A county land-reclamation nonprofit's income is excludable under section 115(1) and contributions to it are deductible under section 170(c)(1)

Plain-English summary

A county created a nonprofit corporation (a "land bank") to reclaim and
repurpose vacant, abandoned, and tax-foreclosed property and to promote
housing and economic development. It asked the IRS for two rulings: that its
income is tax-free and that donations to it are tax-deductible. Section 115(1)
excludes from gross income the income an entity earns from an essential
governmental function that accrues to a state or its political subdivision.
Because the county created and controls the entity, funds it, appoints a
majority of its board, and takes its assets on dissolution, and because
converting blighted property to productive use is an essential governmental
function, the IRS ruled the income is excludable under § 115(1). On the second
question, the entity is not itself a political subdivision, but under the
factors of Revenue Ruling 57-128 the IRS found it is a wholly owned
instrumentality of the county. So, following Revenue Ruling 75-359,
contributions to it count as charitable contributions "for the use of" a
political subdivision and are deductible under § 170(a), subject to the
percentage limit in § 170(b)(1)(B). Both requested rulings were granted.

Ruling snapshot

• Question: Is a county-created land-reclamation nonprofit's income
  excludable under § 115(1), and are contributions to it deductible under
  § 170(c)(1)?
• Outcome: Approved (both rulings granted; deductibility subject to the
  § 170(b)(1)(B) limit)
• Key authorities: IRC §§ 115(1), 170(a), 170(c)(1); Rev. Rul. 57-128;
  Rev. Rul. 75-359; Rev. Rul. 65-196; Rev. Rul. 69-453

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury Washington,
                                                                DC 20224

 Number: 202613003                                              [Third Party Communication: Date of
 Release Date: 3/27/2026                                        Communication: Month DD, YYYY]
 Index Number: 115.00-00, 170.00-00
                                                                Person To Contact:
 ----------------------                                         --------------------, ID No. ------------------
 ------------------------------------------------------------   Telephone Number:
 ------------------------------------------------------------   --------------------
 -----------------------------                                  Refer Reply To:
                                                                CC:EEE:EOET:EO3
                                                                PLR-111952-25
                                                                Date:
                                                                December 18, 2025




LEGEND

 Taxpayer = -------------------------------------------------------
 County   = ------------------------
 State    = ------


Dear ---------------:

This letter is in response to your authorized representative’s request for rulings that
Taxpayer’s income is excludable from gross income under section 115(1) of the Internal
Revenue Code,1 and that contributions to Taxpayer are deductible under section
170(c)(1) of the Code.

FACTS

State law authorizes certain counties to create nonprofit corporations for the reclamation
and reuse of vacant, abandoned, foreclosed, or nonproductive property. Pursuant to
this authority, County passed a resolution authorizing County’s treasurer to incorporate
Taxpayer. Shortly thereafter, Taxpayer was incorporated as a nonprofit, nonstock
corporation under State law.

County designated Taxpayer as its agent for carrying out the reclamation, rehabilitation,
and reutilization of vacant, abandoned, tax-foreclosed, and other real property within
County. Taxpayer’s purposes are to reclaim, hold, manage, and repurpose such
property; to assist governmental and other entities in assembling and clearing title to
property for productive use; and to encourage housing and economic development
within County.


1 Unless otherwise noted, all section references are to the Internal Revenue Code of 1986, as amended

(the “Code”).
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Taxpayer’s organizational documents provide that Taxpayer is intended to have the
status of an organization whose income is excludable from gross income pursuant to
section 115(1), and that its authority and activities are limited accordingly. Taxpayer’s
organizational documents forbid Taxpayer from taking any action that would cause its
income to be includable in gross income. Similarly, Taxpayer cannot amend its
organizational documents if the amendment would be inconsistent with section 115(1).

