                     T.C. Summary Opinion 2010-53


                       UNITED STATES TAX COURT



         JEFFREY N. AND PATRICIA A. WILKES, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4038-08S.               Filed April 22, 2010.



     Jeffrey N. and Patricia A. Wilkes, pro se.

     David A. Conrad, for respondent.



     PARIS, Judge:    This case was heard pursuant to section 74631

of the Internal Revenue Code in effect when the petition was

filed.   Pursuant to section 7463(b), the decision to be entered

is not reviewable by any other court, and this opinion shall not

be treated as precedent for any other case.



     1
      Section references are to the Internal Revenue Code of
1986, as amended, and all Rule references are to the Tax Court
Rules of Practice and Procedure, unless otherwise indicated.
                                -2-

     Respondent determined a deficiency of $6,087 in petitioners’

2005 Federal income tax.   This deficiency resulted from

respondent’s disallowing $25,983 of petitioners’ claimed

charitable contribution deduction under section 170.      The parties

filed a stipulation of settled issues in which respondent

conceded some of petitioners’ contributions.    After these

concessions2 the issues for decision are:   (1) Whether

petitioners’ claimed contributions of $3,450 given to needy

individuals were deductible charitable contributions under

section 170; (2) whether petitioners’ claimed contributions

totaling $6,000 to Norman Saayman (Mr. Saayman) for missionary

work in South Africa on behalf of the Church of Jesus Christ were

deductible charitable contributions under section 170; (3)

whether petitioners’ claimed contributions totaling $12,500 to Ed

Smith (Mr. Smith) and Bob Small (Mr. Small) for missionary work

performed with local churches in Flint, Michigan, and Raleigh,

North Carolina, respectively, were deductible charitable

contributions under section 170; and (4) whether respondent’s

disallowance of part of the charitable contribution deduction

violates petitioners’ First Amendment rights.




     2
      Following the concessions the amount of contested
contributions is $21,950.
                                -3-

                            Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioners resided in

Colorado at the time they filed the petition.

     Petitioners are members of the Church of Jesus Christ.    The

Church of Jesus Christ has no hierarchical structure, clergy, or

formal leadership.   Followers of the Church of Jesus Christ

believe that Jesus Christ is the only leader of the faith and

that members should independently interpret his teachings as

expressed in the New Testament without the presence of a temporal

leadership between them and Christ.   Members worship together and

form local churches in their communities.   These local churches

are autonomous entities that rely on the contributions and labor

of their local members to support their religious activities.

The religious doctrine of the Church of Jesus Christ prohibits

the local churches from accepting contributions directly from any

individuals who are not local members.   Petitioners were local

church members of the Westside Church of Jesus Christ in Golden,

Colorado.

      In 2005 petitioners made contributions directly to several

individuals known as Needy Saints and claimed these amounts as

part of the charitable contribution deduction on their 2005 tax

return.   These Needy Saints are private individuals who sought
                                 -4-

financial assistance from petitioners’ local church.     Church

elders would review requests for assistance from private

individuals, both members and nonmembers of the local church, and

would classify those individuals as Needy Saints if the elders

felt the requests demonstrated a need consistent with the

principles of the Church of Jesus Christ.    Petitioners claimed

the following charitable contributions on their 2005 tax return:

          Needy Saint                  Contribution Amount
      Linda Gregory                         $1,850
      Howard Thompson                          100
      Jennifer Clayton                         150
      Corelta Hollister                      1,000
      Jeanne Batt                              200
      Ryan Watson                               50
      Jesse Walker                             100

Petitioners’ total contributions to Needy Saints were $3,450.

     Petitioners gave the contributions directly to the Needy

Saints.   Linda Gregory used petitioners’ contributions to provide

transportation and other necessities to other needy individuals.

Ms. Gregory used her contributions consistent with the teachings

of the Church of Jesus Christ.   The other Needy Saints generally

used the contributions to support their daily lives.

     Additionally, in 2005 petitioners gave contributions of

$6,000, $6,500, and $6,000 directly to Mr. Smith, Mr. Small, and

Mr. Saayman, respectively.   Petitioners claimed these
                                 -5-

contributions as deductible charitable contributions on their

2005 tax return.   Mr. Smith, Mr. Small, and Mr. Saayman (the

Missionaries) were missionaries and evangelists for the Church of

Jesus Christ.   In 2005 the three men worked to establish and

develop new local churches.    Mr. Smith developed a local church

in Flint, Michigan.   Mr. Small developed a local church in

Raleigh, North Carolina.   Mr. Saayman developed a local church in

South Africa.   The Missionaries determined how best to use those

funds towards the development of their respective local churches.

The Missionaries used these funds to support the recruitment of

new members, to purchase and provide religious education

materials, and to provide for the basic financial support of the

Missionaries.   Each of the Missionaries provided reports to both

his local church and petitioners.      These reports detailed the use

of their contributions for their missionary work.

