Most years (and maybe every year) I do a tax post on Tax Day. I’ve been struggling to think of one the last couple days, though: there haven’t been a whole lot of Mormon tax (or even religious tax) developments over the last several months, and those few there have been[fn2] I’ve already posted on.
So I thought that I’d do something that isn’t really timely, but is interesting. See, as I was researching for my book,[fn3] I came across a Tax Court decision that dealt with the Church of Jesus Christ. I’m pretty sure, name notwithstanding, the Church of Jesus Christ is not part of the family of Mormon churches,[fn4] but its web presence is really, really limited, so most of what I know about it comes from the court’s opinion. Even if the Church of Jesus Christ isn’t a Mormon church, though, the case itself has to engage with Supreme Court tax precedent that is the result of the Mormon church. So here goes:
The Church of Jesus Christ has no hierarchy, clergy, or even formal leadership. Members come together and form their own churches, and these churches are basically entirely autonomous. To operate, the churches rely on donations, but the Church’s doctrine proscribes accepting donations from individuals who are not local members.
The Wilkeses belonged to the Westside Church of Jesus Christ in Golden, Colorado. In 2005, they gave money to three missionaries, who were starting churches in Michigan, in North Carolina, and in South Africa. When the Wilkeses filed their 2005 tax returns, the claimed charitable deductions for the amounts they gave the missionaries.
Which is where we run into the Mormon church. I’ve blogged about the Davis case in the past, but a quick tl;dr refresher: Prior to 1990, Mormon missionaries (or, often, their families) paid the actual expenses for their missions. Some parents deducted the amounts they sent to their missionary children, and they had a colorable argument for doing so, an argument so colorable, in fact, that two of the three Courts of Appeals that ultimately heard cases on the question held that those amounts were deductible.
But the Supreme Court thought otherwise, and ruled that donations made directly to missionaries were not deductible.
Davis would appear to have foreclosed the ability of the Wilkeses to deduct their donations. The Tax Court recognized a significant difference between pre-1990 Mormon missionaries and 2005 Church of Jesus Christ missionaries, though. While the pre-1990 Mormon missionaries were performing service for the church, they had ultimate control over the money they received. Sure, they had to account to their mission presidents for it, but if they wanted to spend it on video arcades and junk food, the mission president didn’t have any real legal authority to prevent that.
In the case of the Church of Jesus Christ, though, the missionaries acted as conduits (or, better, as agents of the church). For doctrinal reasons, the churches couldn’t directly accept the Wilkeses’ donations. But if those donations first went through missionaries (who were members of the local congregation), the churches could accept the donations.
Because the transaction was, in substance, a donation to a church, the Tax Court treated it as such for tax purposes, and, rather than looking at whether the missionaries could receive deductible donations, it looked at whether the churches could. And the two U.S. churches could. For U.S. tax purposes, though, donations to foreign charities (including foreign churches) are not tax-deductible, so they could not deduct the amounts they gave to the missionary in South Africa.
And, with that, have a happy Tax Day!
[fn1] Yes, I know it’s not April 15 anymore. When April 15 falls on a weekend, Tax Day is the Monday after the weekend. Except that Monday was Patriots’ Day, a holiday in a handful of states, so Tax Day was pushed back one more day.
[fn2] (*cough*Fred Karger*cough*)
[fn3] I’ll say more about the book, tentatively titled God and the IRS: Accommodating Religious Practice in the Tax Law, later; I’m not entirely sure when it will be published, though I think it’ll be early 2018.
[fn4] (if you have any familiarity with the Church, though, I’d love to get more details on it)