In accordance with State law, Taxpayer’s board of directors is composed of the
following members: County’s treasurer, County’s chief executive officer, the president
of County’s legislative body, two members appointed by the largest municipality in
County, and up to four additional directors selected unanimously by the aforementioned
statutory members. All directors serve without compensation and are subject to
Taxpayer’s conflicts of interest policy. Taxpayer’s conflicts of interest policy
supplements State’s ethics rules, which operate to protect Taxpayer’s interests when it
contemplates entering a transaction or arrangement that might benefit the private
interest of a director, officer, or employee of County. The conflicts of interest policy
requires the members of Taxpayer’s board of directors to acknowledge annually that
they understand and agree to comply with the conflicts of interest policy. Furthermore,
the conflicts of interest policy includes a requirement that bids to supply goods or
services to Taxpayer must include a disclosure form detailing any political contributions
made to any member of the board of directors who is also an elected official.
Taxpayer’s organizational documents contain no provisions for the removal of the
treasurer, chief executive officer, or the president of County’s legislative body from the
board. A majority of the board constitutes a quorum. A majority of the quorum must
approve all actions.

Taxpayer is subject to State’s open meetings and public records requirements.
Taxpayer must file annual financial reports with State’s official auditor and is subject to
audit by State’s auditor. State law requires Taxpayer to post the financial reports on its
website.

Taxpayer’s funding is derived primarily from County appropriations, including up to a
fixed percentage of delinquent real property tax collections, as well as appropriations
from County’s general fund, fees, and proceeds from the disposition of property.

Taxpayer’s organizational documents provide for the board of directors to periodically
review Taxpayer’s operations to ensure Taxpayer is performing essential governmental
functions, its compensation arrangements are reasonable and the result of arm’s length
bargaining, and that its arrangements do not result in personal inurement or
impermissible private benefit to any director, trustee, or officer of Taxpayer or to any
private individual or entity, except that reasonable compensation for services and
payments and distributions in furtherance of Taxpayer’s purpose may be made.

County may dissolve Taxpayer at any time under the provisions of State law. Upon
dissolution, in accordance with State law, any remaining assets of Taxpayer, after
payment of, or provision for, all debts and liabilities of Taxpayer, shall be paid into
PLR-111952-25                             3

County’s general fund or otherwise distributed as Taxpayer’s board of directors may
direct.

LAW

Section 115(1) states that gross income does not include income derived from the
exercise of any essential governmental function and accruing to a state or any political
subdivision thereof.

Section 170(a)(1) provides that there shall be allowed as a deduction any charitable
contribution (as defined in section 170(c)) payment of which is made within the taxable
year.

Section 170(c)(1) states that, for purposes of section 170, the term charitable
contribution means a contribution or gift to or for the use of a state, a possession of the
United States, or any political subdivision of any of the foregoing, or the United States or
the District of Columbia, but only if the contribution or gift is made for exclusively public
purposes.

In Revenue Ruling 77-261, 1977-2 C.B. 45, the Internal Revenue Service ruled that
income generated by an investment fund established by a state for the temporary
investment of cash balances of the state and its political subdivisions is excludable from
gross income under section 115(1), because such investment constitutes an essential
governmental function and the fund’s income accrues to the state and political
subdivisions thereof. The ruling explains that section 115(1) is intended to apply not to
the income of a state or municipality resulting from its own participation in activities, but
rather to the income of an entity engaged in the operation of a public utility or the
performance of some governmental function that accrues to a state or political
subdivision thereof.

In Revenue Ruling 90-74, 1990-2 C.B. 34, the Internal Revenue Service ruled that the
income of an organization formed, funded, and operated by political subdivisions to pool
their casualty risks or other risks arising from obligations concerning public liability,
workers’ compensation, and employees’ health is excludable from gross income under
section 115(1), because: 1) pooling risks of political subdivisions constitutes an
essential governmental function; 2) except for certain incidental benefits, private
interests do not participate in or benefit from the organization; and 3) the organization’s
income accrues to political subdivisions.

Revenue Ruling 57-128, 1957-1 C.B. 311, provides that, in cases involving the status of
an organization as a wholly owned instrumentality of one or more states or political
subdivisions, the following factors are taken into consideration.

