1986 U.S. Tax Ct. LEXIS 126">*126
The organization to which petitioners made a charitable contribution, a local post of the Veterans of Foreign Wars, met the financial support requirements of
86 T.C. 669">*669 OPINION
In a statutory notice of deficiency dated November 25, 1983, respondent determined deficiencies in petitioners' Federal income tax liabilities for the years 1979 and 1980 in the amounts of $ 32,793 and $ 104,669, respectively.
Following concessions by the parties, the only issue for decision is whether the charitable deduction to which petitioners are entitled for a contribution of real estate to a local post of the Veterans of Foreign Wars is governed by the limitation of 50 percent of petitioners' contribution base, pursuant to
This case was submitted fully stipulated pursuant to
Petitioners Earl and Shirley Weingarden are husband and wife and resided in Franklin, Michigan, at the1986 U.S. Tax Ct. LEXIS 126">*137 time their petition was filed herein. Petitioners timely filed their joint Federal income tax returns for the years 1979 and 1980.
On November 9, 1979, petitioners conveyed, as a charitable contribution, title to certain real estate to the Southgate, Michigan Post of the Veterans of Foreign Wars (hereinafter referred to as the Southgate Post). The real estate consisted of land and a building and was located in the city of Southgate, Michigan. The parties have stipulated that the value of the real estate was $ 435,000 on the day of the contribution.
On November 9, 1979, the Southgate Post was a nonprofit Michigan corporation in good standing and was exempt from Federal income tax pursuant to the provisions of section 501(c)(19). The Southgate Post accepted the contribution and agreed to occupy and use the real estate for purposes consistent with its corporate bylaws and national charter.
The Southgate Post routinely filed its Federal income tax returns on Form 990 (Return of Organization Exempt from Tax) and on Form 990-T (Exempt Organization Business Income Tax Return). The Forms 990-T filed for each of the years 1976, 1977, and 1978 indicate that no unrelated trade or business1986 U.S. Tax Ct. LEXIS 126">*138 gross income was received during those years. The Forms 990 filed on behalf of the Southgate Post for its taxable years 1976, 1977, and 1978 indicate the following sources and amounts of income: 86 T.C. 669">*671
| Sources of income | 1976 | 1977 | 1978 |
| Interest | $ 3,967 | 0 | 0 |
| Poppy sales, bingo, dances 2 | 35,315 | ||
| Contributions, gifts, grants | 2,161 | $ 2,000.00 | $ 994.00 |
| Rent | 0 | 4,747.00 | 2,745.00 |
| Bingo | 0 | 14,050.00 | 14,676.21 |
| Poppy sales | 0 | 634.19 | 315.85 |
| Raffles | 0 | 195.50 | 0 |
| Dance | 0 | 105.50 | 706.00 |
| Lottery | 0 | 800.00 | 0 |
| Coin machine | 0 | 25.52 | 48.42 |
| Refunds/misc. | 0 | 533.83 | 180.33 |
| Dues and assessments from | |||
| members and affiliates | 0 | 3,824.45 | 1,456.75 |
| Miscellaneous | 0 | 0 | 2,995.11 |
| Total | 41,443 | 26,915.99 | 24,117.67 |
1986 U.S. Tax Ct. LEXIS 126">*139 The primary source of income received by the Southgate Post was the bingo games operated by unpaid volunteers. Michigan law provides that a "qualified organization" (as defined in Mich. Stat. Ann. sec. 18.969(103) (Callaghan 1980)), including a veterans' organization which operates without profit to its members, may be licensed to conduct bingo games 1 night per week without losing its exemption from State tax. Mich. Stat. Ann. sec. 18.969(105) (Callaghan 1980). Section 513(f), with certain limitations, provides that bingo games will not be treated as an unrelated trade or business. See also
Certain dollar limitations apply to tax deductions allowed for charitable contributions made by individuals. The limitation that applies to a particular contribution depends on the nature1986 U.S. Tax Ct. LEXIS 126">*140 of the donee and on the type of property contributed.
