The Supreme Court stated that a tax deduction "... is a matter of legislative grace and that the burden of clearly showing the right to the claimed deduction is on the taxpayer" (Interstate Transit Lines v. IRS, 1943). This famous tax statement, seemingly "held in awe" is quoted in over 1,000 court cases (Lowry, et al., p 389) and seems to create the statutory presumption of required legal proof and evidence against the taxpayer.
Numerous tax research articles seek to provide clarity when tax law creates a tax-interpretation ambiguity. Some differences of opinions have recently arose about allowed charitable contributions. These tax-deduction ambiguities, and the related efforts to provide clarity, can be found in some recent articles, such as, charitable deductions for taxpayers contributing to nonprofit organizations (Elson & Weld, 2011); how to structure charitable bequests for decedents (Hoyt, 2015); or disallowed charitable contributions given to a foreign church (No Charitable Deduction, 2010).
In the Church of Jesus Christ of Latter-day Saints, as well as many other churches and other charitable organizations, persons provide full-time service without compensation in furthering their organization's tax-exempt objectives. In that church, it is common for retired couples to be called to serve 18-month missions at locations far from their homes. The call comes from church headquarters in Salt Lake City, Utah and not from the local ward (the name used to describe their local church subdivisions within the greater church). The call usually comes in the form of a mailed packet of information with a specific call letter from the First Presidency of the Church of Jesus Christ of Latter-day Saints, as well as other informative materials. The letter informs the missionary couple of the location they are to serve, any language requirements, other preliminary preparation instructions, and the start date of their expected 18 months of service. At the end of the 18 month mission experience, the couple returns home.
Some missionaries are called to serve domestically and others in foreign countries. But the missionaries are called, directed, and controlled by the church headquarters in the United States which is an IRC Section 501(c)(3) organization. IRC Section 170(c)(2) defines "charitable contribution" as a contribution or gift "to or for the use of' an organization "created or organized in the United States ... or under the law of the United States" (Anonymous v. CIR, 2010).
So this case, couple missionaries, is distinguishable from the case of Anonymous v. C.I.R. (2010), where the taxpayer was denied a charitable deduction for air fare to fly to a foreign country to serve a Catholic Church in that foreign country since she was not controlled by a church created or organized in the United States. Her local U.S. diocese knew she was going to that foreign country to serve the foreign church, but it did not direct or control her activities they were all self-initiated by her.
The fact that the charitable work did not take place within the United States was not the important factor since the foregoing Tax Court case recognized the fact that the 5th Circuit Court of Appeals (Winn v. Commissioner, 1979) allowed a charitable deduction that ended up being used in a foreign country. The key factor in that case was the fact that the donation was made to a church organized in the United States and used by it to further its work in a foreign country.
The vast majority of missionary couples keep their homes and return to them when their missionary service is finished. When they leave on their missions, the church leaders in the their local wards release them from their local church responsibilities and fully expect them to return after their missionary service is finished to again take on local church responsibilities. Effectively, they are given a leave of absence regarding their local church responsibilities. While they are on their missions, their pictures typically hang in their local church foyers recognizing that (1) they belong to the local ward (2) their missionary call, from church headquarters, is only temporary and (3) they are expected to return to the local congregation, upon completion of their mission.
The vast majority of such missionaries retain their homes and either (1) leave them empty during their away-from-home missionary service, or (2) have a family member live in their home to take care of it during their temporary absence. In rare instances, they sell their homes before their missions with the expectation of buying replacement homes when they return from their missions. Only in very rare instances do they not actually return to their old community after their missions are ended.
In virtually all cases, at the time of any audit concerning such charitable deductions, the couple has returned home. Additionally, the couples have their call letter with specific and expressed information about their mission start and finish dates. In other words, whether or not the couple will return home is no longer an issue; returning home can be demonstrated by what actually happened at the end of their missions.
