T.C. Summary Opinion 2010-53
UNITED STATES TAX COURT
JEFFREY N. AND PATRICIA A. WILKES, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4038-08S. Filed April 22, 2010.
Jeffrey N. and Patricia A. Wilkes, pro se.
David A. Conrad, for respondent.
PARIS, Judge: This case was heard pursuant to section 74631
of the Internal Revenue Code in effect when the petition was
filed. Pursuant to section 7463(b), the decision to be entered
is not reviewable by any other court, and this opinion shall not
be treated as precedent for any other case.
1
Section references are to the Internal Revenue Code of
1986, as amended, and all Rule references are to the Tax Court
Rules of Practice and Procedure, unless otherwise indicated.
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Respondent determined a deficiency of $6,087 in petitioners’
2005 Federal income tax. This deficiency resulted from
respondent’s disallowing $25,983 of petitioners’ claimed
charitable contribution deduction under section 170. The parties
filed a stipulation of settled issues in which respondent
conceded some of petitioners’ contributions. After these
concessions2 the issues for decision are: (1) Whether
petitioners’ claimed contributions of $3,450 given to needy
individuals were deductible charitable contributions under
section 170; (2) whether petitioners’ claimed contributions
totaling $6,000 to Norman Saayman (Mr. Saayman) for missionary
work in South Africa on behalf of the Church of Jesus Christ were
deductible charitable contributions under section 170; (3)
whether petitioners’ claimed contributions totaling $12,500 to Ed
Smith (Mr. Smith) and Bob Small (Mr. Small) for missionary work
performed with local churches in Flint, Michigan, and Raleigh,
North Carolina, respectively, were deductible charitable
contributions under section 170; and (4) whether respondent’s
disallowance of part of the charitable contribution deduction
violates petitioners’ First Amendment rights.
2
Following the concessions the amount of contested
contributions is $21,950.
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Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioners resided in
Colorado at the time they filed the petition.
Petitioners are members of the Church of Jesus Christ. The
Church of Jesus Christ has no hierarchical structure, clergy, or
formal leadership. Followers of the Church of Jesus Christ
believe that Jesus Christ is the only leader of the faith and
that members should independently interpret his teachings as
expressed in the New Testament without the presence of a temporal
leadership between them and Christ. Members worship together and
form local churches in their communities. These local churches
are autonomous entities that rely on the contributions and labor
of their local members to support their religious activities.
The religious doctrine of the Church of Jesus Christ prohibits
the local churches from accepting contributions directly from any
individuals who are not local members. Petitioners were local
church members of the Westside Church of Jesus Christ in Golden,
Colorado.
In 2005 petitioners made contributions directly to several
individuals known as Needy Saints and claimed these amounts as
part of the charitable contribution deduction on their 2005 tax
return. These Needy Saints are private individuals who sought
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financial assistance from petitioners’ local church. Church
elders would review requests for assistance from private
individuals, both members and nonmembers of the local church, and
would classify those individuals as Needy Saints if the elders
felt the requests demonstrated a need consistent with the
principles of the Church of Jesus Christ. Petitioners claimed
the following charitable contributions on their 2005 tax return:
Needy Saint Contribution Amount
Linda Gregory $1,850
Howard Thompson 100
Jennifer Clayton 150
Corelta Hollister 1,000
Jeanne Batt 200
Ryan Watson 50
Jesse Walker 100
Petitioners’ total contributions to Needy Saints were $3,450.
Petitioners gave the contributions directly to the Needy
Saints. Linda Gregory used petitioners’ contributions to provide
transportation and other necessities to other needy individuals.
Ms. Gregory used her contributions consistent with the teachings
of the Church of Jesus Christ. The other Needy Saints generally
used the contributions to support their daily lives.
Additionally, in 2005 petitioners gave contributions of
$6,000, $6,500, and $6,000 directly to Mr. Smith, Mr. Small, and
Mr. Saayman, respectively. Petitioners claimed these
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contributions as deductible charitable contributions on their
2005 tax return. Mr. Smith, Mr. Small, and Mr. Saayman (the
Missionaries) were missionaries and evangelists for the Church of
Jesus Christ. In 2005 the three men worked to establish and
develop new local churches. Mr. Smith developed a local church
in Flint, Michigan. Mr. Small developed a local church in
Raleigh, North Carolina. Mr. Saayman developed a local church in
South Africa. The Missionaries determined how best to use those
funds towards the development of their respective local churches.
