Rev. Rul. 72-194

Advice has been requested whether, under the circumstances described below, payments to the Department of Parks, Recreation, and Tourism of a State are deductible as charitable contributions under section 170 of the Internal Revenue Code of 1954.

Each year an international steeplechase race is conducted under the auspices of the Department of Parks, Recreation, and Tourism of a State as an official State event to promote tourism. To insure that there will be sufficient funds to cover the expenses of conducting such a race, the department obtains sponsors who agree to pay any deficit that might be incurred in its running. Each of the sponsors agrees to advance to the department for the race a stated amount which the department will then use, to the extent necessary, to pay any deficit incurred that cannot be paid out of the operating income. Funds not so expended will be returned to the sponsors on a pro rata basis.

Section 170(a) of the Code provides for the deduction, within certain limitations, of any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year.

Under section 170(c)(1) of the Code, the term charitable contribution is defined, in part, as including a contribution or gift to or for the use of a State, but only if the contribution or gift is made for exclusively public purposes.

Money expended by a State in promoting tourism in the State is for an exclusively public purpose.

It is held that only that portion of any sponsorship advance that the Department of Parks, Recreation, and Tourism devotes to the discharge of racing expenses is a payment made to the State for exclusively public purposes. Therefore, the pro rata portion of each sponsorship advance that is actually used by the department becomes deductible by the sponsor as a charitable contribution in the manner and to the extent provided in section 170 of the Code when the precise amount of this pro rata portion that the department may properly retain and use for steeplechase expenses is finally ascertained and determined. No portion of the advance is considered to be a payment of a contribution until such time as the net amount actually going to the State is definitely determined by a final accounting. The contribution does not include the amount returned to a sponsor in accordance with the agreement between the sponsor and the State.