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Davis v. United States, was a case before the United States Supreme Court.

CASE SUMMARY

PROCEDURAL POSTURE: Petitioner taxpayers appealed a judgment from the United States Court of Appeals for the Ninth Circuit, which affirmed a rejection of petitioners' claimed deduction for payments they made to support their sons' missionary services as charitable contributions under 26 U.S.C.S. § 170, or as unreimbursed expenditures made incident to the rendition of services to a charitable organization under Treas. Reg. § 1.170A-1(g) (1989).

OVERVIEW: The United States Supreme Court also rejected petitioner taxpayers' claimed deduction for payments made to support their sons' missionary services. These payments were not charitable contributions for the use of petitioners' church within the meaning of 26 U.S.C.S. § 170. The legislative history, the generally understood meaning of the language used, and the contemporaneous and longstanding construction prompted the court to accept the government's interpretation of the statute that petitioners' contribution was for the use of the church only if the funds were held in a legally enforceable trust or a similar legal arrangement for the church. 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. Further, 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.

OUTCOME: The court affirmed the rejection of petitioner taxpayers' claimed deduction for payments made to support their sons' missionary services. Such payments were not charitable contributions for the use of petitioners' church because the payments were not donated in trust for the church. Petitioners were unable to deduct the payments as unreimbursed expenditures incident to the rendition of charitable services because they did not render the services.

SUMMARY:

A husband and wife who were members of the Church of Jesus Christ of Latter-day Saints had two sons who were called to service as full-time, unpaid missionaries for the Church. After the Church informed each son of the estimated amount of money that would be needed to support his service, the parents transferred funds to the personal checking account of each son. Each son was the sole authorized signatory of his account. Operating under Church guidelines, which required such funds to be spent for only missionary work and forbade various leisure or personal activities, the sons used the transferred funds primarily to pay for rent, food, transportation, and personal needs while on their missions. Although the guidelines did not require the sons to obtain advance approval of each expenditure they made from their checking accounts, the sons submitted weekly reports of their total expenses for the week and month to date. In 1984, the parents filed an amended federal income tax return for the years 1980 and 1981, in which return they claimed as deductible charitable contributions the amounts paid to the sons during the missionary service. The Internal Revenue Service disallowed the claims in 1985, and the parents filed suit against the United States in the United States District Court for the District of Idaho for refund of the claimed amounts pursuant to 170 of the Internal Revenue Code (26 USCS 170), which allows a deduction for a charitable contribution or gift "to or for the use of" a qualified organization. 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. 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). 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).

On certiorari, the United States Supreme Court affirmed. In an opinion by O'Connor, J., expressing the unanimous view of the court, it was held that (1) for purposes of 26 USCS 170, a contribution or gift is "for the use of" a qualified organization when such contribution or gift is held in a legally enforceable trust for the organization or in a similar legal arrangement; (2) the parents could not deduct the funds in question as charitable contributions "for the use of" the Church, as there was no evidence that the parents donated the funds in trust for the Church or in a similarly enforceable legal arrangement for the Church's benefit; and (3) the parents' transfer of the funds to the sons was not a contribution "to" the Church for purposes of 170, and 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.