     Respondent issued a notice of deficiency on November 27,

2007, denying the deduction of the $21,950 in charitable

contributions described above.

                              Discussion

     Section 170 allows taxpayers who itemize their deductions to

claim a deduction for any charitable gift or contribution made in

compliance with the statute.    Deductions are a matter of

legislative grace, and petitioners bear the burden of proving

their entitlement to their claimed deductions.     See Rule 142(a);
                                  -6-

Welch v. Helvering, 290 U.S. 111, 115 (1933).     Petitioners claim

a deduction for two kinds of transactions.     The first kind is

contributions given directly to individuals, whom petitioners

call Needy Saints, for the financial support of those

individuals.    The second kind consists of contributions to

missionaries for their financial support while promoting

petitioners’ religious faith.     Additionally, petitioners argue

that respondent’s disallowance of part of their deduction

violates their First Amendment rights.

I. Contributions to Needy Saints

     Petitioners’ contributions to Needy Saints are not

charitable contributions deductible under section 170.       Section

170, in relevant part, allows taxpayers to deduct “a contribution

or gift to or for the use of * * * a corporation, trust, or

community chest, fund, or foundation * * * created or organized

in the United States * * * organized and operated exclusively for

religious [or] charitable * * * purposes * * * no part of the net

earning of which inures to the benefit of any private * * *

individual”.    Sec. 170(c)(2).   Moneys given directly to

individuals for their personal benefit are deemed private gifts

and are not deductible charitable contributions under section 170

because they are not given to or for the use of a charitable

organization.   See, e.g., Thomason v. Commissioner, 2 T.C. 441,

443 (1943); Dohrmann v. Commissioner, 18 B.T.A. 66 (1929).
                                -7-

Petitioners’ contributions to Needy Saints were given directly to

the needy individuals for their personal use.    Although the

recipients were morally obligated to use the funds in accordance

with religious teachings, no organization or entity besides the

individuals was the beneficiary of the gift.    Therefore,

petitioners are not entitled to a $3,450 charitable contribution

deduction for contributions given to the Needy Saints.

II. Contributions to Missionaries

     Petitioners also claim a deduction for donations to three

missionaries of the Church of Jesus Christ.    To sustain these

deductions petitioners must prove the existence of a donee that

(1) is created or organized in the United States; and (2) is

organized and operated exclusively for religious purposes; (3) no

part of the net earnings of which inures to the benefit of any

individual; and (4) which is not disqualified for tax exemption

under section 501(c)(3).   Sec. 170(c)(2).   Petitioners must then

prove that the disputed contributions were given either (1) “for

the use of” or (2) “to” the specified organization.    See sec.

170(c).   Petitioners argued that either the Church of Jesus

Christ as a practicing religion qualified as a valid donee for

section 170 or the individual local churches were valid donees.

For the reasons discussed below, this Court finds that the Church

of Jesus Christ cannot be a valid donee, but the individual local

churches may.
                                 -8-

     First, this Court must identify a qualified donee who stood

in receipt of petitioners’ contributions.    Petitioners

incorrectly argue that the Church of Jesus Christ constitutes a

qualified donee for the receipt of charitable contributions.

Section 170 requires that the donee be “organized” both in or

under the laws of the United States and for a specific allowable

purpose.    Petitioners do not provide any evidence that the

followers of the Church of Jesus Christ are organized as an

entity.    Additionally, petitioners explicitly state that their

beliefs forbid the creation of a hierarchical organization

outside the local church.    The mere presence of religious faith

does not create an organized entity.    Therefore, the Church of

Jesus Christ is not a valid donee for charitable contributions

under section 170.

     However, even without an organization the local churches

affiliated with the followers of the Church of Jesus Christ do

qualify as donees under section 170.    Respondent allowed

petitioners’ deductions for contributions to the Westside Church

of Golden, Colorado, and thus confirmed the validity of the local

church in Golden, Colorado, as a valid donee within the meaning

of section 170(c).    Additionally, the record demonstrates and

respondent does not deny that the local churches in Flint,

Michigan, and Raleigh, North Carolina, are organized in the

United States and organized and operated exclusively for
                                 -9-

religious purposes.    Because respondent does not distinguish

these organizations from the Westside Church, the Court sees no

reason to question their qualification as proper donees under

section 170(c).

     However, petitioners failed to demonstrate that the local

church in South Africa, at which Mr. Saayman was a missionary,

was organized either in the United States or under the laws of

the United States.    Sec. 170(c)(2)(A).    Therefore, contributions

made to or for the use of the local church in South Africa are

not deductible.

     Having determined that the local churches in Flint,

Michigan, and Raleigh, North Carolina, are qualified donees

within the meaning of section 170(c), this Court must now

determine whether the contributions given to Mr. Smith or Mr.

Small were made “for the use of” or “to” either of those

qualified donees.

