T.C. Memo. 2002-153
UNITED STATES TAX COURT
GARY L. WEINER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7731-00. Filed June 18, 2002.
Steven R. Toscher, for petitioner.
David Holtz, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined deficiencies in
petitioner’s Federal income tax of $37,012 for 1997 and $33,373
for 1998.
Petitioner claimed charitable contribution deductions for
his payment to the National Heritage Foundation (NHF) of $93,000
in 1997 and $93,000 in 1998, which NHF used to pay premiums on
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life insurance policies for the lives of petitioner’s daughter
and son-in-law. The insurance policies were so-called charitable
split-dollar life insurance contracts, under which NHF was
entitled to receive from 48 percent to 92 percent of the initial
death benefits, and petitioner’s family trusts were entitled to
receive from 8 percent to 52 percent of those benefits.
Respondent determined that petitioner is not entitled to
charitable contribution deductions for his payments to NHF.
The sole issue for decision is whether petitioner may deduct
his payments to NHF as charitable contributions.1 We hold that
he may not.
Unless otherwise indicated, section references are to the
Internal Revenue Code.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioner
Petitioner, a dentist, resided in Los Angeles, California,
when he filed the petition. Traci Rae Pontello and Wendi Lyn
Iannaccone are petitioner’s adult daughters, and Frank James
Pontello is petitioner’s son-in-law.
1
Petitioner contends that sec. 7491(a) requires respondent
to bear the burden of proof on all issues in the case. We need
not decide petitioner’s contention because our findings and
analysis do not depend on which party bears the burden of proof.
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B. Petitioner’s Family Trusts and Foundation
1. The Traci Rae Pontello Irrevocable Trust and the Frank
James Pontello Irrevocable Trust
On September 21, 1995, petitioner created the Traci Rae
Pontello Irrevocable Trust (TRP trust) and the Frank James
Pontello Irrevocable Trust (FJP trust). Wendi Lyn Iannaccone was
trustee for the TRP trust, and Traci Rae Pontello was trustee for
the FJP trust. Petitioner was the sole beneficiary of the TRP
and FJP trusts (the family trusts). Under the trust instruments,
petitioner’s daughters become beneficiaries of the family trusts
upon the death of petitioner.
2. NHF
NHF is a section 501(c)(3) organization and is eligible to
receive tax-deductible contributions under section 170(c)(2).
3. The Gary Weiner Family Foundation
On October 1, 1995, petitioner established a fund within NHF
called the Gary Weiner family foundation. The purpose of the
Gary Weiner family foundation is to fund medical research and
other educational programs. Petitioner paid $265 to NHF to
establish his foundation.
C. The Charitable Split-Dollar Insurance Agreements
On October 15, 1995, the family trusts and NHF entered into
split-dollar insurance agreements (SDIAs) to divide the death
benefits from the life insurance policies on the lives of Traci
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Rae Pontello and Frank Pontello that would be issued to the
family trusts. The SDIAs remained in effect through 1998.
In the SDIAs, the family trusts and NHF agreed that, if NHF
paid about $93,000 of the annual premiums, NHF and the family
trusts would become entitled to the following initial death
benefits:
NHF’s
portion Trusts’ Trusts’
of portion of percentage
Initial initial initial of initial
death death death death
Policy benefit benefit benefit benefit
Western Reserve
Life Assurance
policy no. $750,000 $750,000 50
01B0349122 $1,500,000
(WRL
01B0349122)
Western Reserve
Life Assurance
policy no. 820,000 880,000 52
01B0349121 1,700,000
(WRL
01B0349121)
Bankers United
Life Assurance
policy no. 750,000 69,672 8
B140145 819,672
(BUL B140145)
Bankers United
Life Assurance
policy no. 820,000 487,531 37
B140146 1,307,531
(BUL B140146)
The family trusts agreed to pay any premiums due on those
insurance policies. The amounts of the death benefits payable to
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NHF remain fixed at the various initial death benefit amounts
even if the death benefits increased under the various policies.
Under the SDIAs, as long as the annual premiums were paid,
the family trusts were entitled to receive death benefits in the
amounts stated in the policies plus any increase in death
benefits under the policies.
D. The Insurance Policies on Petitioner’s Daughter and Son-In-
Law
On October 17 and 18, 1995, the TRP trust bought BUL B140146
and WRL 01B0349121 on the life of Traci Rae Pontello. On October
17 and 18, 1995, the FJP trust bought BUL B140145 and WRL
01B0349122 on the life of Frank Pontello.
E. Petitioner’s Payments to NHF and to the Insurance Companies
Petitioner sent checks for $93,000 to NHF on November 30,
1995, October 24, 1996, October 23, 1997, and October 21, 1998.
