*216 Decision will be entered for the respondent.
Held, payment, based on ability to pay, by adoptive parents to an adoption agency, a qualified charitable organization under sec. 170(c), I.R.C. 1954, to effect the adoption of a child is not a charitable contribution within the meaning of sec. 170, I.R.C. 1954.
*250 Respondent determined a deficiency of $ 239.43 in petitioners' Federal income tax for the year 1966. The only issue for decision is whether a payment, based on ability to pay, by adoptive parents to an adoption agency, a qualified charitable organization, with respect to the agency's placing a child in the adoptive parents' home preliminary to adoption is deductible as a*217 charitable contribution under section 170. 1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Edward A. Murphy and Cynthia L. Murphy (herein referred to as petitioners) are husband and wife. Their legal residence was Huntington, N.Y., at the time they filed their petition in this proceeding. Their joint Federal income tax return for the years 1966 was filed with the district director of internal revenue at Brooklyn, N.Y.
The Talbot Perkins Adoption Service (herein called agency) is a nonprofit, nonsectarian, interracial agency incorporated under the laws of New York in 1927. It is a charitable organization qualifying under section 170(c).
Prior to 1966 it was the policy of the agency not to "charge" an "adoption fee" as such for its services in placing children preliminary to adoption. Rather, it suggested that the adoptive parents make a donation. The amount of the donation was determined*218 by the adoptive father's annual income and was considered a contribution by the agency.
Sometime in 1965 the agency's policy was changed, as indicated by the following excerpt from the "Annual Report of the Executive Director," submitted in December 1965 to the agency's board of directors: "We have clarified the position that the amount charged adoptive applicants is 'fee for professional services rendered' and not a contribution, as it was considered in the past."
During 1966 the policy of the agency in determining the "charge" for its services in placing children preliminary to adoption was that the income of each family was considered individually in each placement. If a family was able to pay an adoption fee, the fee was generally 10 percent of the husband's annual income. The agency considered the payment as a fee for the total services involved in the adoption, such as services to the natural mother, services to the child and to the adoptive family, including prior and post placement services. If a family was unable to pay a fee, the agency did not require it. If a family could afford to pay a fee, then a fee was required by the agency as a *251 prerequisite to its *219 placing a child in the home of the adoptive parents for adoption.
In April 1966, the petitioners, who had three children of their own, contacted the agency for the purpose of adopting a child. Their first meeting at the agency was a group meeting with other couples also interested in adopting a child. At such meeting the petitioners received a booklet which provided, in pertinent part, as follows:
What will it cost to adopt a child?
There is no "charge" for a baby. However, we have found that most couples want to share in the cost of care for our babies and we suggest that this sharing-of-the-cost be figured on a sliding scale, according to the adoptive father's income.
The amount donated by adoptive parents does not by any means cover all expenses. The average contribution from adoptive couples (based on income) is about $ 500; the average cost of placing a baby is almost four times this amount. Our costs, of course, include the instances in which we have paid expenses -- ranging from doctor bills and boarding home care to drugs and clothing -- for a baby who is not finally adopted because we have worked out plans for his return to his natural mother.
From the information in *220 the booklet, the petitioners were led to believe that it was still the policy of the agency in 1966 merely to suggest to adoptive parents that they make a donation but that the adoption of a child was in no way contingent upon making such a donation.
On May 31, 1966, the petitioners paid the agency $ 10 as a registration fee. Shortly thereafter, in August, they received custody of a child, Amy Beth Murphy, from the agency preliminary to adoption.
As a prerequisite to its placing Amy Beth in petitioners' home for adoption, the agency charged petitioners an amount equal to 10 percent of Edward's annual income ($ 1,750) for professional services rendered. On August 2, 1966, petitioners paid the agency the sum of $ 875. The receipt which petitioners received for such payment provided, "We acknowledge a contribution," with the word "contribution" scratched out and the word "fee" handwritten above it. Petitioners made the final payment of $ 875 to the agency in April 1967.
On their joint Federal income tax return for the year 1966, the petitioners deducted the sum of $ 2,692 as charitable contributions. Included in this amount was the $ 885 petitioners paid the agency in 1966. Petitioners*221 have conceded that the $ 10 registration fee and an additional $ 202.50 of the remaining charitable contribution deduction are not deductible. The respondent disallowed the claimed charitable contribution deduction of $ 875 which represented partial payment for the agency's services in placing Amy Beth in petitioners' home preliminary to adoption.
*252 OPINION
The sole issue which we must decide is whether the $ 875 paid to the agency, a qualified charitable organization, during 1966 constituted a charitable contribution within the meaning of section 170. 2
*222 Petitioners argue that their payment to the adoption agency constituted a charitable contribution deductible under section 170, because (1) "it was based upon [Edward's] income and was not in any way tied to expenses incurred or services rendered by [the agency] in [the] adoption," (2) "[it] was a free-will gift," and (3) "[the] adoption of Amy Beth Murphy was not contingent upon [the] contribution." Respondent, to the contrary, asserts that the payment was made to the agency in exchange for its services and was not a charitable contribution.
