Davis v. United States
1990 U.S. LEXIS 2571, 109 L. Ed. 2d 457, 495 U.S. 472 (1990)
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Rule of Law:
A charitable contribution is deductible as being "for the use of" a qualified organization under 26 U.S.C. § 170 only if it is held in a legally enforceable trust for the organization or in a similar legal arrangement that gives the organization legal control over the funds.
Facts:
- Harold and Enid Davis's sons, Benjamin and Cecil, were called by the Church of Jesus Christ of Latter-day Saints to serve as full-time, unpaid missionaries.
- The Church provided an estimated amount of money needed to support each missionary's living expenses, which varied by location.
- The Davises agreed to provide these funds and transferred the money directly into their sons' personal checking accounts.
- The sons were the sole authorized signatories on their respective accounts.
- The sons used the funds for rent, food, transportation, and other personal needs while serving their missions.
- The missionaries were required to follow a strict daily schedule and mission rules, and submitted weekly expense reports to their mission leaders.
- The sons were not required to obtain advance approval for their expenditures, and the Church had no legal entitlement to or control over the funds in their accounts.
Procedural Posture:
- Harold and Enid Davis filed amended tax returns for 1980 and 1981, claiming charitable contribution deductions for funds sent to their missionary sons.
- The Internal Revenue Service (IRS) disallowed the claimed refunds.
- The Davises filed a refund suit against the United States in the U.S. District Court for the District of Idaho.
- The District Court granted summary judgment for the United States, finding the payments were not 'for the use of' the Church.
- The Davises (appellants) appealed to the U.S. Court of Appeals for the Ninth Circuit.
- The Court of Appeals affirmed the trial court's judgment in favor of the United States (appellee).
- The U.S. Supreme Court granted certiorari to resolve a conflict among the Circuit Courts on this issue.
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Issue:
Does a taxpayer's direct payment to their children's personal bank accounts to support their work as full-time missionaries qualify as a deductible charitable contribution "for the use of" the church, when the church does not have direct legal control over the funds?
Opinions:
Majority - Justice O’Connor
No, direct payments to an individual who performs services for a charity are not deductible contributions "for the use of" that charity unless the charity has legal control over the funds. The phrase "for the use of" as used in 26 U.S.C. § 170 means "in trust for" or a similar legally enforceable arrangement. Reviewing the legislative history of the statute, the Court found that Congress added the phrase in 1921 specifically to permit deductions for gifts made to trusts and foundations for the benefit of a charity. This interpretation is supported by the historical legal meaning of the word "use" and the IRS's long-standing construction of the statute. For a contribution to be "for the use of" a charity, the charity must have a legal right to enforce the proper use of the funds, which is a defining characteristic of a trust. Here, the Davises' payments were made to their sons' personal accounts, with no trust or similar legal arrangement giving the Church control. The sons had no legal obligation to the Church regarding the funds, only a moral one. The Court also rejected the argument that the payments were deductible as "unreimbursed expenditures" under Treasury Regulation § 1.170A-l(g), holding that the regulation only allows taxpayers to deduct expenses incurred in connection with their own rendition of services, not those of a third party.
Analysis:
This decision established a bright-line "legal control" test for determining whether a contribution is "for the use of" a charity. By narrowly interpreting the phrase to mean "in trust for" or a similar arrangement, the Court prioritized administrative certainty for the IRS over a more flexible standard based on the ultimate beneficiary of the funds. This holding prevents taxpayers from claiming deductions for what could be considered personal family support, even when that support enables charitable work. The ruling effectively closes a potential loophole for tax abuse and forces donors who wish to support individuals serving a charity to donate directly to the charity itself, which then has discretion over how to support its agents.
