Date: May 8, 1991

Refer Reply to: CC:IT&A-03/TR-31-764-91

LEGEND:
X = * * *

Dear Sir:

This is in response to the January 24, 1991 letter from X's attorney requesting a ruling on X's behalf that the donation of certain tangible personal property to X will be put to a use not unrelated to the purpose or function constituting the basis for X's exemption from tax under section 501(c)(3) of the Internal Revenue Code.

X is a recently formed private school. In a ruling dated March 22, 1991, X was granted exempt status under section 501(c)(3) of the Code, was classified as a non-private foundation within the meaning of section 509(a)(1), and was recognized as an organization described in section 170(b)(1)(A)(ii). X emphasizes science with a plant science curriculum and an animal science curriculum. In the plant science curriculum, X represents that the students will learn about horticulture, with an emphasis on genetics and the development of high quality specific use plants, by planting, cultivating, transplanting, and harvesting various plants and crops. In the animal science curriculum, X represents that the students will learn about genetics and animal care through the impregnation of cows and mares, the birth of the offspring, and the prenatal and postnatal care of the offspring. X represents that it will also have a summer session to allow inner city children to spend a summer away from the city while learning about horticulture and animal care. The general public may also participate in the summer session for a fee. Participants in the summer session will live in housing provided by X.

X has asked for a ruling that:

1. The amount of the charitable contribution deduction for tangible personal property, such as seeds, chemicals, fertilizers, greenhouses, plants and the like, for use by X in its plant science curriculum, is not reduced under section 170(e)(1)(B)(i) of the Code since the use of the property by X is not unrelated to the purpose or function constituting the basis of its exemption under section 501.

2. The amount of the charitable contribution deduction for tangible personal property, such as livestock, animal semen, and breeding, transportation, and maintenance equipment, for use by X in its animal science curriculum, is not reduced under section 170(e)(1)(B)(i) of the Code since the use of the property by X is not unrelated to the purpose or function constituting the basis for its exemption under section 501.

3. The amount of the charitable contribution deduction for tangible personal property, such as beds, desks, tilling equipment, riding equipment, and cafeteria equipment, for use by X in its summer program is not reduced under section 170(e)(l)(B)(i) of the Code since the use of the property by X is not unrelated to its purpose or function constituting the basis for its exemption under section 501.

Section 170(a)(1) of the Code allows as a deduction any charitable contribution payment of which is made within the taxable year.

Under section 170(c)(2) of the Code, the term "charitable contribution" is defined as a contribution or gift to or for the use of a corporation, trust, community chest, fund, or foundation that meets the requirements of section 170(c)(2)(A)-(D).

Section 170(e)(1)(B)(i) of the Code provides that in the case of a charitable contribution of tangible personal property, the amount of any charitable contribution is reduced by the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution) if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501.

Section 1.170A-1(c)(1) of the Income Tax Regulations provides that if a contribution is made in property other than money, the amount of the contribution is generally the fair market value of the property at the time of the contribution reduced as provided in section 170(e)(1) and other provisions not relevant here.

Section 1.170A-4(b)(3)(i) of the regulations defines "unrelated use" as

a use which is unrelated to the purpose or function constituting the basis of the charitable organization's exemption under section 501. . . . For example if, a painting contributed to an educational institution is used by that organization for educational purposes by being placed in its library for display and study by art students, the use is not an unrelated use; but if the painting is sold and the proceeds used by the organization for educational purposes, the use of the property is an unrelated use. If furnishings contributed to a charitable organization are used by it in its offices and buildings in the course of carrying out its functions, the use of the property is not an unrelated use.

Section 1.170A-4(b)(3)(ii) of the regulations provides that a taxpayer who makes a charitable contribution of tangible personal property to or for the use of a charitable organization may treat such property as not being put to an unrelated use by the donee if --

(a) The taxpayer establishes that the property is not in fact put to an unrelated use by the donee, or

(b) At the time of the contribution or at the time the contribution is treated as made, it is reasonable to anticipate that the property will not be put to an unrelated use by the donee. In the case of a contribution of tangible personal property to or for the use of a museum, if the object donated is of a general type normally retained by such museum or other museums for museum purposes, it will be reasonable for the donor to anticipate, unless he has actual knowledge to the contrary, that the object will not be put to an unrelated use by the donee, whether or not the object is later sold or exchanged by the donee.

Section 501(c)(3) of the Code provides for exemption from federal income tax for organizations organized and operated exclusively for charitable, scientific, or educational purposes if no part of the organization's net earnings inures to the benefit of any private shareholder or individual.

Because the Service has recognized X as a section 170(b)(1)(A)(ii) organization, we know that X is an educational organization that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. X's exemption under section 501(c)(3) of the Code is based on its educational purpose and function. Under section 1.170A-4(b)(3)(ii) of the regulations, in order to deduct the fair market value of the contributed tangible personal property, (1) the donor must establish that the property was in fact used by X for its educational purpose or function or (2) at the time of the contribution, it is reasonable to anticipate that the property will be used by X for its educational purpose or function.

We conclude that:

1. The proposed use by X of tangible personal property, such as seeds, chemicals, greenhouses, plants, and the like, in its plant science curriculum is a use not unrelated to X's purpose or function constituting the basis for its exemption under section 501 of the Code. At this time, it is reasonable to anticipate that the property will be used by X in its plant science curriculum. Therefore, any charitable contribution deduction for the donation of such tangible personal property to X is not reduced by any long-term capital gain which would have resulted if the property had been sold at its fair market value.

2. The proposed use by X of tangible personal property, such as livestock, animal semen, and breeding, transportation, and maintenance equipment, in its animal science curriculum is a use not unrelated to X's purpose or function constituting the basis for its exemption under section 501 of the Code. At this time, it is reasonable to anticipate that the property will be used by X in its animal science curriculum. Therefore, any charitable contribution deduction for the donation of such tangible personal property to X is not reduced by any long-term capital gain which would have resulted if the property had been sold at its fair market value.

3. The proposed use by X of tangible personal property, such as beds, desks, tilling equipment, riding equipment, and cafeteria equipment, in its summer program is a use not unrelated to X's purpose or function constituting the basis for its exemption under section 501 of the Code. At this time, it is reasonable to anticipate that the property will be used by X in its summer program. Therefore, any charitable contribution deduction for the donation of such tangible personal property to X is not reduced by any long-term capital gain which would have resulted if the property had been sold at its fair market value.

No opinion is expressed concerning the federal income tax consequences of these donations under any other provisions of the Internal Revenue Code.

A copy of this ruling should be attached to your federal income tax returns for the tax years affected.

This ruling is directed only to the taxpayer that requested it. Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent.

Sincerely,

Assistant Chief Counsel
(Income Tax & Accounting)

By: Karin G. Gross
Assistant to the Chief, Branch 3

Enclosure:
Section 6110 copy