payments of tuition to schools.25
A third opinion from the Supreme Court on this point held that funds transferred by parents to their children while the children served as full-time, unpaid missionaries of a church were not deductible as charitable contributions to or for the use of the church.26 This opinion turned on whether the funds transferred to the children's accounts were deductible as contributions for the use of the church. In deciding this issue, the Court looked to the legislative history of this term and concluded that this phraseology was intended by Congress to convey a meaning similar to the words “in trust for,” so that in selecting the phrase for the use of, Congress was referring to donations made in trust or in a similar legal arrangement.27 The Court added that although this interpretation “does not require that the qualified organization take actual possession of the contribution, it nevertheless reflects that the beneficiary must have significant legal rights with respect to the disposition of donated funds.”28
The Court thus rejected the claim that a charitable deduction should be allowed when the charitable organization merely has “a reasonable ability to supervise the use of contributed funds.”29 It observed that the IRS “would face virtually insurmountable administrative difficulties in verifying that any particular expenditure benefited a qualified donee” if a looser interpretation of the phrase were utilized.30 The larger interpretation would, wrote the Court, “create an opportunity for tax evasion that others might be eager to exploit,” although the Court was quick to note that “there is no suggestion whatsoever in this case that the transferred funds were used for an improper purpose.”31
The Court also found that the funds were not transferred “in trust for” the church. The money was transferred to the children's personal bank accounts on which they were the sole authorized signatories. No trust or “similar legal arrangement” was created. The children lacked any legal obligation to use the money in accordance with church guidelines, nor did the church have any legal entitlement to the money or a cause of action against missionaries who used their parents' money for purposes not approved by the church. Thus, the charitable deductions were denied.32
Notwithstanding these three Supreme Court opinions, however, the donative intent doctrine, as noted, has its adherents. For example, a court denied an estate tax charitable deduction to an estate because a trust, funded by the estate, from which the gifts were made was modified solely to preserve the estate tax charitable deduction.33
In that case, the decedent created a trust that was funded with interests in real property. This trust had charitable remainder beneficiaries, but the trust did not qualify for the estate tax charitable contribution deduction34 because it was a defective (for tax purposes) split-interest trust. Following the donor's death, a successor trust was established, with equivalent funding of the income interest beneficiaries outside the trust. The second trust became a wholly charitable trust, and the estate claimed a charitable deduction for the amounts that were paid to the charitable beneficiaries. This process did not constitute a qualifying reformation.35 The IRS disallowed the charitable deduction claimed by the estate, and the Tax Court upheld the disallowance. The court found that the trust “was an attempt to qualify the charitable bequests for the [estate tax charitable] deduction.”36 The court added that “[t]here is no evidence indicating a nontax reason” for the second trust,37 and disallowed the deduction because the trust “was modified for reasons independent of tax considerations.”38 The court added that if it ruled to the contrary, it would be rendering the reformation procedure superfluous, because the trust could be retroactively amended.
In another donative-intent case, a husband and wife granted to a charitable conservancy organization a scenic easement over 167 acres of their 407 acres of property; they claimed a $206,900 charitable contribution deduction for the gift.39 On audit, the IRS disallowed the deduction, claiming, in part, that the donors lacked the requisite donative intent. The alleged absence of donative intent was based on the assertion that the donors made the gift of the scenic easement for the sole purpose of maintaining their property's value and to receive a tax deduction. The government made much of the fact that the donee conservancy group “recited the estimated tax advantages of a scenic easement conveyance” and that the donors sought reconveyance of the easement once the charitable deduction was disallowed.40
The matter went to court, where it was found that the requisite donative intent was present at the time the scenic easement was conveyed. The court said that the federal tax law “permits deductions for bona fide gifts notwithstanding the motivations of a taxpayer.”41 The court wrote, “In order to be entitled to a tax deduction, the taxpayer must not expect a substantial benefit as a quid pro quo for the contribution.”42 “However,” the court continued, the “charitable nature of a contribution is not vitiated by receipt of a benefit incidental to the greater public benefit.”43 While generally agreeing with the IRS's construction of the facts, the court found that the donors' decision to contribute the easement “would invariably encourage other neighboring landowners to impose similar development restrictions on their property.”44 The court also found that the donors believed that the imposition of a conservation easement on their property would diminish the value of the property. Thus, the court, in rejecting the IRS's allegations, ruled that any benefit that inured to the donors from the conveyance “was merely incidental to an important, public spirited, charitable purpose.”45
The U.S. Tax Court seems to have abjured the donative-intent test. In a recent holding, the court preserved most of donors' charitable contribution deduction for noncash gifts, in the process rejecting the government's argument that the deduction should be denied in full on the ground that the donors lacked the requisite donative intent.46 The court stated that, in assessing whether a transaction constitutes a “quid pro quo exchange,” “we give most weight to the external features of the transaction, avoiding imprecise inquiries into taxpayers' subjective motivations.”47
There are at least three court opinions holding that when a donor retains sole signatory power over a contribution, the donor is not entitled to a charitable contribution deduction because the gift has not been completed.48
Nonetheless, despite all of the foregoing, one federal court