The meaning of the term "charitable contribution" for purposes of section 170 is clearly set forth in our opinion in Harold DeJong, 36 T.C. 896">36 T.C. 896, 899 (1961), affd. 309 F.2d 373">309 F.2d 373 (C.A. 9, 1962):
As used in this section the term "charitable contribution" is synonymous with the word "gift." * * * A gift is generally defined as a voluntary transfer of property by the owner to another without consideration therefor. If a payment proceeds primarily from the incentive of anticipated benefit to the payor beyond the satisfaction which flows from the performance of a generous act, it is not a gift. *223 * * *
Clearly, "not every payment to an organization which qualifies as a charity is a charitable contribution." Estate of Willis D. Wood, 39 T.C. 1">39 T.C. 1, 6 (1962). See, e.g., James A. McLaughlin, 51 T.C. 233">51 T.C. 233 (1968), affirmed per curiam F.2d (C.A. 1, 1969); Harold DeJong, supra;Channing v. United States, 4 F. Supp. 33">4 F. Supp. 33 (D. Mass. 1933), affirmed per curiam 67 F. 2d 986 (C.A. 1, 1933); payment for tuition to a nonprofit education organization is not a charitable contribution; John J. L. Ryan, T.C. Memo. 1969-212; Rev. Rul. 67-246, 2 C.B. 104">1967-2 C.B. 104; payments in connection with admission to or other participation in fund-raising activities for charity are not charitable contributions to the extent such payments do not exceed the fair market value of the *253 privileges or other benefits received; and Estate of Willis D. Wood, supra, transfer of securities to a church in trust to provide for perpetual care of transferor's plot in*224 the church cemetery is not a charitable contribution.
Similiarly, payments which are in fact adoption fees "for services to cover part of the cost of operating an adoption program" do not constitute charitable contributions. Archibald W. McMillan, 31 T.C. 1143">31 T.C. 1143, 1147 (1959). (Emphasis added.) See and compare Wegner v. Lethert, an unreported case ( D. Minn. 1967, 19 A.F.T.R. 2d 790, 67-1U.S.T.C. par. 9229), where a payment to a qualified organization which had assisted (apparently without charge) the taxpayer in the adoption of a child was held to be a charitable contribution.
It is well established that payments to an organization which qualifies as a charity are deductible as a charitable contribution under section 170 only to the extent the amount thereof exceeds the fair market value of any material benefit received in return.
The evidence herein shows that at least some portion, if not all, of the payment made by the petitioners in 1966 to the agency, regardless of what it may be called, was in fact an adoption fee, given in exchange for the agency's services which were indispensable to the petitioners' *225 adoption of Amy Beth. These services constituted a return benefit or consideration accruing to the petitioners. In short, the payment, to the extent it was for services rendered by the agency, does not constitute a charitable contribution since the petitioners received something of value in return. Archibald W. McMillan, supra.
Petitioners argue that contributions to churches and other charitable organizations by a member thereof are treated as charitable contributions, even though the member receives services or other benefits in return. Reasoning by analogy, they conclude that their payment to the adoption agency constituted a charitable contribution despite the fact that the agency provided services to them in connection with the adoption of Amy Beth. The difficulty with this argument is that it fails to perceive the substantial differences between the more direct benefit they received from the agency and the indirect benefits to the member of a church or other charitable organization. In the latter situation the benefits are merely incidental to making the organization function according to its charitable purposes and the only return benefit*226 is the satisfaction of participating in the furtherance of its charitable or religious cause. Such privileges, we think, are not significant return benefits that have a monetary value within the meaning of section 170. On the other hand, the services received by petitioners from the adoption agency were of a significant and direct benefit to them because such services were indispensable to, and in furtherance of, petitioners' purpose in adopting Amy Beth.
*254 Petitioners' argument that the adoption of Amy Beth was not contingent upon their paying the agency 10 percent of Edward's annual income is not supported by the record. Although they may have been led to believe that the adoption was not contingent upon their paying a fee, the agency, as we view the evidence, did in fact require the petitioners to pay a fee as a prerequisite to its placing Amy Beth in their home for adoption. The agency during 1966 required payment of a fee from those adoptive parents who could afford it as a prerequisite to the placing of a child for adoption. This, taken in conjunction with the petitioners' concession at trial that they were financially able to make such a payment, leads us to the*227 conclusion that the payment in question was required by the agency as a prerequisite to placing Amy Beth in the petitioners' home for adoption. The agency considered the amount charged adoptive parents, such as the payment by petitioners herein, to be a "fee for professional services rendered" and not a contribution, as it was considered prior to 1966. The receipt given to the petitioners in August 1966 upon payment of the $ 875 indicates that such amount represented a fee for services and not a contribution. We think all of these factors establish that some portion, at least, of the total payment by petitioners was an adoption fee required by the agency as a prerequisite to its placing Amy Beth in their home for adoption.
The fact that the amount of the payment petitioners made was based on the seemingly unrelated and thus fortuitous factor of their ability to pay does not augur against our conclusion that at least some portion of such payment was a fee for services. Since the amount paid by adoptive parents to the particular adoption agency is determined on the basis of the adoptive father's annual income, there may well be a discrepancy between the amount paid and the value*228 of the agency's services received in return. Whenever this discrepancy is so great as to make it reasonably clear that the payment is of a dual character, we believe consideration should be given to the possible separation of that portion of the total payment that may properly be treated as a charitable contribution under section 170 and that portion that may be treated as a nondeductible adoption fee under the Archibald W. McMillan opinion. Petitioners, however, have failed to show any discrepancy between the amount paid to the agency in 1966 and the value of the services they received.
To prevail petitioners must show that the amount paid in 1966 exceeded the value of the services rendered by the adoption agency and that such excess was intended as a gift. On this record they have provided no evidence to establish the value of the services they received. Consequently, they have not shown that any portion of the payment exceeded the value of the services received in exchange therefor.
*255 Accordingly, we are constrained to hold that the petitioners have not sustained their burden of proving that they are entitled to deduct any portion of the amount paid in 1966 to the*229 adoption agency as a charitable contribution under section 170.
Decision will be entered for the respondent.
Footnotes
1. All statutory references herein are to the Internal Revenue Code of 1954 unless otherwise indicated.↩
2. SEC. 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.
(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 allowed as a deduction only if verified under regulations prescribed by the Secretary or his delegate.
* * * *
(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 or for the prevention of cruelty to children or animals;
(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and↩