Davis v. United States
495 U.S. 472 (1990)

Annotate this Case

U.S. Supreme Court

Davis v. United States, 495 U.S. 472 (1990)

Davis v. United States

No. 89-98

Argued March 26, 1990

Decided May 21, 1990

495 U.S. 472

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

Syllabus

Section 170 of the Internal Revenue Code of 1954 permits a taxpayer to claim a charitable contribution deduction only if the contribution is made "to or for the use of" a qualified organization. Petitioner husband and wife, who are members of the Church of Jesus Christ of Latter-day Saints (Church), claimed such deductions for funds transferred to their sons while they were serving as full-time, unpaid missionaries for the Church. The Church requested the payments, set their amounts, and, through written guidelines, instructed that they be used exclusively for missionary work. In accordance with the guidelines, petitioners' sons used the money primarily to pay for rent, food, transportation, and personal needs while on their missions. When the Internal Revenue Service denied petitioners' claim, they filed suit in the District Court. The court ruled in favor of the Government, holding that the payments were not "for the use of " the Church under § 170 because the Church lacked sufficient possession and control of the funds. The court also rejected petitioners' alternative claim that the payments were deductible under Treas.Reg. 1.170 A-1(g) -- which allows the deduction of "unreimbursed expenditures made incident to the rendition of services to an organization contributions to which are deductible" -- on the ground that petitioners were not themselves performing donated services. The Court of Appeals affirmed.

Held:

1. The funds transferred by petitioners to their sons were not donated "for the use of " the Church within the meaning of § 170. Pp. 495 U. S. 478-486.

(a) In choosing the phrase "for the use of," Congress was most likely referring to donations made to a legally enforceable trust or a similar legal arrangement. Although, on its face, the quoted phrase could support any number of meanings, the history of the statute indicates that Congress added the phrase to § 170 in 1921 for the purpose of overruling the Government's prior interpretation that a gift to a trust for a charitable purpose was not deductible. Construing the phrase as referring to a trust or similar arrangement comports with the accepted meaning in 1921 of "use" as synonymous with the term "trust." Pp. 495 U. S. 479-482.

(b) Thus, the Service's contemporaneous and longstanding interpretation that the phrase "for the use of" is intended to convey a similar

Page 495 U. S. 473

meaning as "in trust for" is consistent with the statutory language, fully implements Congress' apparent purpose in adopting it, and must be accepted. Pp. 495 U. S. 482-484.

(c) There is no evidence to support petitioners' contentions that Congress intended the phrase "for the use of " to be interpreted as referring to fiduciary relationships in general or as referring to a type of relationship that gives a qualified organization a reasonable ability to supervise the use of contributed funds. Pp. 495 U. S. 484-485.

(d) The record does not support a finding that petitioners transferred the funds to their sons "in trust for," or through a similarly enforceable legal arrangement for the benefit of, the Church. There is no evidence that petitioners took any steps normally associated with creating a trust or similar legal arrangement; that the sons had any legal obligation to comply with their promise to use the money in accordance with the Church's guidelines; or that the Church might have a legal entitlement to the money or to a civil cause of action against missionaries using such money for purposes not approved by the Church. Pp. 495 U. S. 485-486.

2. The transfer of funds by petitioners to their sons was not a contribution "to" the Church under Treas.Reg. 1.170 A-1(g). The regulation's plain language indicates that taxpayers may claim deductions only for "unreimbursed expenditures" incurred in connection with their own "rendition of services to [a qualified] organization." Pp. 495 U. S. 486-489.

861 F.2d 558, affirmed.

O'CONNOR, J., delivered the opinion for a unanimous Court.

JUSTICE O'CONNOR delivered the opinion of the Court.

We are called upon in this case to determine whether the funds petitioners transferred to their two sons while they served as full-time, unpaid missionaries for the Church of

Page 495 U. S. 474

Jesus Christ of Latter-day Saints (Church) are deductible as charitable contributions "to or for the use of" the Church, pursuant to 26 U.S.C. § 170.

Petitioners, Harold and Enid Davis, and their sons, Benjamin and Cecil, are members of the Church. According to the stipulated facts, the Church operates a worldwide missionary program involving 25,000 persons each year. Most of these missionaries are young men between ages 19 and 22. If the Church determines that a candidate is qualified to become a missionary, the president of the Church sends a letter calling the candidate to missionary service in a specified geographical location. A follow-up letter from the missionary department lists the items of clothing the missionary will need, provides specific information relating to the mission, and sets forth the estimated amount of money needed to support the missionary service. This amount varies according to the location of the mission and reflects an estimate of the amount the missionary will actually need.

The missionary's parents generally provide the necessary funds to support their son or daughter during the period of missionary service. If they are unable to do so, the Church will locate another donor from the local congregation or use money donated to the Church's general missionary funds. The Church believes that having individual donors send the necessary funds directly to the missionary benefits the Church in several important ways. Specifically, it "fosters the Church doctrine of sacrifice and consecration in the lives of its people" as well as reducing the administrative and bookkeeping requirements which would otherwise be imposed upon the Church. App. to Pet. for Cert. 32a.

After accepting the call, the missionary candidate receives priesthood ordinances to serve as an official missionary and minister of the Church. During the missionary service, the mission president (leader of the mission) controls many aspects

Page 495 U. S. 475

of the missionaries' lives, including the manner of dress and grooming. Missionaries are required to conform to a daily schedule which calls for at least 10 hours per day of actual missionary work in addition to study time, mealtime, and planning time. Mission rules forbid dating, movies, plays, certain sports, and other activities; missionaries are not allowed to take vacations or travel for personal purposes.