A further limitation on tax deductions allowed individuals with regard to contributions of property to the categories of donees described in the eight clauses of
If contributions are made to a charitable donee that does not qualify under any of the1986 U.S. Tax Ct. LEXIS 126">*142 eight clauses of
Petitioners contend that the Southgate Post qualifies under the eighth clause of
(A) General rule. -- Any charitable contribution to -- 86 T.C. 669">*673 * * * * (viii) an organization described in
The controversy herein thus turns on whether the reference in clause (viii) of
This case raises an issue of first impression. The Supreme Court in dicta and in a footnote in
The rules governing the deductibility of contributions to veterans' organizations are not the same as the analogous rules for section 501(c)(3) organizations. For example, an individual may generally1986 U.S. Tax Ct. LEXIS 126">*146 deduct up to 50% of his adjusted gross income in contributions to section 501(c)(3) organizations, but only 20% in contributions to veterans' organizations. Compare
A number of tax publications also state that donations to veterans' organizations are subject to the lower 20-percent limitation and do not qualify under
1986 U.S. Tax Ct. LEXIS 126">*147 One article we have located states that veterans' organizations will qualify as a 50-percent organization under
Trying to understand the various exempt organization provisions of the Internal Revenue Code is as difficult as capturing a drop of mercury under your thumb. There are currently 23 categories of exempt organizations under section 501(c) and 5 categories of organizations recognized as qualified donees of tax deductible contributions under
At different points in time, a certain organization may qualify under one category of section 501(c), only to find itself, in later years, more suitably falling under another category. For example, prior to 1972, veterans' organizations were not separately treated in a specific paragraph of section 501(c). They apparently qualified for Federal tax-exempt status under section 501(c)(4), as social welfare organizations, and under section 501(c)(7), as social clubs. See H. Rept. 92-851, to accompany H.R. 11185 (Pub. L. 92-418)(1972); S. Rept. 92-1082 (1972), 1986 U.S. Tax Ct. LEXIS 126">*149
Set forth below is the regulation under section 501(c)(19) which enumerates acceptable activities of veterans' organizations in order to qualify thereunder.
(c)
(1) To promote the social welfare of the community as defined in section 1.501(c)(4)-1(a)(2),
(2) To assist disabled and needy1986 U.S. Tax Ct. LEXIS 126">*150 war veterans and members of the United States Armed Forces and their dependents, and the widows and orphans of deceased veterans,
(3) To provide entertainment, care, and assistance to hospitalized veterans and members of the Armed Forces and to comfort their survivors,
(4) To carry on programs to perpetuate the memory of deceased veterans and members of the Armed Forces and to comfort their survivors,
86 T.C. 669">*677 (5) To conduct programs for religious, charitable, scientific, literary, or educational purposes,
(6) To sponsor or participate in activities of a patriotic nature,
(7) To provide insurance benefits for their members or dependents of their members or both, or
(8) To provide social and recreational activities for their members.
The activities described in paragraphs 1, 3, 4, and 6 apparently also could qualify as social welfare activities under section 501(c)(4) and the activities described in paragraphs 2, 3, and 5 could qualify as charitable activities under section 501(c)(3). Similarly, the activities described in paragraph 7 could qualify under section 501(c)(8), (c)(9), or (c)(21), and activities described in paragraph 8 could qualify under section 501(c)(7).
Veterans' 1986 U.S. Tax Ct. LEXIS 126">*151 organizations receive their charters from the Federal Government. 8 The Veterans of Foreign Wars of the United States, a post of which was the donee of the gift in question herein, was chartered in 1953. Its charter is found at
Sec. 113. Purposes of corporation
The purposes of this corporation shall be fraternal, patriotic, historical, and educational; to preserve and strengthen comradeship among its members; to assist worthy comrades; to perpetuate the memory and history of our dead, and to assist their widows and orphans; to maintain true allegiance to the Government of the United States of America, and fidelity to its Constitution and laws; to foster true patriotism; to maintain and extend the institutions of American freedom; and to preserve and defend the United States from all her enemies, whomsoever. (May 28, 1936, c. 471, sec. 3, 49 Stat. 1391.)
