De Jong v. Commissioner , 36 T.C. 896 ( 1961 )

Harold DeJong and Marjorie J. DeJong, Petitioners, v. Commissioner of Internal Revenue, Respondent

De Jong v. Commissioner

Docket No. 86903

United States Tax Court

36 T.C. 896; 1961 U.S. Tax Ct. LEXIS 89;

August 29, 1961, Filed

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Decision will be entered for the respondent.

A portion of an amount paid to a tax-exempt institution which operated schools held not deductible as true charitable contribution where taxpayers enrolled their two children in one of the schools and where the amount disallowed was not in excess of the cost of furnishing instruction to two children. Sec. 170, I.R.C. 1954.

William H. Dick, Esq., for the petitioners.

William T. Ivey, Esq., for the respondent.

Raum, Judge.

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RAUM

Respondent determined a deficiency in the income tax of petitioners in the amount of $ 88 for the year 1958.

The sole issue is whether the respondent erred in determining that $ 400 out of $ 1,075 paid by petitioners to the Society for Christian Instruction in 1958 was not deductible as a charitable contribution under section 170 of the Internal Revenue Code of 1954.

FINDINGS OF FACT.

Some of the facts are stipulated, and, as stipulated, they are incorporated herein by reference.

Petitioners, husband and wife, at all times herein material, resided in Ripon, California, and filed a joint income tax return for the calendar year 1958 with the district director of internal revenue at San Francisco, California, on or before the due date.

Petitioners have for many years been members of the Christian Reformed Church.

The Society for Christian Instruction, of Ripon, California (hereinafter referred to as the society), is a nonprofit corporation organized under the laws of the State of California, and is a corporation organized and operated exclusively for educational purposes which is exempt from Federal income taxes under section 501(c)(3) of the 1954 Code.

The articles of incorporation of the society provide, in part, as follows:

SECOND: That the purposes for which said corporation is organized are:

(1) To establish and carry on a seminary or school of learning where pupils and students may obtain a sound and thorough training in Christian religion and doctrines, mechanical, literary and general education of the highest order. Such training and education shall be God-centered in accordance with the basic principles of this Society. These basic principles are the doctrines revealed in the infallible Word of God as expressed in the Three Formulas of Unity as subscribed to by the Reformed Churches, to wit: The Heidelberg Catechism, The Belgic Confession and the Canons of Dort.

(2) To provide for the organization of classes of instruction and the proper conducting of the same;

(3) To arrange for the delivery and holding of lectures, discussions, conferences and such meetings as may be calculated, directly or indirectly, to advance the spiritual or mental development of those who attend;

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THIRD: That the place where said seminary or school is to be conducted is in the County of San Joaquin, State of California, in or near the City of Ripon, and the principal place of business of said corporation shall be at the same location, in or near the said City of Ripon, in the County of San Joaquin.

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SIXTH: That all persons eighteen years of age and over, who subscribe to the basic principles of this Society, as set forth in Article Second, Paragraph (1) of these Articles, may become members of this corporation. All members are obligated to contribute to the financial support of the Society to the best of their ability. Applications for membership may be submitted at any regular meeting of the Board of Trustees or of the membership of the corporation.

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NINTH: That this corporation shall exist wholly from the voluntary contributions, collections, legacies, and any other funds which may be legally collected by or donated to this corporation. That there shall not be any profit to any of the members and that in the event of dissolution, the assets of the corporation shall pass to the National Education Foundation, Grand Rapids, Michigan.

The society owned and operated a grammar school and a high school at Ripon, California, during 1958. The actual cost per grammar school student to the society during the year was not less than $ 200.

In the late summer or early fall of each year enrollment committees appointed by the board of trustees of the society meet with parents of prospective students. At these meetings the parents are given "a broad picture of what the cost will be in the operating budget for the coming year" and they are asked to contribute to the best of their ability and to try to carry as much "of the load as they feel they can." When a parent is known to be "pretty well-to-do" the suggestion is made that he contribute the full amount of the estimated cost per student for the coming year times the number of students he is enrolling. All of the parents interviewed are given an enrollment card to sign and are asked to indicate thereon the number of students they want to enroll and the amount of the contribution they intend to make toward the operation of the school or schools. With the exception of a few parents who had reservations against signing a card of this nature, signed cards were received from all parents.

