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§ 18.2 BACKGROUNDtaxation of money or property devoted to charitable and other purposes isbased upon the theory that the Government is compensated for the loss ofrevenue by its relief from financial burden which would otherwise have to bemet by appropriations from public funds, and by the benefits resulting fromthe promotion of the general welfare. The United States derives no such benefitfrom gifts to foreign institutions, and the proposed limitation is consistentwith the above theory. If the recipient, however, is a domestic organizationthe fact that some portion of its funds is used in other countries for charitableand other purposes (such as missionary and educational purposes) will notaffect the deductibility of the gift. 7The Revenue Act of 1939 8 changed the requirement that a qualifying organizationbe “domestic” to the requirement that it have been “created or organizedin the United States or in any possession thereof.” In virtually identical form,this requirement was reenacted 9 as part of the Internal Revenue Code of 1954and carried over to today’s Internal Revenue Code of 1986.Since 1939, the IRS has consistently held that donations by individuals to orfor the use of domestic charitable organizations are deductible even though theyare entirely used abroad, subject to the conduit and earmarking restrictions discussedbelow. This long-standing position was stated in a General CounselMemorandum in 1958. In 1972, the position was expressly incorporated into thetax regulations, which provide as follows:A charitable contribution by an individual to or for the use of an organizationdescribed in section 170(c) [that is, a charitable organization] may be deductibleeven though all, or some portion, of the funds of the organization may beused in foreign countries for charitable or educational purposes. 10In contrast, gifts given directly to foreign charities are not deductible as charitablecontributions because of the requirement that the recipient organization be adomestic entity; that is, a corporation, trust or community chest, fund, or foundationthat is established in the United States. 11The classification of domestic versus foreign organizations is not necessarilyobvious. For example, a court denied a charitable deduction for a direct gift froman American taxpayer to the First Church of Christ, Scientist, in Berne, Switzerland,a Swiss corporation. The organization’s claim to U.S. provenance wasgrounded on the fact that it was an affiliate of The First Church of Christ, Scientist,in Boston, Massachusetts, a Massachusetts corporation. The court reviewed theorganizational documents of the Swiss organization and focused on this provision:The Mother Church of Christ, Scientist, shall assume no general official controlof other churches, and it shall be controlled by none other.Each Church of Christ, Scientist, shall have its own form of government. Noconference of churches shall be held, unless it be when our churches, locatedin the same State, convene to confer on a statute of said State, or to confer harmoniouslyon individual unity and action of the churches in said State.The court determined that this statement negated the contention that the MotherChurch and the Berne branch were inseparable. The Swiss organization was thus7 Id.8 § 224.9 IRC § 170(c)(2)(A).10 Reg. § 1.170A-8(a)(1).11 IRC § 170(c)(2)(A). 549