Contents

§ 9.28 PUBLIC POLICY CONSIDERATIONSThe regulations, which are effective for charitable contributions made on orafter July 28, 2004, replace controversial rules proposed in 1991 that would requriedallocation based on where the contribution would be used, so that some ofthe expenses would be allocated to foreign income and, thus, not be deductible.§ 9.28 PUBLIC POLICY CONSIDERATIONSThere is a doctrine in the law of tax-exempt organizations that states that a nonprofitorganization cannot be tax-exempt as a charitable entity 615 if it engages inone or more activities that are contrary to public policy. 616 This rule is infrequentlyapplied in the charitable giving setting.In one case, however, an individual contributed certain Native Americanartifacts to a museum; a portion of the collection consisted of elements protectedby the Eagle Protection Act and the Migratory Bird Treaty Act. The IRS contendedthat there should not be any charitable deduction for this portion of thegift, on the ground that acquisition of them was contrary to public policy. Nonetheless,a court held that the donors had a sufficient ownership interest in theseelements to contribute them to the museum, even though the donors may haveviolated federal law when they purchased the items. 617There are other aspects of the public policy doctrine; one concerns the efficacyof the imposition of certain conditions subsequent on the terms and conditionsof a gift. In the principal case, an individual transferred certain propertyinterests to a trust benefiting his children. The instrument making the gift providedthat, should there be a final determination that any part of the transferwas subject to gift tax, all the parties agreed that the excess property decreed tobe subject to the tax would automatically be deemed not included in the conveyanceand be the sole property of the individual, free of trust.The court held that this provision was a condition subsequent that was voidbecause it was contrary to public policy. 618 It wrote that “[w]e do not think thatthe gift tax can be avoided by any such device as this.” 619A contrary holding, wrote the court, would mean that, “upon a decisionthat the gift was subject to tax, the court making such decision must hold it nota gift and therefore not subject to tax.” 620 This holding would be made in thecontext of litigation to which the donees of the property were not parties, sothe decision would not be binding on them and they would be able to enforcethe gift notwithstanding the court’s decision. Wrote the court: “It is manifestthat a condition which involves this sort of trifling with the judicial processcannot be sustained.” 621This condition subsequently was found to be contrary to public policy forthree reasons. First, “it has a tendency to discourage the collection of the [gift]615 That is, an organization that is tax-exempt under IRC § 501(a) as an entity described in IRC § 501(c)(3).616 See Tax-Exempt Organization §§ 5.3, 5.4.617 Sammons v. Commissioner, 51 T.C. 1968 (1986).618 Commissioner v. Proctor, 142 F.2d 824 (4th Cir. 1944), cert. den., 323 U.S. 756 (1944).619 Id., 142 F.2d at 827.620 Id.621 Id. 351