The Missionaries used these funds to support the recruitment of
new members, to purchase and provide religious education
materials, and to provide for the basic financial support of the
Missionaries. Each of the Missionaries provided reports to both
his local church and petitioners. These reports detailed the use
of their contributions for their missionary work.
Respondent issued a notice of deficiency on November 27,
2007, denying the deduction of the $21,950 in charitable
contributions described above.
Discussion
Section 170 allows taxpayers who itemize their deductions to
claim a deduction for any charitable gift or contribution made in
compliance with the statute. Deductions are a matter of
legislative grace, and petitioners bear the burden of proving
their entitlement to their claimed deductions. See Rule 142(a);
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Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioners claim
a deduction for two kinds of transactions. The first kind is
contributions given directly to individuals, whom petitioners
call Needy Saints, for the financial support of those
individuals. The second kind consists of contributions to
missionaries for their financial support while promoting
petitioners’ religious faith. Additionally, petitioners argue
that respondent’s disallowance of part of their deduction
violates their First Amendment rights.
I. Contributions to Needy Saints
Petitioners’ contributions to Needy Saints are not
charitable contributions deductible under section 170. Section
170, in relevant part, allows taxpayers to deduct “a contribution
or gift to or for the use of * * * a corporation, trust, or
community chest, fund, or foundation * * * created or organized
in the United States * * * organized and operated exclusively for
religious [or] charitable * * * purposes * * * no part of the net
earning of which inures to the benefit of any private * * *
individual”. Sec. 170(c)(2). Moneys given directly to
individuals for their personal benefit are deemed private gifts
and are not deductible charitable contributions under section 170
because they are not given to or for the use of a charitable
organization. See, e.g., Thomason v. Commissioner, 2 T.C. 441,
443 (1943); Dohrmann v. Commissioner, 18 B.T.A. 66 (1929).
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Petitioners’ contributions to Needy Saints were given directly to
the needy individuals for their personal use. Although the
recipients were morally obligated to use the funds in accordance
with religious teachings, no organization or entity besides the
individuals was the beneficiary of the gift. Therefore,
petitioners are not entitled to a $3,450 charitable contribution
deduction for contributions given to the Needy Saints.
II. Contributions to Missionaries
Petitioners also claim a deduction for donations to three
missionaries of the Church of Jesus Christ. To sustain these
deductions petitioners must prove the existence of a donee that
(1) is created or organized in the United States; and (2) is
organized and operated exclusively for religious purposes; (3) no
part of the net earnings of which inures to the benefit of any
individual; and (4) which is not disqualified for tax exemption
under section 501(c)(3). Sec. 170(c)(2). Petitioners must then
prove that the disputed contributions were given either (1) “for
the use of” or (2) “to” the specified organization. See sec.
170(c). Petitioners argued that either the Church of Jesus
Christ as a practicing religion qualified as a valid donee for
section 170 or the individual local churches were valid donees.
For the reasons discussed below, this Court finds that the Church
of Jesus Christ cannot be a valid donee, but the individual local
churches may.
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First, this Court must identify a qualified donee who stood
in receipt of petitioners’ contributions. Petitioners
incorrectly argue that the Church of Jesus Christ constitutes a
qualified donee for the receipt of charitable contributions.
Section 170 requires that the donee be “organized” both in or
under the laws of the United States and for a specific allowable
purpose. Petitioners do not provide any evidence that the
followers of the Church of Jesus Christ are organized as an
entity. Additionally, petitioners explicitly state that their
beliefs forbid the creation of a hierarchical organization
outside the local church. The mere presence of religious faith
does not create an organized entity. Therefore, the Church of
Jesus Christ is not a valid donee for charitable contributions
under section 170.
However, even without an organization the local churches
affiliated with the followers of the Church of Jesus Christ do
qualify as donees under section 170. Respondent allowed
petitioners’ deductions for contributions to the Westside Church
of Golden, Colorado, and thus confirmed the validity of the local
church in Golden, Colorado, as a valid donee within the meaning
of section 170(c). Additionally, the record demonstrates and
respondent does not deny that the local churches in Flint,
Michigan, and Raleigh, North Carolina, are organized in the
United States and organized and operated exclusively for
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religious purposes. Because respondent does not distinguish
these organizations from the Westside Church, the Court sees no
reason to question their qualification as proper donees under
section 170(c).
However, petitioners failed to demonstrate that the local
church in South Africa, at which Mr. Saayman was a missionary,
was organized either in the United States or under the laws of
the United States. Sec. 170(c)(2)(A). Therefore, contributions
made to or for the use of the local church in South Africa are
not deductible.
