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contribution is to be "used" solely in the United States. Because of the structure of the United States tax law, deductions against foreign source income often are of no benefit to multi-national corporations. The disincentive for contributions not used solely in the United States is significant. 

The Smithsonian submitted written comments to the Internal Revenue Service about the impact of these regulations on the Smithsonian and on debt-for-nature swaps. On August 1, 1991, the Smithsonian was one of approximately 25 nonprofits to testify before the Internal Revenue Service in opposition to these regulations.

The genesis of the regulation may have been a presumption by the Internal Revenue Service that a donation generates good will for a donor, that such good will is generated primarily in the country in which the donation is used, and that, therefore, the deduction is properly taken against foreign source income. Marsha Shaines, Smithsonian Assistant General Counsel, testified that, regardless of the place of the expenditure, the good will benefit to the corporate donor occurs in the United States where the donation is publicized, and that often the American people are the ultimate beneficiaries of money spent abroad. She gave the example of art exhibitions for which money may be spent in foreign countries in order to bring artworks to the United States for the show. She also mentioned expenditures in foreign countries on animal health research, which directly benefit the well-being of animals in the National Zoo.

Smithsonian Assistant Secretary for External Affairs Tom Lovejoy also testified, along with Shearman & Sterling attorney Michael Chamberlin, about the detrimental effect of these proposed regulations on debt-for-nature exchanges. Shearman & Sterling represented the Smithsonian, the World Wildlife Fund, and the Debt for Development Foundation in their debt swap interests.

The Internal Revenue Service now will consider the oral testimony and written comments submitted, and determine whether to finalize the proposed regulations or to revise them.