Children of nonsociety member parents may be enrolled if facilities are available, and the parents sign a statement of policy in which they agree with the principles and purposes of the schools. Nonmember parents are also asked to contribute toward the operation of the school or schools.

Approximately 70 percent of the total income of the society is derived from contributions from parents of enrolled students, and the balance of the income is derived from contributions solicited and received after the enrollment meetings from supporting churches, nonstudent-parent members, and other persons interested in the schools.

All moneys received by the society are credited to the general operating fund of the society without any designation.

No student has ever been refused admission to the society's schools for failure of his parents to contribute financially to the society. However, all parents of prospective students did pledge a certain amount of money, but in some cases that amount was "very nominal."

During 1958, petitioners' two children, Robert and William DeJong, were full-time students of the grammar school operated by the society. Petitioners paid $ 1,075 in 1958 to the society and deducted this amount as a contribution on their 1958 income tax return. The respondent disallowed the deduction so claimed to the extent of $ 400.

At least $ 400 of the amount paid by petitioners to the society in 1958 was intended as payment in the nature of tuition for petitioners' children, a personal expense, and did not constitute a charitable contribution.

OPINION.

The tax-exempt status of the society has been stipulated and is not in issue. The sole question is whether respondent erred in determining that $ 400 of the amount paid by petitioners to the society during 1958 did not in fact constitute a charitable contribution within the meaning of section 170 of the Internal Revenue Code of 1954. ^{Channing v. United States, 4 F. Supp. 33">4 F. Supp. 33, 34 (D. Mass.), affirmed per curiam 67 F. 2d 986 (C.A. 1), certiorari denied 291 U.S. 686">291 U.S. 686. A gift is generally defined as a voluntary transfer of property by the owner to another without consideration therefor. If a payment proceeds primarily from the incentive of anticipated benefit to the payor beyond the satisfaction which flows from the performance of a generous act, it is not a gift. Cf. Estate of O. J. Wardwell, 35 T.C. 443">35 T.C. 443; Bogardus v. Commissioner, 302 U.S. 34">302 U.S. 34, 41;Commissioner v. Duberstein, 363 U.S. 278">363 U.S. 278.}

We are satisfied on the record before us that at least a portion of the $ 1,075 paid by petitioners to the society was in the nature of tuition fees for the education which the society was expected to furnish to petitioners' children and was not in fact a true charitable contribution. Payments pledged and made by parents in the circumstances disclosed by the evidence were not voluntary and gratuitous contributions motivated merely by the satisfaction which flows from the performance of a generous act; they were induced, at least in substantial part, by the benefits which the parents sought and anticipated from the enrollment of their children as students in the society's school. Whether such payments be labeled as "tuition" is a matter of no consequence. They were certainly in the nature of tuition, at least in substantial part.

The parties have stipulated that the actual cost per grammar school student to the society during 1958 was not less than $ 200, and petitioners enrolled their two children in the society's grammar school in 1958. They paid $ 1,075 to the society, and claimed all of it as a charitable deduction. We cannot say that the Commissioner erred in disallowing $ 400 of that amount on the ground that it did not constitute a charitable deduction. Cf. Rev. Rul. 54-580, 2 C.B. 97">1954-2 C.B. 97. The petitioners have not sustained their burden of showing error in the Commissioner's determination.

Decision will be entered for the respondent.

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Footnotes

• 1. SEC. 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.

  (a) Allowance of Deduction. --

  (1) General Rule. -- There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary or his delegate.

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  (c) Charitable Contribution Defined. -- For purposes of this section, the term "charitable contribution" means a contribution or gift to or for the use of --

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  (2) A corporation, trust, or community chest, fund, or foundation --

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  (B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals;

  (C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and↩