Rev. Rul. 76-185

Advice has been requested whether, under the circumstances described below, payments made for the restoration and maintenance of an historic mansion and its grounds are deductible as charitable contributions under section 170 of the Internal Revenue Code of 1954.

A state owns a large tract of land that is used as a state park. Situated on the land is an historic mansion, constructed by early settlers of the state, surrounded by several acres of landscaped lawns and gardens. Upkeep of the house and grounds have been neglected for several years. Major repairs and renovations are necessary to make the house habitable, and the grounds require substantial restoration. The state desires to preserve the house and grounds, but, because it is unable to finance the restoration, a taxpayer offered to finance the restoration. Under an agreement between the taxpayer and the state, all work is to be done to specifications set by the state. Contractors are to be selected by the taxpayer, subject to the approval of the state, and payments are to be made by the taxpayer directly to the contractors who perform the work. After completion of the restoration, the taxpayer has a nonassignable right to reside on the premises for 15 years. During this period, the taxpayer is required to maintain, at the taxpayer's expense, both the house and surrounding grounds in accordance with specifications determined by the state. When the period of residence expires, the taxpayer will have no further rights to or interest in the property. After the restoration is completed, the house will be open to the general public approximately four days each year under the supervision of the state. Local garden clubs will be encouraged to use the gardens throughout the year as part of their activities.

Section 170 of the Code provides, subject to certain limitations, a deduction for gifts and contributions to or for the use of organizations described in section 170(c), payment of which is made within the taxable year.

Section 170(c)(1) of the Code provides, in part, that the term "charitable contribution" means a contribution or gift to or for the use of a state, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.

For purposes of section 170 of the Code, a contribution or gift is a voluntary transfer of money or property made by the transferor without receipt or expectation of a financial or economic benefit commensurate with the money or property transferred. See section 1.170A-1(c)(5) of the Income Tax Regulations; H.R. Rep. No. 1337, 83rd Cong., 2d Sess. A44 (1954); S. Rep. No. 1622, 83rd Cong., 2d Sess. 196 (1954). If the transferor receives, or can reasonably expect to receive, a financial or economic benefit that is commensurate with the money or property transferred, no deduction under section 170 is allowable. United States v. Transamerica Corp., 392 F.2d 522 (9th Cir. 1968); Harris W. Seed, 57 T.C. 265, 278 (1971). Further, if the transferor receives, or can reasonably expect to receive, sufficiently substantial benefits, that is, benefits that are greater than those that would inure to the general public from a transfer for charitable purposes, generally no deduction under section 170 is allowable. Singer Co. v. United States, 449 F.2d 413 (Ct. Cl. 1971). However, if the transferor receives, or can reasonably expect to receive, a financial or economic benefit that is substantial but less than the amount of the transfer, than the transaction may involve both a purchase and a gift, and a deduction under section 170 would only be allowable, assuming the requirements in that section are otherwise met, for the excess of the amount transferred over the amount of the financial or economic benefit received or reasonably expected to be received by the transferor. Oppewal v. Commissioner, 468 F.2d 1000 (1st Cir. 1972); Harold DeJong, 36 T.C. 896, 899 (1961), aff'd, 309 F. 2d 373 (9th Cir. 1962).

In the instant case, the taxpayer offered to pay the costs of renovating the house and gardens owned by the state. In exchange for the taxpayer's payments for the restoration, the state will grant the taxpayer the right to reside on the premises for a number of years during which the taxpayer will be required to incur the costs of maintaining both the house and the grounds.

Accordingly, in the instant case, the payments made by the taxpayer for the restoration and maintenance of the historic mansion and its grounds are not deductible as charitable contributions under section 170 of the Code, unless the taxpayer can establish that the payments exceed the monetary value of all benefits received or expected to be received. The amount of any such excess would be deductible to the extent provided by section 170.