Rev. Rul. 55-575

There is no provision of law which would exempt admission charges from tax merely because the affair to which admission is obtained may be conducted or sponsored by an instrumentality of the United States. However, the question has been presented as to whether welfare funds, maintained and operated by the Armed Forces of the United States in the manner described below, might qualify as charitable organizations for the purpose of the exemption from admissions tax provided by section 1701(a)(1)(A)(iii) of the Internal Revenue Code of 1939.

The welfare funds are created for the purpose of raising revenue, by means of charges for admission to entertainments and contributions from the general public, to complement the benefits and contributions from the general public, to complement the benefits supplied by appropriated of armed forces personnel stationed at United States bases, camps, etc. These nonappropriated funds are established in accordance with regulations of the military departments of the United States, and their supervision and operation are responsibilities of those departments. They are not separate entities but are among the many funds maintained and operated by the military departments. As such, they are considered wholly-owned instrumentalities of the United States and all properties acquired by them are titled in the United States and become attached to Government owned realty. See Revenue Ruling 54-556, C.B. 1954-2, 369.

Under the provisions of section 1701(a)(1)(iii) of the Code, exemption is granted with respect to admissions, all the proceeds of which inure to the benefit of certain charitable organizations operating on a nonprofit basis. In order for an organization to be entitled to the exemption under the provisions of that section, it must meet certain requirements. The law provides that for the exemption to apply an organization must be organized and operated exclusively for charitable purposes, exempt under section 101(6) of the Code, and supported, in whole or in part, by funds contributed by the United States or any State or political subdivision thereof or primarily supported by contributions from the general public.

It is held that since these nonappropriated welfare funds maintained and operated by the Armed Forces of the United States are not separate entities organized and operated exclusively for charitable purposes, they do not qualify as charitable organizations within the meaning of section 1701(a)(1)(A)(iii) of the Code. Accordingly, all admissions to affairs, the proceeds of which inure to these funds, are subject to the tax on admissions by section 1700 of the Code