16
Respondent argues that Texas law only requires that 35
percent of net "instant bingo" proceeds from the prior quarter be
expended for charitable purposes and that any payments in excess
of the 35-percent requirement (excess contributions) were
voluntary and not directly connected with petitioners' "instant
bingo" activities, and thus are not deductible under sections
162(a) and 512(a).
Petitioners argue that their position is supported by South
End Italian Independent Club, Inc. v. Commissioner, 87 T.C. 168
(1986). On the other hand, respondent maintains that this case
is distinguishable from South End Italian Independent Club, Inc.
with respect to excess contributions.
In South End Italian Independent Club, Inc., the Court
considered whether a social club’s donations from beano game
proceeds were deductible as business expenses in determining
UBTI. Massachusetts law provided that the profits from beano
"'shall be used for charitable, religious or educational
purposes, and shall not be distributed to the members of such
organization.'" Id. at 169 (quoting Mass. Gen. Laws Ann. ch. 10,
sec. 38 (West 1980). In holding that the donations were not
charitable contributions, the Court stated:
First, petitioner’s payments were made in compliance
with a Massachusetts law requiring the donation of the "Net
Proceeds" of petitioner's beano games. Given the legal
compulsion surrounding petitioner's making of the donations,
they can hardly qualify as voluntary charitable
contributions. * * *
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