## Facts

- An individual taxpayer made a charitable contribution to an organization described in I.R.C. § 170(c).
- The taxpayer made the contribution by charging the amount to a bank credit card.
- The credit card charge occurred in Year 1.
- The taxpayer paid the bank for the credit card balance in Year 2.
- Treasury regulations allow an individual charitable deduction only for contributions “actually paid” during the taxable year, regardless of accounting method.

## Issues

1. For purposes of I.R.C. § 170(a) and Treas. Reg. § 1.170A-1(a)(1), whether a charitable contribution made by charging a bank credit card is “actually paid” in the year of the charge or the year the taxpayer later pays the bank.

## Decision

- The IRS ruled that a contribution made to a qualified charity by a charge to a bank credit card is deductible under § 170(a) in the year the charge is made, regardless of when the bank is repaid.
- The IRS treated the credit card transaction as equivalent to using borrowed funds to make the contribution.
- The IRS distinguished Rev. Rul. 68-174 (promissory note/debenture bond contributions) and revoked Rev. Rul. 71-216 (which had deferred the deduction until the credit card balance was paid).

## Legal Principles

- Under Treas. Reg. § 1.170A-1(a)(1), individuals may deduct charitable contributions only if “actually paid” during the taxable year, regardless of pledge timing and accounting method.
- A bank credit card contribution is “paid” when the charge is made because the cardholder becomes immediately indebted to a third-party bank and cannot prevent the charity from receiving payment.
- The charity’s credit card draft is treated as immediately creditable by the bank in a manner comparable to a check.
- Under the borrowed-funds timing rule (as reflected in Granan v. Commissioner, 55 T.C. 753 (1971)), a deductible payment made with borrowed money is deducted when paid to the recipient, not when the borrowing is later repaid.
- Delivering a promissory note or debenture bond differs because it provides the charity only a promise to pay, rather than an immediate, bank-backed right to payment.

## Conclusion

A taxpayer who makes a charitable contribution by charging it to a bank credit card may claim the § 170 deduction in the year the charge is made because the transaction constitutes payment at that time, even if the taxpayer repays the bank in a later year.


Rev. Rul. 78-38, 1978-1 C.B. 67 (1978)