Missionaries receive some supervision over their use of funds. The Missionary Handbook instructs missionaries that

"[t]he money you receive for your support is sacred and should be spent wisely and only for missionary work. Keep expenses at a minimum. . . . Keep a financial record of all expenditures."

App. 13. The mission presidents give similar instructions to the missionaries under their supervision. Although missionaries are not required to obtain advance approval of each expenditure they make from their personal checking account, they do submit weekly reports to their group leader listing the amount of time spent in Church service, the type of missionary work accomplished, and a report of the total expenses for the week and month to date. If a missionary begins to accumulate surplus funds, he is expected to take action to reduce the amount of donations sent to him. The mission president may alter his estimates of the amounts required each month to take into account changing circumstances.

Benjamin and Cecil Davis both applied to become missionaries. In 1979, the Church notified Benjamin by letter that he had been called to missionary service at the New York Mission. A second letter informed him of the estimated amount of money which would be needed to support his service. In 1980, Cecil Davis was notified that he had been called to missionary service at the New Zealand-Cook Island Mission. Cecil also received a second letter informing him about the mission and the amount of money he would need. Petitioners notified their bishop that they would provide the funds requested by the Church to meet their sons' mission

Page 495 U. S. 476

expenses. According to petitioners, both sons made a commitment with them to use the money only in accordance with the Church's instructions.

Petitioners transferred to Benjamin's personal checking account, on which he was the sole authorized signatory, $3,480.89 in 1980 and $4,135 in 1981. During 1981, petitioners transferred $1,518 to Cecil's personal checking account, on which he was the sole authorized signatory. Benjamin and Cecil used this money primarily to pay for rent, food, transportation, and personal needs while on their missions. Benjamin also spent approximately $20 per month to purchase religious tracts and other materials used during his missionary work. Neither Benjamin nor Cecil was required to or sought specific approval of each expenditure made from his personal checking account. However, each week, Benjamin and Cecil submitted a report of the total expenses for the week and month to date. At the end of their service, Cecil had no money remaining in his account; Benjamin had $150 which he used to purchase a camera. (Petitioners do not claim a deduction for this amount.)

In their joint tax returns filed in 1980 and 1981, petitioners claimed their sons as dependents, but did not claim a charitable contribution deduction under 26 U.S.C. § 170 for the funds sent their sons during their missionary service. On April 16, 1984, petitioners filed an amended income tax return for the years 1980 and 1981, claiming additional charitable contributions of the $3,480.89 and $4,882 paid to their sons during the missionary service. In January, 1985, the Internal Revenue Service disallowed the refunds. Petitioners filed a refund suit in the United States District Court for the District of Idaho. In September, 1986, petitioners filed a second set of amended returns, limiting their charitable deductions to the amounts indicated by the Church and correcting the number of dependents claimed for each year.

In District Court, petitioners and the United States both moved for summary judgment. 664 F.Supp. 468 (Idaho

Page 495 U. S. 477

1987). Petitioners argued that the payments they made to support their sons' missionary services were charitable contributions "for the use of" the Church. Alternatively, they claimed the payments were deductible under Treas.Reg. 1.170A-1(g), 26 CFR § 1.170A-1(g) (1989), which allows the deduction of "unreimbursed expenditures made incident to the rendition of services to an organization contributions to which are deductible." The District Court ruled in favor of the United States. It rejected petitioners' claimed deduction for unreimbursed expenditures because petitioners were not themselves performing donated services, and it held that petitioners' payments to their sons were not "for the use of " the Church because the Church lacked sufficient possession and control of the funds. 664 F.Supp. at 471-472.

The Court of Appeals for the Ninth Circuit affirmed. 861 F.2d 558 (1988). The Court of Appeals rejected petitioners' claim that the transferred funds were deductible contributions because they conferred a benefit on the Church. Id. at 561. Instead, the Court of Appeals held that contributions are deductible only when the recipient charity exercises control over the donated funds. Id. at 562. The Court of Appeals reasoned that the beneficiary of a charitable contribution must be indefinite, see Russell v. Allen,107 U. S. 163, 107 U. S. 167 (1883), and that this requirement cannot be met when the taxpayer makes a contribution directly to the intended beneficiary. In this case, the Court of Appeals concluded that the Church lacked actual control over the disposition of the funds, and thus they were not deductible. 861 F.2d at 562. The Court of Appeals agreed with the District Court that § 1.170A-1(g) did not apply to petitioners, as the regulation permits a deduction for unreimbursed expenses only by the taxpayer who performed the charitable service. Id. at 564.

Because the Court of Appeals' decision conflicted with White v. United States, 725 F.2d 1269, 1270-1272 (CA10 1984), and Brinley v. Commissioner, 782 F.2d 1326, 1336

Page 495 U. S. 478

(CA5 1986), we granted certiorari, 493 U.S. 953 (1990), and now affirm.

II

Under § 170 of the Internal Revenue Code of 1954, 68A Stat. 58, as amended, 26 U.S.C. § 170 (1982 ed.), a taxpayer may claim a deduction for a charitable contribution only if the contribution is made "to or for the use of" a qualified organization. This section provides, in pertinent part:

"(a) Allowance of deduction."

"(1) General rule. -- There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary."

"* * * *"

"(c) Charitable contribution defined. -- For purposes of this section, the term 'charitable contribution' means a contribution or gift to or for the use of -- "

"* * * *"

"(2) A corporation, trust, or community chest, fund, or foundation -- "

"* * * *"

"(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes. . . ."

(Emphasis added.)

Petitioners contend that the funds they transferred to their sons' accounts are deductible as contributions "for the use of" the Church. Alternatively, petitioners claim these funds are unreimbursed expenditures under Treasury Regulation § 1.170A-1(g) and therefore are deductible as contributions "to" the Church. 495 U. S. S. 479

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