NHF was not obligated to use petitioner’s funds to pay the
premiums on the insurance policies on the lives of his daughter
and son-in-law, but petitioner expected NHF to do so. On the day
that NHF received petitioner’s payments, NHF paid to the
insurance companies its $92,722 portion of the premiums for the
life insurance policies on the lives of Traci Rae Pontello and
Frank Pontello. Each year from 1995-98, the trusts paid $7,278
to the insurance companies for premiums on those insurance
policies.
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NHF gave petitioner a receipt for each of his $93,000
payments in which NHF stated that “NHF did not provide any goods
or services to the donor in return for the contribution.”
F. Petitioner’s Tax Returns and the Notice of Deficiency
Petitioner claimed deductions for charitable contributions
to NHF of $93,000 in 1997 and $93,000 in 1998. Respondent
determined in the notice of deficiency that petitioner is not
entitled to those deductions.
OPINION
Petitioner contends that he may deduct $93,000 in 1997 and
1998 as charitable contributions to NHF. We disagree.
We recently decided Addis v. Commissioner, 118 T.C.
(2002), in which the taxpayers deducted their payments to NHF
under a split-dollar life insurance plan. The split-dollar life
insurance plan in Addis is indistinguishable from the plan that
petitioner used. In Addis, NHF used the funds from the taxpayers
to pay for life insurance on the life of Mrs. Addis and, as a
result, the taxpayers’ family trust became entitled to receive
part of the death benefits from the life insurance policy. In
Addis, NHF gave the taxpayers receipts in which NHF stated that
the taxpayers received no consideration in exchange for their
payments. We held that the taxpayers could not deduct the
payments as charitable contributions because NHF did not state in
the receipts for those payments that it used the taxpayers’ funds
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to pay for a life insurance policy under which the taxpayers
would receive part of the death benefits. We held that the
taxpayers did not comply with the substantiation requirement of
section 170(f)(8)2 and section 1.170A-13(f)(6), Income Tax
Regs.,3 because NHF incorrectly stated in the receipts that the
taxpayers received no consideration for their payments. We reach
2
Sec. 170(f)(8) provides in part:
(A) General rule.--No deduction shall be allowed
under subsection (a) for any contribution of $250 or
more unless the taxpayer substantiates the contribution
by a contemporaneous written acknowledgment of the
contribution by the donee organization that meets the
requirements of subparagraph (B).
(B) Content of acknowledgment.--An acknowledgment
meets the requirements of this subparagraph if it
includes the following information:
(i) The amount of cash and a description
(but not value) of any property other than
cash contributed.
(ii) Whether the donee organization
provided any goods or services in
consideration, in whole or in part, for any
property described in clause (i).
(iii) A description and good faith
estimate of the value of any goods or
services referred to in clause (ii) * * *.
3
Sec. 1.170A-13(f)(6), Income Tax Regs., provides:
(6) In consideration for.--A donee organization
provides goods or services in consideration for a
taxpayer’s payment if, at the time the taxpayer makes
the payment to the donee organization, the taxpayer
receives or expects to receive goods or services in
exchange for that payment. * * *
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the same conclusion here because the facts of this case and of
Addis are indistinguishable.
As in Addis, NHF gave petitioner receipts for his payments
which stated that NHF had not provided any goods or services to
petitioner in return for those payments. Petitioner expected NHF
to use his payments of $93,000 to pay NHF’s portion of the
premiums on the life insurance policies in 1997 and 1998 and thus
expected his family trusts to receive a substantial part of the
death benefits under the policies. NHF failed to make a good
faith estimate of the value of those benefits as required by
section 170(f)(8)(B)(iii).
Petitioner’s contention that his expectation that NHF would
pay the premiums on the life insurance policies was not
consideration under section 170(f)(8) fails to take into account
the definition of consideration in section 1.170A-13(f)(6),
Income Tax Regs. A donee organization provides goods or services
in consideration for a taxpayer’s payment if, at the time the
taxpayer makes the payment to the donee organization, the
taxpayer receives or expects to receive goods or services in
exchange for that payment. Id.
Petitioner’s daughters, rather than petitioner, were the
trustees of the family trusts. In contrast, in Addis, the
taxpayers were the trustees. Like the taxpayers in Addis,
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petitioner expected that he would benefit from his payments to
NHF. Just as in Addis, NHF used petitioner’s money to pay the
premiums on the life insurance policies under which petitioner or
his daughters, through the family trusts, were entitled to
receive a substantial part of the death benefits.
As in Addis, petitioner’s failure to comply with section
170(f)(8) results in disallowance of his charitable contribution
deductions. Thus, petitioner may not deduct his contributions to
NHF of $93,000 in 1997 and $93,000 in 1998.
To reflect the foregoing,
Decision will be entered
for respondent.