[Note #2: A friend points out that I left some information out of this post that is helpful in understanding what I'm talking about. That information is in Part 1, but it's been a long time since I posted Part 1, so I'm adding some clarifying details in bold. Thanks, SG.]
Pop quiz: when you think “Mormons” and “US Supreme Court,” what do you think? (The correct answer is, of course, Reynolds.[fn1])
For many of us, though, another less-known case impacts our lives, at least while we’re missionaries or while we’re supporting missionaries, nearly as much: Davis v. United States.
Brother and Sister Davis had at least two sons, Benjamin and Cecil. In 1979, Cecil was called to the New York Mission, while in 1980, Cecil was called to the New Zealand-Cook Island Mission. In 1981, the Davis paid $4,135 for Benjamin’s mission and $1,518 for Cecil’s.[fn2] And when they filed their tax return, Brother and Sister Davis took a deduction for the $ 5,653 that they donated toward their sons’ missions. Just like today.
Except that, in addition to paying for the actual costs of a mission, parents and others who supported missionaries gave the money directly to the missionaries: in the case of the Davises, they transferred the money into their sons’ checking accounts.
So wait: they took a deduction for money they paid to their sons? Seriously? But a parent can’t deduct the value of, for example, Christmas presents they give to their children, or piano lessons, or clothes or food or virtually anything else they give their kids. So how did the Davises have the gall to deduct money they gave their sons?!?
Easily, actually.[fn3] The tax law permits a person to deduct contributions or gifts made “to or for the use of” certain charities, including churches.[fn4] The Davises argued that the transfers to their missionary sons were for the use of the Church—that is, their sons were acting to benefit the Church, and so money used to support them was for the Church.
And the argument is far from frivolous. Davis was actually just one of three cases, each in a different Court of Appeals, dealing with this question. While the Court of Appeals in Davis found that the payments were not deductible, two other Courts of Appeals came to the opposite conclusion, holding that payments to missionary sons were “for the benefit of” the Church and, thus, were deductible.
The Supreme Court conceded that both parties had viable arguments, and looked at the events leading up to the 1921 enactment of the law. It held that the “for the benefit of” language was intended originally to allow deductions made to auxiliary charitable organizations, such as trusts. Payments to missionary children were beyond the intended scope and, as such, parents could no longer deduct them.
And when did the Supreme Court decide Davis? May 1990. In November 1990, the Church sent out a letter in detailing a change to how missionaries would pay for their missions. Rather than directly financing their missions, missionaries and their families and friends would, going forward, pay a standardized amount of money (initially $350 for missionaries from the U.S. and C$400 for those from Canada) to the Church. The Church would then disperse that money to missionaries as needed.[fn5]
It’s worth noting that, as a result of paying the money to the Church, rather than to the missionary, that money clearly fits within the realm of deductibility. You don’t need to rely on “for the use of” when you’re actually paying money “to” a charity.
Did the Davis decision singlehandedly change the financing of missions? I don’t know. I don’t have any inside information, and I have no doubt that the Church was considering the inequities of having different costs (that were unknowable prior to the mission) for different missionaries. But it wouldn’t shock me if, at the very least, Davis affected the timing of the Church’s change in mission financing.
[fn1] Also acceptable forms of the answer: the polygamy case, the case with the guy with the great beard, and I don’t think of “Mormons” and “US Supreme Court,” at least not in the same sentence.
[fn2] Remember, prior to 1991, a missionary was responsible for the actual costs he or she incurred as a missionary.
[fn3] Note that I’m going to police this thread pretty tightly: I will delete, with no warnings, any comments that accuse the Davises or the Church of deceitful behavior for deducting payments made to missionaries. As I make clear, until this decision, the deductibility of such payments was a perfectly good reading of the Internal Revenue Code.
[fn4] I.R.C. section 170(c), if you’re interested.
[fn5] Remember, prior to the 1990 change, the cost of a mission varied from $150 to $750, and you couldn’t know how much you would need to pay until you knew where you were serving your mission.