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FUNDAMENTAL CONCEPTSto the charitable organizations selected by the cardholders. For the fourth calendarquarter, these transfers will be made before the end of the calendar year. Thecardholders do not receive anything in exchange for the payments to charitableorganizations of their rebates.Instead of causing the company to pay their rebates to a charitable organization,however, cardholders may obtain the rebates for their personal use. Unlessthey advise the company of their intention to obtain the rebates for themselves,cardholders’ rebates are automatically paid over to the designated charities.When the company makes a payment to a charitable organization on behalf of acardholder, the company provides the organization with the amount of the cardholder’scontribution, together with the cardholder’s name and address. Thecompany also provides each cardholder with an annual statement reflecting thetotal amount transferred to a charitable organization on behalf of that cardholder.The IRS concluded that these rebates paid to charitable organizations aregifts to the organizations by the cardholders. In finding satisfaction of therequirements that a gift be made voluntarily and with charitable intent, the IRSobserved that each cardholder has the choice of directing the company to refundrebates to the cardholder or to transfer them to a charitable organization. Moreover,the cardholders also have the opportunity to select the charitable organizationsthat will receive payments of their rebates. The IRS ruled that theopportunity to decide whether payments will be made to a charity, together withthe ability to designate the charity to receive the payments, renders the paymentsvoluntary. The IRS also ruled that these directed rebates are deductiblecharitable gifts. 206(i) Dividends Paid to Charities as StockholdersWhen a for-profit corporation transfers, without consideration, money or propertyto a charitable organization that is its sole shareholder, the transfer is treatedfor federal tax purposes as a distribution constituting a dividend 207 and not as acharitable contribution. 208The reasoning underlying this rule of law was articulated by a federal courtof appeals in 1967. 209 The court observed that (1) the rationale of the unrelatedbusiness income rules is to treat, for tax purposes, tax-exempt organizationswith unrelated business income the same as for-profit organizations; 210 (2) toallow a subsidiary of an exempt organization a charitable deduction for amounts206 In almost every charitable gift situation involving money, the contribution is made with after-tax dollars. Thatis, the funds must first be taken into income before they can be deductible when transferred to charity. Here,however, the IRS concluded that a rebate paid by a retailer participating in the card program is not income tothe cardholder. Rather, the rebate reflects a reduction in the purchase price paid for an item purchased with thecompany’s card. This holding is based on Rev. Rul. 76-96, 1976-1 C.B. 23, stating that rebates paid by an automobilemanufacturer to qualifying retail customers who purchase new automobiles are not includible in thegross income of the customers.207 IRC § 316(a), which defines a dividend as a distribution of property by a corporation to its stockholders out ofits earnings and profits.208 Rev. Rul. 68-296, 1968-1 C.B. 105. Dividends are not deductible by the payor corporation.209 Crosby Valve & Gage Company v. Commissioner, 46 T.C. 641 (1966).210 See § 3.5. 88