In considering this issue we recognize that it has been stated that veterans' organizations (including posts of the Veterans of Foreign Wars) serve "unique and compelling societal1986 U.S. Tax Ct. LEXIS 126">*152 and governmental goals."
Having explained the overlap that often exists among various categories of exempt organizations under section 86 T.C. 669">*678 501(c) and having reviewed some of the background concerning veterans' organizations, the relevant portions of the confusing statutory scheme must be analyzed in order to determine whether veterans' 1986 U.S. Tax Ct. LEXIS 126">*153 organizations can qualify as 50-percent organizations under
Prior to adoption of the Tax Reform Act of 1969, Pub. L. 91-172, 83 Stat. 487, among the five types of organizations recognized as qualified donees of tax-deductible contributions there were six categories of exempt organizations, donations to which were deductible up to 30 percent of the donors' contribution base. Those six categories of organizations, with minor changes, survived the changes made by the Tax1986 U.S. Tax Ct. LEXIS 126">*154 Reform Act of 1969 and are reflected today in the first six clauses of
Before analyzing specifically what qualified donee organizations were added to the favored 50-percent group by clauses (vii) and (viii) of
Clause (vi) of
The legislative history of the relevant provisions of the Tax Reform Act of 1969 is not helpful. The reason for the addition of clause (vii) to
The Tax Reform Act of 1969 also made substantial changes to the tax treatment 1986 U.S. Tax Ct. LEXIS 126">*157 of private foundations. In explaining the definition of private foundations set forth in new
The organizations which usually will be excluded from the definition of private foundations if they satisfy this provision include symphony societies, garden clubs, alumni associations, Boy Scouts, Parent-Teacher Associations, and
In light of the above quote and in light of the fact previously mentioned that, for example, symphony societies and garden clubs would qualify for exempt status generally under section 501(c)(4) or (c)(7), and further in light of the fact that veterans' organizations in 1969 also qualified for their exempt status under section 501(c)(4) or (c)(7), petitioners argue that it is clear that, at least in 1969, veterans' organizations were to be treated as one of the "many other membership organizations" which Congress had in mind in enacting the financial requirements of
Respondent relies on the fact that veterans' organizations are the beneficiaries of a separate paragraph of section 501(c) under which they qualify for exempt status. As mentioned earlier, however, paragraph 19 of section 501(c) was not added to the Code until 1972, and it did not alter the exempt status many veterans' organizations had received in earlier years under other provisions of section 501(c). The legislative history of section 501(c)(19) makes it clear that that provision was enacted in 1972 solely to provide additional tax benefits to veterans' organizations, 86 T.C. 669">*681 not to detract therefrom. 9 Nothing in the legislative history of section 501(c)(19) suggests that veterans' organizations were to be treated differently than other exempt membership organizations under
The resolution of this issue is not free from doubt and necessitates (whichever way it is decided) a difficult analysis of a vague statutory provision. We conclude that Congress did not intend in 1969 by its addition of clause (viii) to
Clearly, if a veterans' organization qualifies as an organization described in section1986 U.S. Tax Ct. LEXIS 126">*160 501(c)(3), it would be among the types of broadly based, publicly supported exempt organizations that are intended to be exempt from private foundation treatment under
We reiterate that under clauses (i) through (vi) of
Our conclusion herein is consistent with the Supreme Court dicta in
1986 U.S. Tax Ct. LEXIS 126">*163 We note that the financial requirements an organization must meet under clause (vi) of
Petitioners point to other references in
1986 U.S. Tax Ct. LEXIS 126">*165 We note, however, that even those references in
For the reasons set forth above we conclude that charitable contributions to tax-exempt veterans' organizations do not qualify for the 50-percent limitation of
Korner,
First. I think we should make it clear that we are
Additionally, as an organization exempt under section 501(c)(19), Southgate Post does not seem to be subject to the severe limitations with regard to lobbying activity which are imposed in the case of section 501(c)(3) organizations. See secs. 501(c)(3); 501(h). 1986 U.S. Tax Ct. LEXIS 126">*167 Without reference to Southgate Post, we think it is a matter of common knowledge that veterans' organizations from time to time engage in extensive lobbying activities, both at the State and Federal level, in connection with matters of concern to them.