HISTORY OF THE TAX CODE REGARDING THE DEDUCTIBILITY OF AWAY FROM-HOME TRAVEL EXPENSES AS CHARITABLE CONTRIBUTIONS
The charitable contributions deduction regarding travel expenses is ruled by IRC Section 170(j) which says in part:
No deduction shall be allowed under this section for traveling expenses (including amounts expended for meals and lodging) while away from home, whether paid directly or by reimbursement, unless there is no significant element of personal pleasure, recreation, or vacation in such travel. Missionaries do not serve missions for personal pleasure, recreation, or vacation purposes. Instead, they are sent to specific locations determined by church authorities to perform specific service duties as determined by church authorities. Typically, they perform their missionary services 6 V days per week. The missing half day is called "preparation day" to allow them to do their laundry, shop for groceries, write letters to family and the local wards from which they came, etc. Although they may find personal satisfaction in serving a mission, there is not church official time set or allowed for personal recreation or vacation.
Does the fact that a missionary derives personal pleasure or satisfaction from serving a mission prohibit the charitable deduction for traveling expenses? The Tax Court in Cavalaris v. C.I.R., shed some light on the issue when it stated:
Section 170(j) prohibits a deduction for, inter alia, unreimbursed traveling expenses incurred incident to the rendition of charitable services, "unless there is no significant element of personal pleasure, recreation, or vacation in such travel." The meaning of a "significant element of personal pleasure, recreation, or vacation" is far from self-evident. An inquiry into the legislative history of this provision provides some insight. The House report states:
In determining whether travel away from home involves a significant element of personal pleasure, recreation, or vacation, the fact that a taxpayer enjoys providing services to the charitable organization will not lead to denial of the deduction. For example, a troop leader for a tax-exempt youth group who takes children belonging to the group on a camping trip may qualify for a charitable deduction with respect to his or her own travel expenses if he or she is on duty in a genuine and substantial sense throughout the trip, even if he or she enjoys the trip or enjoys supervising children. By contrast, a taxpayer who only has nominal duties relating to the performance of services for the charity, or who for significant portions of the trip is not required to render services, is not allowed any deduction for travel costs [H. Rept. 99-426, 129 (1985)].
The example makes clear that the relevant inquiry is the extent and duration of the charitable services provided by the taxpayer, and not some quantum measure of pleasure derived by the taxpayer (Cavalaris v. CIR, 1996).
Interpreting IRC Section 170, Treasury Regulation 1.170A-1(g) says in part:
No deduction is allowable under section 170 for a contribution of services. However, unreimbursed expenditures made incident to the rendition of services to an organization [,] contributions to which are deductible [,] may constitute a deductible contribution. For example ... out-of-pocket transportation expenses necessarily incurred in performing donated services are deductible. Reasonable expenditures for meals and lodging necessarily incurred while away from home in the course of performing donated services also are deductible. For the purposes of this paragraph, the phrase "while away from home" has the same meaning as that phrase is used for purposes of section 162 and the regulations thereunder. As will be discussed later, it is argued in this article that the last sentence in this Treasury Regulation quotation has effectively been partial repealed by what the Conference Committee said concerning the changes it made to IRC Section 162(a) in the Energy Policy Act of 1992 (1992). It is argued that because of what Congress did there, the tests for away-from-home expenses have diverged in the contexts of IRC Sections 162 and 170--at least regarding duration considerations.
Revenue Rulings, Interpretive Suggestions of a Tax "Fork in the Road"
In Revenue Ruling 83-82 (1983), the IRS said that under IRC Section 162 regarding trade or business expenses, in order for a taxpayer to deduct transportation, meals, and lodging expenses "while away from home" the absence from home must be "temporary" as opposed to "indefinite." Then it provided guidance on three possible time periods--(1) an absence of less than one year; (2) an absence of at least one year, but less than two years; and (3) an absence of two years or longer.
Pursuant to that Revenue...