Having determined that the local churches in Flint,
Michigan, and Raleigh, North Carolina, are qualified donees
within the meaning of section 170(c), this Court must now
determine whether the contributions given to Mr. Smith or Mr.
Small were made “for the use of” or “to” either of those
qualified donees.
Petitioners’ contributions to the missionaries are not made
“for the use of” any qualified donee. The Supreme Court has
defined the section 170 phrase “for the use of” to mean that the
contribution must be “held in a legally enforceable trust for the
qualified organization or in a similar legal arrangement.” Davis
v. United States, 495 U.S. 472, 485 (1990). Such legal
arrangements must provide the donee a legally enforceable right
against the recipient that ensures the donated funds are used on
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behalf of the donee. Id. at 483. Petitioners’ funds were given
directly to Mr. Smith and Mr. Small for the purpose of supporting
the missionary and evangelical work performed at the local
churches. Petitioners made no effort to establish a legally
enforceable trust, nor did they succeed in creating a similar
legal arrangement. Petitioners argue that Mr. Smith and Mr.
Small were obligated under the tenets of their religious faith to
use the funds for the benefit of the local churches. However, a
moral obligation is not a legally enforceable right.
Additionally, petitioners claim that their donation created
contractual obligations by Mr. Smith and Mr. Small to use the
funds as directed. However, petitioners failed to demonstrate
that oral contracts between themselves and Mr. Smith and Mr.
Small could create a legally enforceable right in the local
churches to secure access to the funds. Therefore, petitioners’
contributions were not given “for the use of” a qualified donee.
Although the contributions were not given “for the use of” a
qualified donee, the contributions could be deductible if
petitioners gave the contributions “to” a qualified donee.
Contributions “to” an organization under section 170 can include
contributions given to an agent of the organization.3 See, e.g.,
3
Davis v. United States, 495 U.S. 472, 488-489 (1990),
acknowledges the existence of the agency exception and declines
to address the exception because the taxpayers did not raise the
issue before the Court of Appeals. See also Leavitt, “When Is a
(continued...)
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Skripak v. Commissioner, 84 T.C. 285, 318 (1985); Guest v.
Commissioner, 77 T.C. 9, 16 (1981); Rev. Rul. 57-487, 1957-2 C.B.
157. Agency is a fiduciary relationship that arises when an
agent acts on behalf of and under the control of a principal. 1
Restatement, Agency 3d, sec. 1.01 (2006). Additionally, both the
principal and the agent must manifest consent to the
relationship. Id. The analysis of agency has two substantive
components: (1) The relationship between the principal and the
agent and (2) the interaction of the agent with third parties on
the principal’s behalf. Id. cmt. c.
First, Mr. Smith and Mr. Small had appropriately established
an agency relationship with their respective local churches in
Flint, Michigan, and Raleigh, North Carolina. Religious doctrine
forbids the local churches from accepting funds directly from
nonmembers. Thus the local churches designated Mr. Smith and Mr.
Small as their agents to solicit, collect, and disburse funds on
their behalf. Additionally, the local churches gave Mr. Smith
and Mr. Small authority to represent the local churches in
interactions with the general public in order to facilitate
recruitment of additional members. Through the granting of this
authority the local churches manifested their assents to Mr.
3
(...continued)
Gift to the Minister Not a Gift to the Church?--The Impact of
Davis v. United States on Charitable Giving”, 66 Tul. L. Rev. 245
(1991).
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Smith’s and Mr. Small’s service as agents. Additionally, the
local churches required Mr. Smith and Mr. Small to provide
regular financial reports to their respective local churches. To
ensure Mr. Smith and Mr. Small complied with the teaching of the
Church of Jesus Christ, the elders of the local churches
monitored the distributions of funds and Mr. Smith’s and Mr.
Small’s interactions with the public. If at any time Mr. Smith
or Mr. Small had acted contrary to the wishes of the local
churches, the local churches held the authority to terminate the
relationship and dismiss either of them as an agent. Therefore,
Mr. Smith and Mr. Small established a proper agency relationship
with their respective local churches.
Second, Mr. Smith and Mr. Small interacted with petitioners
and other third parties on behalf of their local churches. They
provided religious instruction to both members and nonmembers of
the local churches. They used this instruction of nonmembers as
an opportunity to recruit new members to the local churches.