(1) whether it is used for a governmental purpose and performs a governmental
function; (2) whether performance of its function is on behalf of one or more states or
political subdivisions; (3) whether there are any private interests involved, or whether
PLR-111952-25                            4

the states or political subdivisions involved have the powers and interests of an owner;
(4) whether control and supervision of the organization is vested in public authority or
authorities; (5) if express or implied statutory or other authority is necessary for the
creation and/or use of such an instrumentality and whether such authority exists; and
(6) the degree of financial autonomy and the source of its operating expenses.

Revenue Ruling 75-359, 1975-2 C.B. 79, provides that a voluntary association of
counties is separate from its member counties and qualifies as a wholly-owned
instrumentality of those counties, which are political subdivisions, and is formed and
operated exclusively for the public purposes of the member counties. Therefore, the
revenue ruling holds that contributions to the association are deductible as contributions
“for the use of” political subdivisions, subject to the limitation of section 170(b)(1)(B).

Revenue Ruling 69-453, 1969-2 C.B. 182, applies the six factors of Revenue Ruling 57-
128 to rule that a soil and water conservation district formed as a private non-stock
corporation by private individuals is not an instrumentality of the state. The revenue
ruling finds the state has no authority or control over the district’s expenditures, has no
authority to remove any member of the district’s board, and the district funds its
operations through fees that it charges landowners for work done for the purpose of soil
conservation. Moreover, the revenue ruling notes the state has no claim to the district’s
assets after the district’s dissolution.

Revenue Ruling 65-196, 1965-2 C.B. 388, holds that a sports area commission formed
pursuant to an agreement (which was authorized by the enactment of a state law
legalizing such agreements) between a city and two villages to erect and operate an
athletic stadium is an instrumentality of political subdivisions of the state. The
commission is comprised of members appointed by councils of the city and villages as
their representatives. Each member is required to be a citizen and resident of the state
and may not be a member of the governing body of the city or the villages. The sole
source of financing for the commission comes from bonds issued by the city. The
revenue ruling concludes the commission is an instrumentality of the city and two
villages by whose agreement it was formed because it meets substantially all of the
Revenue Ruling 57-128 factors: the commission was created by the city and villages as
their instrumentality, and validated by state law; the commission members are
delegated certain authority under the terms of the agreement between the city and
villages; control and supervision of the assets of the commission are in the hands of the
city and villages; there are no private interests involved; and the city, upon the
commission’s direction, is responsible for the project’s finances.

RULINGS REQUESTED

   1. Because Taxpayer’s income is derived from its performance of an essential
      governmental function and accrues to County and other political subdivisions,
      Taxpayer’s income is excludable from gross income pursuant to section 115(1).
   2. Because Taxpayer is an instrumentality for purposes of section 170(c)(1),
      contributions to it are deductible to the extent otherwise allowed by section 170.
PLR-111952-25                             5

ANALYSIS

Issue 1.

County created Taxpayer in accordance with State law, and it designated Taxpayer to
be its agent to carry out the statutory purposes of combating community deterioration by
restoring abandoned and blighted property and promoting economic and housing
development in County. Transforming blighted, abandoned, or foreclosed property into
safe and economically productive property is an essential governmental function.

County can dissolve Taxpayer at any time, and it controls Taxpayer’s board of directors.
Taxpayer is funded by County and State, as well by proceeds from the sale of property
acquired in furtherance of its purposes. Taxpayer operates according to State's open
meetings and public records rules, is required to submit an annual financial report to
State's official auditor, and it must display the report on its website. Taxpayer has taken
many additional steps to ensure that private interests do not benefit from Taxpayer's
activities more than incidentally. Taxpayer’s articles ensure that upon dissolution its
assets will be controlled by County. Therefore, Taxpayer's income accrues to a state or
political subdivision of a state.

Issue 2.

The second ruling requested raises the issue of whether Taxpayer is a separate, wholly-
owned instrumentality of one or more political subdivisions of State, such that it is
eligible to receive charitable contributions within the meaning of section 170(c)(1).
Section 170(c)(1) generally defines the term “charitable contribution,” for purposes of
section 170(a)(1), to include a contribution or gift to or for the use of a state or any
political subdivision of a state, provided the contribution or gift is made for exclusively
public purposes.

