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Covington & Burling

Smithsonian Institution
April 18, 1972
Page Fourteen

income." 38/ They expressed the view, however, that the soundness of using both realized and unrealized appreciation or depreciation in the value of assets in the determination of income "seems unassailable." 39/

It is true that neither corporate law nor private trust law includes unrealized appreciation and depreciation in the definition of income. In the case of corporations, however, the unsold properties under consideration are not characteristically, as in the case of charitable endowment funds, marketable securities. Private trust law, as we have seen, should not be considered applicable.

The law governing charitable institutions must be deemed sui generis. 40/ The concept of income in an economic sense has been defined to include unrealized appreciation and depreciation in the value of assets. 41/ In the case of charitable institutions, there is no sound reason not to adopt this approach, 42/ in view of marketable securities being the property under consideration.

Charitable institutions, being tax exempt, are free to sell and buy marketable securities at no greater costs than brokerage fees and applicable transfer taxes. If an institution holds a large block of securities in a single company, recognition also should be given to