Contents

FUNDAMENTAL CONCEPTSand then leasing it back. Subsequently, the partnership transferred the center to achurch after the center defaulted on the lease; a court ruled that the transfer tothe church did not give rise to a charitable deduction because the partners’ intentwas to generate funds to satisfy the mortgage, rather than to benefit the church. 16By contrast, a court held that donors of a 20 percent interest in a parcel of realestate to a church had the requisite donative intent, even though they agreed topurchase the property and lease it back to the church. 17 Also, donors were foundto have donative intent in connection with a contribution of a scenic easementover a portion of their residential estate, even though they pursued a reconveyanceof the easement following disallowance of a significant portion of the charitablededuction. 18Some aspects of the state of the law on this point, as reflected in anotherview of the Supreme Court, are that a “payment of money [or transfer of property]generally cannot constitute a charitable contribution if the contributorexpects a substantial benefit in return.” 19 This observation was made in the contextof an opinion concerning a charitable organization that raised funds for itsprograms by providing group life, health, accident, and disability insurance policies,underwritten by insurance companies, to its members. Because the membershad favorable mortality and morbidity rates, experience rating resulted insubstantially lower insurance costs than if the insurance were purchased individually.Because the insurance companies’ costs of providing insurance to thegroup were uniformly lower than the annual premiums paid, the companiespaid refunds of the excess (dividends) to the organization; the dividends wereused for its charitable purposes. Critical to the organization’s fundraising effortswas the fact that it required its members to assign it all dividends as a conditionof participating in the insurance program. The organization advised its insuredmembers that each member’s share of the dividends, less its administrativecosts, constituted a tax-deductible contribution.The Supreme Court, however, disagreed with that conclusion. It found thatnone of the “donors” knew that they could have purchased comparable insurancefor a lower cost; the Court thus assumed that the value of the insurance providedby the organization at least equaled the members’ premium payments.The Court concluded that these individuals failed to demonstrate that theyintentionally gave away more than they received. The Court wrote: “The sine quanon of a charitable contribution is a transfer of money or property without adequateconsideration. The taxpayer, therefore, must at a minimum demonstratethat he [or she] purposefully contributed money or property in excess of thevalue of any benefit he [or she] received in return.” 20 Thus, by comparing the cost16 Suna v. Commissioner, 56 T.C.M. (CCH) 720 (1988), aff’d, 893 F.2d 133 (6th Cir. 1990).17 Douglas v. Commissioner, 58 T.C.M. (CCH) 563 (1989).18 McLennan v. United States, 91-1 U.S.T.C. 50,230 (Ct. Cl. 1991), aff’d, 994 F.2d 839 (Fed. Cir. 1993). Anotherillustration of this donative intent element is an opinion holding that a payment incurred under duress,pursuant to an order from a city to fill a gully in a city street adjacent to the payor’s property, was not a contribution.Alman v. Commissioner, 39 T.C.M. (CCH) 527 (1979).19 United States v. American Bar Endowment, 477 U.S. 105, 116–17 (1986).20 Id. at 118. 60