Taxpayer is not a political subdivision of State. Therefore, contributions to Taxpayer
cannot constitute charitable contributions to a political subdivision of State for purposes
of section 170(c)(1). However, pursuant to Revenue Ruling 75-359, contributions to
Taxpayer may constitute charitable contributions (within the meaning of section
170(c)(1)) for the use of political subdivisions of State, which are deductible under
section 170(a), subject to the limitation of section 170(b)(1)(B), if Taxpayer qualifies as a
separate, wholly-owned instrumentality of one or more political subdivisions of State. A
determination of whether Taxpayer is a wholly-owned instrumentality of one or more
political subdivisions of State is made by applying the factors set forth in Revenue
Ruling 57-128.

Governmental Purpose and Function

The first factor under Revenue Ruling 57-128 is whether Taxpayer is used for a
governmental purpose and performs a governmental function. County established
Taxpayer as its agent to facilitate the governmental purposes of reclamation,
PLR-111952-25                             6

revitalization, and return to economic productivity of abandoned or foreclosed real
estate located in County. Accordingly, we conclude Taxpayer is used for a
governmental purpose and performs a governmental function.

Performance on Behalf of Political Subdivisions

The second factor under Revenue Ruling 57-128 is whether performance of Taxpayer’s
function is on behalf of one or more states or political subdivisions. County established
Taxpayer as its agent to exercise the governmental purposes referenced above. Most
of Taxpayer’s board of directors represent County and some of its political subdivisions.
Taxpayer’s organizational documents require it to carry out the purposes of the State
statute that authorizes the creation of entities like Taxpayer. Additionally, State law
requires periodic reporting and audits to ensure, among other things, that Taxpayer
represents County’s interests, and Taxpayer’s income accrues to County. Accordingly,
Taxpayer performs its functions on behalf of County, which is a political subdivision of
State.

Private Interests Involved

The third factor under Revenue Ruling 57-128 is whether there are any private interests
involved, or whether State or its political subdivisions have the powers and interests of
an owner. According to the facts, Taxpayer’s revenue accrues to County. State law
requires Taxpayer to adhere to State’s open meetings and public records requirements.
Taxpayer must also, pursuant to State law, provide an annual financial report to State
and post the report on its website. Bids to provide goods or services to Taxpayer must
be accompanied by disclosures of campaign contributions to elected officials serving as
Taxpayer’s directors. Furthermore, Taxpayer adopted a conflicts of interest policy that
supplements State’s conflict of interest policy for public officials and employees. This
policy requires Taxpayer’s directors to annually acknowledge that they understand and
agree to comply with Taxpayer’s conflicts of interest policy. Taxpayer’s organizational
documents require it to periodically review its activities to ensure Taxpayer is performing
essential governmental functions and its compensation arrangements are reasonable
and the result of arm’s length bargaining. State law requires Taxpayer to use the
proceeds from its sale of property for the purposes for which Taxpayer was organized.
State law further authorizes County’s governing body, to determine the disposition of
any remaining assets upon Taxpayer’s dissolution. Moreover, the organizational
documents provide that no part of Taxpayer’s net earnings can inure to the benefit of, or
be distributable to, any director, trustee, or officer of Taxpayer, or any private individual
or entity. Accordingly, only incidental private interests are involved, and political
subdivisions of State have the powers and interests of an owner with respect to
Taxpayer.

Control and Supervision

The fourth factor under Revenue Ruling 57-128 is whether control and supervision of
Taxpayer is vested in public authority. Under the facts, State law allows Taxpayer to
PLR-111952-25                           7

have a board of at least five, but not more than nine uncompensated directors. Three of
the directors are designated by statute: County’s treasurer, County’s chief executive
officer, and the president of County’s legislative body. Two directors are appointed by
the largest municipality in County. State law provides that County’s directors may
appoint up to four additional directors. Accordingly, directors who represent County and
political subdivisions within County must always be a majority of Taxpayer’s board of
directors. County can dissolve Taxpayer at any time, in accordance with State law.
Therefore, based on the facts provided, we conclude the control and supervision of
Taxpayer is vested in public authority.

