SECTION 2. BACKGROUND

.01 Section 170, with certain limitations, allows deductions for federal income tax purposes of contributions or gifts made to or for the use of an organization that qualifies as an organization described in § 170(c). In order for contributions to be deductible, the organization must qualify at the time of the contribution. Thus, it is the responsibility of an organization receiving contributions to ensure that its character, purposes, activities, and method of operation satisfy the qualification requirements of § 170(c) in order for grantors and contributors to have the assurance that their contributions at the time made are deductible.

.02 Treas. Reg. § 1.509(a)–7(a) sets forth general rules regarding reliance by grantors and contributors to organizations described in §§ 509(a)(1), (2), and (3). This regulation provides that once an organization has received a ruling or determination letter classifying it as an organization described in § 509(a)(1), (2), or (3), the treatment of contributions and grants, and the status of grantors and contributors to such organization under §§ 170, 507, 545(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522, will not be affected by reason of a subsequent revocation by the IRS of the organization’s classification as described in § 509(a)(1), (2), or (3) until the date on which notice of change of status is made to the public.

.03 Generally, Publication 78 lists organizations that have received a ruling or determination letter from the IRS stating that contributions by grantors or contributors to the listed organization (or to the listed central (or parent) organization and those local (or subordinate) units covered by the group

exemption letter) are deductible as provided in § 170. (Note that Publication 78 does not include separate listings for local organizations included in a group ruling.) Each ruling or determination letter is based on a factual showing by the listed organization that its character, purposes, activities, and method of operation satisfy the statutory requirements for qualification at the time the ruling or determination letter is issued. If there is a material change in the character, purposes, activities, or method of operation of an organization from those on which the ruling or determination letter was based and the change is such that the organization ceases, as a matter of law, to qualify under § 170(c), the ruling or determination letter also immediately ceases to be applicable (see also Sec. 11.02 of Rev. Proc. 2011–9, 2011–2 I.R.B. 283). Where this circumstance occurs, except for the validation provision of § 7428(c) (see Sec. 5.02), it is only by exercise of the authority under § 7805(b) that grantors or contributors to the organization may be allowed a deduction for grants or contributions made after the organization ceases to qualify under § 170(c).

.04 Through the use of a “deductibility code,” Publication 78 generally indicates the foundation classification under § 509(a) of the listed organizations. This classification determines the appropriate limitations for deductibility purposes and whether private foundations and sponsoring organizations of donor-advised funds making grants to particular organizations would be required to exercise expenditure responsibility. The coding system in Publication 78 does not indicate specifically whether an organization is described in § 509(a)(1), (2), or (3), or a particular subparagraph of § 170(b)(1)(A).

.05 The IRS no longer publishes a paper version of Publication 78. Grantors and contributors can no longer rely on the paper version of Publication 78 or any paper supplements for current information after the date of publication of this revenue procedure. Publication 78 now appears solely in electronic format on the IRS website at http://www.irs.gov/app/pub–78 . Electronic Publication 78 and its electronic addenda are generally updated at least quarterly.

.06 The IRS also makes an extract of certain information on exempt organizations from the BMF available to the public

2011–25 I.R.B. 888 June 20, 2011

advance assurance of deductibility and foundation status provided by paragraphs .01 and .02 does not apply to contributions or grants made nominally to an organization listed in or covered by Publication 78 or the BMF extract but with the understanding or on a condition that they be made available to or for the use of an organization not listed in or covered by Publication 78 or the BMF extract.

.04 The provisions of paragraphs .01 and .02 above do not apply to an organization that is not listed in or covered by Publication 78 or the BMF extract. In such a case the effect of a ruling or determination letter concerning the deductibility of contributions to the organization or its foundation status is determined in the manner described in Rev. Proc. 2011–4, 2011–1 I.R.B. 123.

.05 The advance assurance of deductibility and foundation status provided by paragraphs .01 and .02 above do not apply to local organizations included in a group ruling regardless of whether the local organization appears in the BMF extract. For further reliance information, follow the procedures listed in Publication 4573, Group Exemptions, and contact the tax-exempt central organization.