They also purchased radio and newspaper advertisements on behalf
of their local churches. Mr. Smith and Mr. Small solicited and
received funds from nonmembers (including petitioners) for their
local churches. They used these funds to purchase religious
instructional materials and advertisements and to provide for
their own modest living expenses. See Morey v. Riddell, 205 F.
Supp. 918, 921 (S.D. Cal. 1962) (holding that the donations given
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to four ministers who were agents of the religious organization
were valid contributions even though a portion of the funds was
used to cover the ministers’ living expenses). All of these
interactions with third parties were performed under the
authority of the agency relationship between the men and their
local churches.
Finally, because Mr. Smith and Mr. Small were agents of
their respective local churches (qualified donees) and
petitioners’ contributions were given to them in this capacity,
petitioners’ contributions were given “to” a qualified donee
within the requirements of section 170. Therefore, petitioners
are entitled to deduct under section 170 the $6,000 contribution
to Mr. Smith and the $6,500 contribution to Mr. Small claimed on
their 2005 tax return.
III. Constitutional Claims
Petitioners claim that respondent’s denial of part of their
charitable contribution deduction is an infringement of their
constitutional rights. Petitioners’ religious beliefs do not
allow for the existence of a manmade hierarchical structure that
governs their religious practice. They believe that all
followers of the Church of Jesus Christ worship directly under
the guidance of Jesus Christ and that the creation of any
intermediary organization is against their religious teachings.
They argue that this belief causes respondent to treat them
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differently from other religious organizations in the United
States with respect to the application of charitable
contributions. Petitioners conclude that this discriminatory
effect provides grounds to assert a violation of their rights
under the First Amendment to the Constitution.
The Supreme Court has held that section 170 does not
violate the First Amendment to the Constitution and provided the
framework for future questions on this issue. Hernandez v.
Commissioner, 490 U.S. 680 (1989). First, the Supreme Court
states that section 170 does not violate the Establishment
Clause. Id. at 695. Section 170 makes no distinctions among
different religious entities. Id. The primary effect of section
170 “is neither to advance nor inhibit religion.” Id. at 696.
Even if the statute creates a disparate burden on certain
religious organizations, “a statute primarily having a secular
effect does not violate the Establishment Clause merely because
it ‘happens to coincide or harmonize with the tenets of some or
all religions.’” Id. (quoting McGowan v. Maryland, 366 U.S. 420,
442 (1961)). Additionally, section 170 “threatens no excessive
entanglement between church and state.” Id. at 696.
Second, the Court sets forth the test for a free exercise
inquiry. The test is whether “government has placed a
substantial burden on the observation of a central religious
belief or practice, and, if so, whether a compelling governmental
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interest justifies the burden.” Id. at 699. In Hernandez, the
taxpayer was neither prevented from practicing his religion nor
forced to violate any of his religious beliefs. The only
identifiable burden in the case entailed the loss of funds from
the denied deduction that the taxpayer could use to finance
additional religious services. Id. This burden was “no
different from that imposed by any public tax or fee” and was
insufficient to meet the substantial burden requirement. Id.
Additionally, the Government had an interest in maintaining a
uniform tax system without myriad exceptions for each religious
faith. This interest was sufficiently compelling to overcome any
identifiable burden that the taxpayer raised. Id.
Petitioners have failed to distinguish their case from
Hernandez. They provide no justifiable reason to conclude
section 170 now violates the Establishment Clause. Additionally,
petitioners acknowledge that the Government has not prevented
them from performing acts of charity or from practicing their
religion. They bear only the burden of a denied deduction.
Petitioners acknowledge their religious beliefs do not prevent
them from complying with the tax law. Mr. Wilkes stated that
documenting compliance with the tax law is one of his
responsibilities for the Westside Church. Petitioners could have
structured their contributions to needy individuals and foreign
missionaries through the Westside Church to achieve compliance
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with section 170 in various ways. Neither the burden of
complying with the tax law nor the burden of increased taxes due
to denied deductions rises to the level of a substantial burden
necessary to invoke a violation of the Free Exercise Clause of
the First Amendment to the Constitution.
Conclusion
Petitioners’ donations to needy individuals are private
gifts and are not deductible as charitable contributions. Also,
petitioners’ contributions to Mr. Saayman for missionary work in
South Africa are not deductible as charitable contributions
because petitioners directed the contributions to an organization
formed outside the United States. However, petitioners’
contributions to Mr. Smith and Mr. Small are deductible as
charitable contributions because petitioners gave the
contributions to authorized agents of a charitable organization
and met the requirements of section 170.
To reflect the foregoing and the concessions of the parties,
Decision will be entered
under Rule 155.