Rev. Rul. 68-274

Advice has been requested whether the organization described below comes within the scope of the exemptions from certain Federal excise taxes provided with respect to States and political subdivisions thereof.

The organization is incorporated under State law as a nonprofit corporation whose board of directors consists of between fourteen and twenty members. The organization functions, in part, under grants from the Federal Government for the purpose of conducting the Community Action portion of the Economic Opportunity Program in a particular city. Such grants are made available by the Economic Opportunity Act of 1964, Public Law 88-452, 42 U.S.C. 2701, on the basis of individual program proposals approved by the Office of Economic Opportunity. The grants by the Federal Government provide a certain portion of the organization's financial needs, with the balance being provided by contributions from the local community. According to the House of Representatives Report No. 1458, Eighty-eighth Congress, at page 10, the role of the Federal Government in such community action programs is to give counsel and help when requested, and to make available substantial assistance in meeting the cost of the programs. The local communities, however, are to assume the responsibility for developing and carrying out the programs.

The objective of the organization is to mobilize and utilize the public and private resources within the city in order to present a unified attack on poverty. The aim is to eliminate poverty (or causes of poverty) by developing employment opportunities, improving individual motivation, as well as improving individual performance and productivity, and bettering the conditions under which people live, learn, and work. Other voluntary or governmental organizations in the community that operate or sponsor programs geared to the elimination of poverty, and that otherwise meet any affiliation requirements established by the organization under consideration here, are eligible to affiliate with this organization in an advisory or consultative capacity.

In carrying out the program proposals submitted to the Office of Economic Opportunity, the organization subcontracts with public and private institutions to perform services that correspond to the program proposals.

Section 4055 of the Internal Revenue Code of 1954 provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, retailers excise taxes will not apply to the sale of any article for the exclusive use of any State, Territory of the United States, or any political subdivision of any of the foregoing, or the District of Columbia, or with respect to the use by any of the foregoing of any liquid as a fuel.

Section 4221(a)(4) of the Code provides that, under regulations prescribed by the Secretary or his delegate, the manufacturers excise taxes will not apply to the sale of any article to a State or local government for the exclusive use of a State or local government.

Section 4292 of the Code provides that, under regulations prescribed by the Secretary or his delegate, no tax shall apply to payments received for communication or transportation services or facilities furnished to the Government of any State, Territory of the United States, or any political subdivision of the foregoing, or the District of Columbia.

The organization described above is assuming a function traditionally a responsibility of a municipal government, and it is considered as coming within the scope of the Federal excise tax exemption relating to States and political subdivisions thereof.

Accordingly, where taxable articles are sold to the organization for its exclusive use, or where communication and transportation services and facilities are furnished to the organization, the excise tax exemptions provided by sections 4055, 4221(a)(4), and 4292 of the Code apply, provided that in connection with each particular exemption, the supporting evidence requirements of the statute and applicable regulations are met.