Davis v. United States (1990)
Religious Tax Deductions
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Taking tax deductions for charitable contributions to non-profit organizations are common - but just how far can such deductions extend? Can they be claimed for absolutely any funds that allegedly benefit a charitable organization in some fashion?
Background Information
Benjamin and Cecil Davis, sons of Harold and Enid Davis, went on missionary service for the Church of Jesus Christ of Latter-day Saints (Mormon Church) - Benjamin in New York City and Cevil in New Zealand. As is normal in such cases, the parents provided the funds to cover the expenses of their sons' missionary service - and the funds went directly to their sons rather than through the Church. This is done partly to encourage responsibility on the part of the missionaries and partly to reduce administrative costs.
The funds provided for missionary service cannot be used in just any manner desired - missionaries must adhere to strict codes of conduct and are not permitted to participate in a wide range of activities. In an amended tax return, Harold and Enid Davis claimed the funds sent to their sons for missionary service as charitable contributions and, hence, not subject to taxation. The IRS rejected this and the Davis family sued. Both a District Court and the Ninth Circuit Court of Appeals sided with the IRS.
Court Decision
Ultimately, the Supreme Court rejected the arguments offered by the Davis and affirmed the lower court rulings, holding that the funds sent to dependent children for missionary services do not qualify as charitable contributions eligible for tax deductions. The decision itself is mostly a discussion on just what is meant by the phrase "for the use of"in the the Internal Revenue Code stating that "For purposes of this section, the term 'charitable contribution' means a contribution or gift to or for the use of" organizations created for religious, charitable, scientific, literary, or educational purposes.
Although the Davis family argued for a broader meaning that would include even a loose relationship between the immediate recipient of the funds and religious activities, the Supreme Court held that a different meaning was intended by the law and that the meaning sought by the Davis family, while technically plausible, was not required by the text. According to the Court, there was no evidence that the parents transferred to the funds to their children "in trust for" the Church, which is the meaning used by the IRS and upheld in this decision. There was no legal relationship between the sons and the Church. There was no legal requirement that the sons use the funds solely for the benefit of or even in accordance with the Church's goals. Because it was not clear that the Church would necessarily benefit from the fund, the family could not claim the funds as a charitable contribution to the Church.
Significance
This decision limited the ways in which people can claim charitable contributions when it comes time to pay income taxes. Money transferred either directly to a charitable organization or to a third party who has some legal requirement to use the funds for the charitable organization can be claimed as a tax deduction. However, absent any legal requirements and legal relationships, no such deduction can be claimed.
Further Information
Back To: Court Decisions on Religious Liberty (main page)
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