The U.S. Supreme Court handed down a unanimous decision May 21 that ruled that money given directly to missionaries is not a deductible donation under federal tax law. The court, however, did say that such contributions could qualify as deductions if held in "a legally enforceable trust."
Ruling against an LDS couple from Idaho who were denied tax deductions for supporting the missionary service of their two sons, the justices resolved conflicting federal appeals court rulings that allowed such deductions in six states and banned them in nine. The court disallowed the couple, Harold and Enid Davis of Idaho Falls, from claiming nearly $10,000 they paid to support their sons.Church spokesman Don LeFevre said legal counsel is studying the ruling before officials will recommend an appropriate method by which future contributions should be made. (See separate story at right.) He said more than 40,000 missionaries are serving throughout the world as representatives of the Church, the bulk of whom are supported through individual contributions.
Writing for the court, Justice Sandra Day O'Connor said that under federal tax law, "a taxpayer may claim a deduction for a charitable contribution only if the contribution is made to or for the use of a qualified organization."
At issue in the case of Davis vs. United States was the meaning of the phrase "for the use of." The petitioners had contended that the money they gave to their sons during their missions was "for the use of" the Church.
The court ruled in favor of the government, holding that the payments were not "for the use of" the Church, because the Church lacked sufficient possession and control of the missionaries' funds.
"Although there is no suggestion whatsoever in this case that the transferred funds were used for an improper purpose," wrote Justice O'Connor, "it is clear that petitioners' interpretation would create an opportunity for tax evasion that others might be eager to exploit."
Though the Davises lost their individual case, "they have performed a great service for the entire Church," noted Rex Lee, president of BYU. Lee, a former U.S. solicitor general, assisted in preparing the case and argued it before the Supreme Court.
"It is true the Davises did not win, but in the process, they have helped the Church and the parents of some 28,000 U.S.-citizen misionaries," Lee said. "While the Court held that the particular arrangements under which the Davises made their contributions rendered them nondedeductible, it is quite clear to me that the Court's opinion contains criteria which, if met, will result in the deductibility of Mormon missionary contributions."
Attorney Gene Schaerr of the Washington D.C. offices of Sidley and Austin, who represented the couple, said the ruling will merely necessitate formal documents authorizing missionaries as trustees of the Church, so that financial contributions for their support will qualify as being used specifically for the Church.
O'Connor wrote that such contributions could qualify as deductions if held in "a legally enforceable trust for the qualified organization or in a similar legal arrangement."
Schaerr said, "The court's decision, in my view, is really a victory for the Church, because the court's decision makes clear that direct missionary contributions are deductible as long as there is some legal document indicating that the missionary is a trustee of the Church."
The attorney noted that when he served a mission to Montreal some 10 years ago, he was counseled that the money donated to support him was sacred and should be used in accordance with the Church's instructions.
"So, really all the Church has to do is memorialize that long-standing understanding in some document that the missionary signs. That means that the Church can continue to operate its missionary program in the way it has for so many years."