Second. I think that proper statutory construction requires that the introductory language of
Here, Congress made an explicit exception to the "general rule" that all the organizations described in
Thus, I conclude that Congress knew what it was doing and intended what it said. There being no showing in this record that Southgate Post qualifies as a section 501(c)(3) organization, petitioners' attempt to qualify it as a
1. All section references are to the Internal Revenue Code of 1954 as in effect during the years in issue.↩
2. "Poppy sales, bingo, dances," were grouped together as one category on the 1976 income tax return. Those items were stated separately on the 1977 and 1978 returns. No information was provided by the parties herein with respect to Southgate Post's 1979 Federal tax returns.↩
3.
(E) Contribution base defined. -- For purposes of this section, the term "contribution base" means adjusted gross income (computed without regard to any net operating loss carryback to the taxable year under section 172).↩
4.
(i) In the case of charitable contributions of capital gain property to which subsection (e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account under subsection (a) for any taxable year shall not exceed 30 percent of the taxpayer's contribution base for such year. For purposes of this subsection, contributions of capital gain property to which this paragraph applies shall be taken into account after all other charitable contributions.↩
5.
(1) an organization described in (2) an organization which -- (A) normally receives more than one-third of its support in each taxable year from any combination of -- (i) gifts, grants, contributions, or membership fees, and (ii) gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in an activity which is not an unrelated trade or business (within the meaning of section 513), not including such receipts from any person, or from any bureau or similar agency of a governmental unit (as described in (B) normally receives not more than one-third of its support in each taxable year from the sum of -- (i) gross investment income (as defined in subsection (e)) and (ii) the excess (if any) of the amount of the unrelated business taxable income (as defined in section 512) over the amount of the tax imposed by section 511; (3) an organization which -- (A) is organized, and at all times thereafter is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified organizations described in paragraph (1) or (2), (B) is operated, supervised, or controlled by or in connection with one or more organizations, described in paragraph (1) or (2), and (C) is not controlled directly or indirectly by one or more disqualified persons (as defined in section 4946) other than foundation managers and other than one or more organizations described in paragraph (1) or (2); and * * * *↩
6. Sec. 501(c)(19) provides as follows --
SEC. 501(c). List of Exempt Organizations. -- The following organizations are referred to in subsection (a): * * * * (19) A post or organization of war veterans, or an auxiliary unit or society of, or a trust or foundation for, any such post or organization -- (A) organized in the United States or any of its possessions, issues unless and until they arise. (B) at least 75 percent of the members of which are war veterans and substantially all of the other members of which are individuals who are veterans (but not war veterans), or are cadets, or are spouses, widows, or widowers of war veterans or such individuals, and (C) no part of the net earnings of which inures to the benefit of any private shareholder or individual.↩
7. See also 1986 Stand. Fed. Tax Rep. (CCH) par. 1864.0103, at 23,162; 1986 Fed. Tax Coordinator 2d (RIA), vol. 15, par. K-3561, at 32,224.↩
8. For example, see the charters of the American Veterans of World War II, at
9. The additional tax benefits veterans' organizations received as a result of the enactment of sec. 501(c)(19) and other related provisions pertained to the treatment of life insurance premiums received by veterans' organizations as unrelated business income.↩
10. In explaining certain provisions of the Deficit Reduction Act of 1984, the Staff of the Joint Committee on Taxation made the following statement:
[Staff of Joint Comm. on Taxation, General Explanation of the Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat. 494 at 667-668. (J. Comm. Print 1984). Emphasis added.]↩
11. The text of
(D) Certain private foundations. -- The private foundations referred to in subparagraph (A)(vii) and subsection (e)(1)(B) are -- * * * * (ii) any other private foundation (as defined in (iii) a private foundation all of the contributions to which are pooled in a common fund and which would be described in