Statutory Authority

The fifth factor under Revenue Ruling 57-128 is whether express or implied statutory or
other authority is necessary for the creation and use of Taxpayer and whether such
authority exists. Pursuant to State law, County enacted a resolution to establish
Taxpayer to operate on County’s behalf to facilitate the effective reclamation,
revitalization, and return to economic productivity of abandoned or foreclosed real
estate located in County. Taxpayer continues to function pursuant to specific State
statutory and other authority. Consequently, we conclude that express statutory
authority is necessary for the creation and use of Taxpayer and that such authority
exists.

Financial Autonomy and Source of Operating Expenses

The sixth factor under Revenue Ruling 57-128 is the degree of Taxpayer’s financial
autonomy and the source of its operating expenses. Taxpayer is financially dependent
on County for funding. Taxpayer’s funding includes a percentage of County’s
delinquent tax and assessment collection fund and proceeds from the sale of property
acquired in furtherance of its statutory purposes. State law contemplates that Taxpayer
will use revenue from its activities solely in furtherance of those statutory purposes.
Based on these facts, we find that Taxpayer is not financially autonomous and relies on
County funding for its operating expenses.

For the reasons stated above, we conclude that Taxpayer is a wholly owned
instrumentality of a political subdivision of State. Similar to Revenue Ruling 65-196, and
unlike Revenue Ruling 69-453, Taxpayer is used for a governmental purpose and
performs a governmental function; Taxpayer’s function is on behalf of County, which is
the political subdivision of State that established Taxpayer; there are not more than
incidental private interests involved, and political subdivisions of State have the powers
and interests of an owner, with respect to Taxpayer; control and supervision of
Taxpayer is vested in public authorities; express statutory authority is necessary for the
creation and use of Taxpayer and such authority exists; and Taxpayer is not financially
autonomous and relies on County funding for its operations. Accordingly, in accordance
with Revenue Ruling 75-359, we conclude that contributions to Taxpayer constitute
charitable contributions (within the meaning of section 170(c)(1)) for the use of a
PLR-111952-25                             8

political subdivision of State, that are deductible under section 170(a), subject to the
limitation of section 170(b)(1)(B).

CONCLUSION

We rule that:

   1. Because Taxpayer’s income is derived from its performance of an essential
      governmental function and accrues to County, Taxpayer's income is excludable
      from gross income pursuant to section 115(1).
   2. Because Taxpayer is an instrumentality for purposes of section 170(c)(1),
      contributions to it are deductible to the extent otherwise allowed by section 170.

These rulings are based on the facts as they were presented in the ruling request and
on the understanding that there will be no material changes to those facts. These
rulings do not address the applicability of any section of the Code or regulations to the
facts submitted other than with respect to the sections expressly described herein.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter, or of any activity or transaction not expressly addressed in this letter.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an individual with authority to bind Taxpayer, as specified in Revenue Procedure 2025-
1, 2025-1 I.R.B. 1, §7.01(15)(b), or its successors. This office has not verified any of
the material submitted in support of the request for rulings, but such material is subject
to verification on examination. The Associate Office will revoke or modify a letter ruling
and apply the revocation retroactively if there has been a misstatement or omission of
controlling facts; the facts at the time of the transaction are materially different from the
controlling facts on which the rulings were based; or, in the case of a transaction
involving a continuing action or series of actions, the controlling facts change during the
course of the transaction. See Revenue Procedure 2025-1, section 11.05, or its
successors.

This ruling letter is directed only to Taxpayer. Section 6110(k)(3) provides that it may
not be used or cited as precedent by any other taxpayer.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of this
letter ruling.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.
PLR-111952-25                                        9

If you have any questions about this letter ruling, please contact the person whose
name and phone number are shown in the heading of this letter.

                                                      Sincerely,



                                                      _________________________
                                                      Kenneth Griffin
                                                      Branch Chief, Exempt Organizations Branch 3
                                                      (Employee Benefits, Exempt Organizations,
                                                      and Employment Taxes)



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