Davis v. United States (1990)

Davis v. United States, 495 U.S. 472 (1990) was a case before the United States Supreme Court.

Background

Facts

A husband and wife, members of the Church of Jesus Christ of Latter-day Saints, transferred funds into the personal checking accounts of their two sons, who were called to service as full-time, unpaid missionaries for the Church. The amount transferred equaled the amount the Church estimated would be needed to support this service. The sons used the transferred funds primarily to pay for rent, food, transportation, and personal needs while on their missions (in conformity with Church guidelines, which required such funds to be spent for only missionary work and forbade various leisure or personal activities). The sons submitted weekly reports of their total expenses for the week and month to date (even though these guidelines did not require the sons to obtain advance approval of each expenditure they made from their checking accounts).

Issues

In their 1984 amended federal income tax return for the years 1980 and 1981, the parents claimed these amounts as deductible charitable contributions. The Internal Revenue Service disallowed the claims. The parents sued for refund of the claimed amounts pursuant to §170 of the Internal Revenue Code (which allows a deduction for a charitable contribution or gift "to or for the use of" a qualified organization) or as unreimbursed expenditures made incident to the rendition of services to a charitable organization under Treas. Reg. § 1.170A-1(g) (1989). In a second set of amended tax returns, filed in 1986, the parents limited their claimed charitable deductions to the amounts that had been indicated by the Church.

District court

The District Court, granting summary judgment to the United States, held that

(1) the payments were not made "for the use of" the Church within the meaning of 26 USCS 170, and

(2) the payments did not qualify as "reasonable expenditures" incurred while providing services to the Church, so as to be deductible under Treas Reg 1.170A-1(g) ( 26 CFR 1.170A-1(g)), which provides that unreimbursed expenditures made incident to the rendition of services to an organization, contributions to which are deductible, may constitute a deductible contribution under 26 USCS 170 (664 F Supp 468).

Ninth circuit

The United States Court of Appeals for the Ninth Circuit, affirming on appeal, held that

(1) the funds in question were not deductible under 26 USCS 170, as the Church lacked actual control over the disposition of the funds, and

(2) 26 CFR 1.170A-1(g) did not apply to the parents, as the regulation permits a deduction for unreimbursed expenses by only the taxpayer who performed the charitable service (861 F2d 558).

Opinion of the court

Justice O'Connor affirmed for a unanimous court, holding that

(1) for purposes of 26 USCS 170, these payments were not charitable contributions "for the use of" petitioners' church.

• The court instead accepted the government's interpretation of the statute: that a contribution or gift is "for the use of" a qualified organization only when it is held in a legally enforceable trust for the organization or in a similar legal arrangement. The legislative history, the generally understood meaning of the language used, and the contemporaneous and longstanding construction all supported this interpretation.
• By contrast, petitioners deposited the funds directly into their sons' personal bank accounts. Although the sons promised to spend the money only on church-related expenses, they had no legal obligation to do so. Petitioners did not donate the funds in trust for the church.

(2) the parents were not entitled to a deduction under 26 CFR 1.170A-1(g), as that regulation allows taxpayers to claim deductions for only the expenditures made in connection with their own contributions of services to charities. Petitioners were unable to claim a deduction for the funds as unreimbursed expenditures incident to a contribution of charitable services under Treas. Reg. § 1.10A-1(g) (1989) since the expenditures were not incurred in connection with petitioners' own rendition of services -- they did not render the services.

See also

• Charitable trust

References

• Text of the case