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An S corporation was entitled to a charitable contribution
deduction for a portion of its donation to a state university's
foundation for which the taxpayer received the right to purchase
tickets for seating at university athletic events. The payment
was made to an educational institution for the right to purchase
tickets and for the tickets themselves and, thus, the taxpayer
was allowed to deduct 80% of its payment under Code Sec. 170(l).
Moreover, since the taxpayer was
entitled to the 80% deduction, the fact that the payment was not
related to the taxpayer's trade or business did not disallow the
deduction under Code Sec. 274(a)(1)(B). That section does not
apply where the deduction is specifically allowed by another
section of the Internal Revenue Code.
Finally, the corporation was required
to take the charitable contribution deduction in the year the
payment was actually made, despite the fact that it was an
accrual-basis taxpayer. Code Sec. 170(a)(2), which allows an
accrual- basis corporation to deduct charitable contributions in
the year they were authorized by the board of directors, does not
apply to S corporations that are taxable in the same manner as
individuals.
Letter
Ruling LTR 200004001
Development
President Clinton's fiscal year 2001
tax cut package includes a new tax credit to encourage
pharmaceutical companies to develop vaccines for malaria,
tuberculosis and HIV/AIDS (TAXDAY, 2000/01/28, W.1).
Administration officials said that the president proposed the $1
billion tax initiative because there is little incentive for drug
firms to invest in developing vaccines that would primarily
benefit countries that cannot afford to buy them.
Under the proposal, every dollar paid
by a qualifying organization to buy a qualifying vaccine would be
matched by a dollar of tax credits. Qualifying organizations
would receive a "credit allocation" by the US Agency
for International Development (AID). A qualifying vaccine would
be a new vaccine that received Federal Drug Administration (FDA)
approval for use against malaria, tuberculosis, HIV/AIDS, or any
infectious disease that causes over one million deaths annually
worldwide. For 2002 through 2010, AID could designate up to $1
billion of vaccine sales as eligible for the credit, according to
a White House release. The president is also urging other
governments to make similar purchase commitments in order to
ensure a future market for these vaccines.
By Paula Cruickshank, CCH News Staff
The Joint Committee on Taxation (JCT)
on Jan. 28 released a report on the confidentiality of taxpayer
information as required by the IRS Restructuring and Reform Act
of 1998 (PubLNo 105-206). The three-volume report (JCS-1-00)
provides the results of a study of disclosure provisions of the
Internal Revenue Code, including provisions relating to
tax-exempt organizations. The Treasury Department has yet to
issue its study on the matter. Lawmakers requested the studies in
order to evaluate possible changes to the existing disclosure
laws.
The determination of whether federal
tax returns and return information may or must be disclosed is
governed by provisions of (1) the Code, (2) the Freedom of
Information Act (FOIA) and (3) the Privacy Act, the JCT study
stated. Code Sec. 6103 generally requires that taxpayer return
information not be disclosed but provides a number of exceptions.
The JCT staff recommended that the
rules be clarified to indicate that Code Sec. 6103 preempts the
FOIA as to returns and return information. Thus, Code Sec. 6103
would be the sole means by which such information could be
requested. Further, the FOIA administrative and court review
provisions should be incorporated into Code Sec. 6103. Finally,
the JCT staff suggested that a clarification be made that Code
Secs. 6103 and 7431 preempt the Privacy Act with respect to the
disclosure of returns and return information.
Unauthorized willful disclosure of
taxpayer return information is a felony punishable by a fine up
to $5,000, five years imprisonment or both, and civil damages may
also be imposed. The Taxpayer Browsing Protection Act (PubLNo
105- 35) added a penalty of up to $1,000 in fines, up to a year
in prison or both, for federal and state employees. Convicted
federal employees will lose their jobs.
Under Code Sec. 6110, redacted
written determinations and background files must be available for
public inspection. The JCT staff recommended that all final
written legal interpretations issued to IRS employees should be
made publicly available if they affect a member of the public and
are issued by the IRS or the IRS Chief Counsel. This disclosure
would provide public access to the working law of the IRS.
Roth's Reaction
Commenting about the JCT study in a
Jan. 28 press release, Senate Finance Committee Chairman William
V. Roth, Jr., R-Del, said, "I am concerned that the IRS is
becoming more and more of an information source and that taxpayer
information may not be adequately protected." He added,
"I believe taxpayers would be surprised to know that
approximately 37 federal and 215 state agencies receive taxpayer
information from the IRS." If, indeed, taxpayer information
must be shared, Roth said that appropriate safeguards must be in
place to prevent unauthorized disclosure.
Another concern expressed by Roth was
that the IRS often hides behind the confidentiality provision to
avoid disclosing information it does not want to reveal. Fair and
uniform administration of the tax laws requires that the IRS
disclose, as much as possible, the IRS's rules and
interpretations of the law, he stated.
Disclosure by Exempt Organizations
The JCT staff concluded that exempt
organizations should disclose significantly more than is required
under current rules. The general principle delineated by the JCT
staff was that information should be disclosed unless there are
compelling reasons for nondisclosure that clearly outweigh the
public interest in disclosure.
Specifically, the JCT staff
recommended that all written determinations, without redactions,
be made public and that the results of audits and all closing
agreements be disclosed. Applications for tax-exemption should be
made public when first filed with the IRS and any action taken by
the IRS should be disclosed.
Further, the JCT staff indicated that
Forms 990, Return of Organization Exempt From Income Tax, should
be accepted for electronic filing after 2002 and that the form
should be reviewed for relevancy and revised appropriately. All
public charities (both electing and nonelecting charities) should
be required to provide a general description of their lobbying
activities. In addition, charities should disclose expenditures
for "self-defense" lobbying and expenditures for
nonpartisan study, analysis and research if such activities
include a limited "call to action."
Forms 990-T, Exempt Organization
Business Income Tax Return, should be made publicly available as
should returns filed by Code Sec. 527 political organizations.
According to the JCT staff, the IRS should be permitted to
disclose audit and examination information to state
attorneys-general and other state officials or agencies.
By Cindy Zirkle, CCH News Staff
Summary
of JCT Study of General Disclosure Provisions,
JCT
Disclosure Study, Volume I: Study of General
DisclosureProvisions, JCS-1-00,
JCT
Disclosure Study, Volume II: Study of Disclosure
ProvisionsRelating
According to a Treasury spokesperson, the "Green
Book," entitled General Explanations of the Administration's
Fiscal Year 2001 Revenue Proposals, will be released on Feb. 7,
along with President Clinton's fiscal year 2001 budget request
and tax legislative proposals. The Green Book is an annual
publication that provides a summary of tax revenue initiatives
and will be posted on the Treasury website at
http://www.treas.gov/
By Lawrence J. Holbrook, CCH News
Staff