private event in the room atis $2500. In this example, the ballrooms in O aP are considered similar and comparable facilitito the room in M for valuation purposes, notwitstanding the fact that the room in M displaysunique collection of art.

Example 2. Services available on a commercibasis. Charity S is an organization described section 170(c). S offers to provide a one-hotennis lesson with Tennis Professional T in retufor the first payment of $500 or more that receives. T provides one-hour tennis lessons oncommercial basis for $100. Taxpayer pays $500 S and in return receives the tennis lesson withA good faith estimate of the fair market value the lesson provided in exchange for Taxpayepayment is $100.

Example 3. Celebrity presence. Charity U is organization described in section 170(c). In retufor the first payment of $1000 or more thatreceives, U will provide a dinner for two followby an evening tour of Museum V conducted Artist W, whose most recent works are on displat V. W does not provide tours of V on commercial basis. Typically, tours of V are freethe public. Taxpayer pays $1000 to U and

return receives a dinner valued at $100 and evening tour of V conducted by W. Because touof V are typically free to the public, a good faiestimate of the value of the evening tour coducted by W is $0. In this example, the fact thTaxpayers tour of V is conducted by W raththan Vs regular tour guides does not render ttours dissimilar or incomparable for valuatipurposes.

(b) Certain goods or services disrgarded. For purposes of section 611an organization described in sectio170(c) may disregard goods or servicdescribed in 1.170A13(f)(8)(i).

(c) Value of the right to purcha

tickets to college or university athletevents. For purposes of section 6115, thright to purchase tickets for seating an athletic event in exchange for payment described in section 170(l) treated as having a value equal twenty percent of such payment.

(d) Goods or services provided employees or partners of donors(Certain goods or services disregardeFor purposes of section 6115, goods services provided by an organizatiodescribed in section 170(c) to employe

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of a donor or to partners of a partner-ship that is a donor in return for apayment to the donee organization maybe disregarded to the extent that thegoods or services provided to each em-ployee or partner are the same as thosedescribed in 1.170A13(f)(8)(i).

(2) Description permitted in lieu ofgood faith estimate for other goods or

services. The written disclosure state-ment required by section 6115 mayinclude a description of goods or ser-vices, in lieu of a good faith estimate oftheir value, if the donor is

(i) An employer and, in return for thedonors quid pro quo contribution, anorganization described in section 170(c)provides the donors employees withgoods or services other than those de-scribed in paragraph (d)(1) of this sec-tion; or

(ii) A partnership and, in return forits quid pro quo contribution, the organi-

zation provides partners in the partner-ship with goods or services other thanthose described in paragraph (d)(1) ofthis section.

(e) Effective date. This section ap-plies to contributions made on or afterDecember 16, 1996. However, taxpayersmay rely on the rules of this section forcontributions made on or after January1, 1994.

PART 602 OMB CONTROLNUMBERS UNDER THEPAPERWORK REDUCTION ACT

Par. 5. The authority citation for part602 continues to read as follows:

Authority: 26 U.S.C. 7805Par. 6. Section 602.101(c) is amended

by adding the following entries in nu-merical order to the table:

602.101 OMB Control numbers.

* * * * *

(c) * * *

CFR part or section whereidentified or described

Current OMBcontrol No.

* * * * *

Section 1.170A13(f). . . . . . . . . . 15451464* * * * *Section 1.61151 . . . . . . . . . . . . . 15451464

Margaret Milner Richardson,Commissioner of Internal Revenue.

Approved November 27, 1996.

Donald C. Lubick,Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register onDecember 13, 1996, 8:45 a.m., and published inthe issue of the Federal Register for December 16,1996, 61 F.R. 65946)

Section 28 0G.Golden ParachutePayments

Federal short-term, mid-term, and long-termrates are set forth for the month of February 1997.See Rev. Rul. 977, this page.

Section 382.Limitation on NetOperating Loss Carryforwards andCertain Built-in Losses FollowingOwnership Change

The adjusted federal long-term rate is set forthfor the month of February 1997. See Rev. Rul.

977, this page.

Section 412.Minimum FundingStandards

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for themonth of February 1997. See Rev. Rul. 977, thispage.

Section 467.Certain Paymentsfor the Use of Property or Services


Section 468.Special Rules forMining and Solid WasteReclamation and Closing Costs


Section 483.Interest on Certain

Deferred PaymentsThe adjusted applicable federal short-term, mid-

term, and long-term rates are set forth for themonth of February 1997. See Rev. Rul. 977, thispage.

Section 807.Rules for CertainReserves


Section 84 6. Discounted Unpaid

Losses DefinedThe adjusted applicable federal short-term, mid-

term, and long-term rates are set forth for themonth of February 1997. See Rev. Rul. 977, thispage.

Section 1274.Determination ofIssue Price in the Case of CertainDebt Instruments Issued forProperty

(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federalrates; adjusted federal long-term rate,and the long-term exempt rate. Forpurposes of sections 1274, 1288, 382,and other sections of the Code, tablesset forth the rates for February 1997.

Rev. Rul. 977

This revenue ruling provides variousprescribed rates for federal income taxpurposes for February 1997 (the currentmonth.) Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (ad-

justed AFR) for the current month forpurposes of section 1288(b). Table 3sets forth the adjusted federal long-termrate and the long-term tax-exempt ratedescribed in section 382(f). Table 4contains the appropriate percentages fordetermining the low-income housingcredit described in section 42(b)(2) forbuildings placed in service during thecurrent month. Finally, Table 5 containsthe federal rate for determining thepresent value of an annuity, an interestfor life or for a term of years, or aremainder or a reversionary interest forpurposes of section 7520.

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REV. RUL. 977 TABLE 1

Applicable Federal Rates (AFR) for February 1997

Period for Compounding

Annual Semiannual Quarterly MonthlyShort-Term

AFR 5.81% 5.73% 5.69% 5.66%110% AFR 6.40% 6.30% 6.25% 6.22%120% AFR 7.00% 6.88% 6.82% 6.78%130% AFR 7.59% 7.45% 7.38% 7.34%

Mid-Term

AFR 6.38% 6.28% 6.23% 6.20%110% AFR 7.03% 6.91% 6.85% 6.81%120% AFR 7.68% 7.54% 7.47% 7.42%130% AFR 8.33% 8.16% 8.08% 8.02%150% AFR 9.64% 9.42% 9.31% 9.24%175% AFR 11.29% 10.99% 10.84% 10.75%

Long-Term

AFR 6.78% 6.67% 6.62% 6.58%

110% AFR 7.47% 7.34% 7.27% 7.23%120% AFR 8.16% 8.00% 7.92% 7.