other than schools, the court was of the view that “any benefits to be derived from such discounts were merely incidental to the charitable nature of the transfer and, therefore, do not destroy the claimed charitable contribution deduction.”71 The incidental effect of this giving policy was the “development and maintenance of a favorable public image for [the company] in the eyes of those [charitable] organizations and their members.”72
In another case, a company was denied a charitable contribution deduction for the transfer of land to a high school district, on the ground that the conveyance was made with the expectation that, as a consequence of the construction of public access roads through the property, it would receive substantial benefits in return.73 Indeed, that is what occurred. The court wrote that the “receipt or expected receipt of substantial benefits in return for a conveyance precludes a charitable contribution [deduction].”74 The court found that the company “knew that the construction of a school and the attendant roads on its property would substantially benefit the surrounding land, that it made the conveyance expecting its remaining property to increase in value, and that the expected receipt of these benefits at least partially prompted [the company] to make the conveyance.”75 The court concluded that “this is more than adequate reason to deny [the company] a charitable contribution for its conveyance.”76
In a similar circumstance, two property owners conveyed a parcel of real estate to a corporation, taking back a note secured by a deed of trust on the property. The next year, these individuals delivered a quitclaim deed for a one-half interest in the note and deed of trust to a school and claimed a charitable deduction for the value of the transfer. Two years later, as part of a settlement, the individuals assigned the note to a creditor. They advised the school of the situation, causing the school to quitclaim its interest in the note and trust to the creditor. The next year, these individuals made a cash payment to the school and claimed a charitable deduction for that payment. The court held that the portion of the gift of money equal to the value of the interest in the note and trust that the school quitclaimed to the creditor was not a gift and thus was not deductible; the excess was found to be a charitable gift.77 This was the outcome because, had the school not executed the quitclaim, the individuals would have been obligated to pay an additional and comparable sum of money to the creditor. “Under such circumstances,” wrote the court, “it can only be concluded that [the individuals] received a benefit of equal value when [the school] executed the quitclaim.”78
In another instance, an individual canceled certain property interests and a purchase option in a manner that favored a university. A charitable deduction was claimed for the transfer of this benefit for charitable purposes. The court, however, refused to view that transaction in isolation, or as occurring in advance of other related transactions, but instead regarded it as an integral part of a series of transactions in which the individual benefited. Indeed, the court valued the interests passing to the university at $276,500. At the same time, however, the court found that the individual received a quid pro quo from the transaction in the amount of $295,963.79
Likewise, a court held that a contribution of a house to a volunteer fire department, for firefighter and police training exercises and eventual demolition, did not give rise to a charitable contribution deduction, inasmuch as the donors received a substantial return benefit and failed to show that the fair market value of the property contributed, encumbered with restrictions and conditions,80 exceeded the value of the benefit they received.81
Several other court opinions contain applications of the quid pro quo rationale in this setting.82 This rationale is, of course, that the transferor is receiving goods, services, and/or other benefits of value comparable to the money and/or property transferred, and thus the transaction is a purchase rather than a gift.83
This rationale is followed by the Internal Revenue Service.84 An illustration of the IRS's application of these rules appears in its guidance concerning the deductibility of payments to a private school when the “donor” is a parent of a child attending the school.85 Basically, payments of tuition to a school are not deductible as charitable gifts.86 The general standard in this context is this:
Whether a transfer of money by a parent to an organization that operates a school is a voluntary transfer that is made with no expectation of obtaining a commensurate benefit depends upon whether a reasonable person, taking all the facts and circumstances of the case into account, would conclude that enrollment in the school was in no manner contingent upon making the payment, that the payment was not made pursuant to a plan (whether express or implied) to convert nondeductible tuition into charitable contributions, and that receipt of the benefit was not otherwise dependent upon the making of the payment.87
The IRS generally presumes that these payments are not charitable contributions when one or more of the following factors are present: (1) the existence of a contract under which the parent agrees to make a “contribution” and that contains provisions ensuring admission of the parent's child, (2) a plan allowing parents either to pay tuition or to make “contributions” in exchange for schooling, (3) the earmarking of a contribution for the direct benefit of a particular student, and (4) the otherwise unexplained denial of admission or of readmission to a school of children of parents who are financially able but do not contribute to the school.
Moreover, in other cases, although no single factor may be determinative, a combination of several factors may indicate that a payment is not a charitable contribution. In these cases, both “economic and noneconomic pressures placed upon parents” are taken into account.88
The factors that the IRS will ordinarily take into consideration, but will not limit itself to, are: (1) the absence of a significant tuition charge, (2) substantial or unusual pressure to contribute applied to parents of children attending a school, (3) contribution appeals made as part of the admissions or enrollment process, (4) the absence of significant potential sources of revenue for operating the school other than contributions by parents of children attending the school, and (5) other factors suggesting that a contribution policy has been created as a means of avoiding the characterization of payments as tuition.
Nonetheless, the IRS concluded: “However, if a combination of such factors is not present, payments by a parent [to a school attended by a child of the parent] will normally constitute deductible contributions, even if the actual cost of educating the child exceeds the amount of any tuition charged for the child's education.”89
A federal court of appeals upheld the IRS's disallowance of a charitable deduction for tuition payments made to a religious school where the children of the payors