     Petitioners’ contributions to the missionaries are not made

“for the use of” any qualified donee.      The Supreme Court has

defined the section 170 phrase “for the use of” to mean that the

contribution must be “held in a legally enforceable trust for the

qualified organization or in a similar legal arrangement.”         Davis

v. United States, 495 U.S. 472, 485 (1990).      Such legal

arrangements must provide the donee a legally enforceable right

against the recipient that ensures the donated funds are used on
                                 -10-

behalf of the donee.     Id. at 483.    Petitioners’ funds were given

directly to Mr. Smith and Mr. Small for the purpose of supporting

the missionary and evangelical work performed at the local

churches.   Petitioners made no effort to establish a legally

enforceable trust, nor did they succeed in creating a similar

legal arrangement.     Petitioners argue that Mr. Smith and Mr.

Small were obligated under the tenets of their religious faith to

use the funds for the benefit of the local churches.      However, a

moral obligation is not a legally enforceable right.

Additionally, petitioners claim that their donation created

contractual obligations by Mr. Smith and Mr. Small to use the

funds as directed.     However, petitioners failed to demonstrate

that oral contracts between themselves and Mr. Smith and Mr.

Small could create a legally enforceable right in the local

churches to secure access to the funds.      Therefore, petitioners’

contributions were not given “for the use of” a qualified donee.

     Although the contributions were not given “for the use of” a

qualified donee, the contributions could be deductible if

petitioners gave the contributions “to” a qualified donee.

Contributions “to” an organization under section 170 can include

contributions given to an agent of the organization.3      See, e.g.,

     3
      Davis v. United States, 495 U.S. 472, 488-489 (1990),
acknowledges the existence of the agency exception and declines
to address the exception because the taxpayers did not raise the
issue before the Court of Appeals. See also Leavitt, “When Is a
                                                   (continued...)
                                    -11-

Skripak v. Commissioner, 84 T.C. 285, 318 (1985); Guest v.

Commissioner, 77 T.C. 9, 16 (1981); Rev. Rul. 57-487, 1957-2 C.B.

157.       Agency is a fiduciary relationship that arises when an

agent acts on behalf of and under the control of a principal.          1

Restatement, Agency 3d, sec. 1.01 (2006).        Additionally, both the

principal and the agent must manifest consent to the

relationship.       Id.   The analysis of agency has two substantive

components:       (1) The relationship between the principal and the

agent and (2) the interaction of the agent with third parties on

the principal’s behalf.        Id. cmt. c.

       First, Mr. Smith and Mr. Small had appropriately established

an agency relationship with their respective local churches in

Flint, Michigan, and Raleigh, North Carolina.        Religious doctrine

forbids the local churches from accepting funds directly from

nonmembers.       Thus the local churches designated Mr. Smith and Mr.

Small as their agents to solicit, collect, and disburse funds on

their behalf.       Additionally, the local churches gave Mr. Smith

and Mr. Small authority to represent the local churches in

interactions with the general public in order to facilitate

recruitment of additional members.         Through the granting of this

authority the local churches manifested their assents to Mr.


       3
      (...continued)
Gift to the Minister Not a Gift to the Church?--The Impact of
Davis v. United States on Charitable Giving”, 66 Tul. L. Rev. 245
(1991).
                               -12-

Smith’s and Mr. Small’s service as agents.    Additionally, the

local churches required Mr. Smith and Mr. Small to provide

regular financial reports to their respective local churches.     To

ensure Mr. Smith and Mr. Small complied with the teaching of the

Church of Jesus Christ, the elders of the local churches

monitored the distributions of funds and Mr. Smith’s and Mr.

Small’s interactions with the public.    If at any time Mr. Smith

or Mr. Small had acted contrary to the wishes of the local

churches, the local churches held the authority to terminate the

relationship and dismiss either of them as an agent.    Therefore,

Mr. Smith and Mr. Small established a proper agency relationship

with their respective local churches.

     Second, Mr. Smith and Mr. Small interacted with petitioners

and other third parties on behalf of their local churches.    They

provided religious instruction to both members and nonmembers of

the local churches.   They used this instruction of nonmembers as

an opportunity to recruit new members to the local churches.

They also purchased radio and newspaper advertisements on behalf

of their local churches.   Mr. Smith and Mr. Small solicited and

received funds from nonmembers (including petitioners) for their

local churches.   They used these funds to purchase religious

instructional materials and advertisements and to provide for

their own modest living expenses.     See Morey v. Riddell, 205 F.

Supp. 918, 921 (S.D. Cal. 1962) (holding that the donations given
                               -13-

to four ministers who were agents of the religious organization

were valid contributions even though a portion of the funds was

used to cover the ministers’ living expenses).     All of these

interactions with third parties were performed under the

authority of the agency relationship between the men and their

local churches.

     Finally, because Mr. Smith and Mr. Small were agents of

their respective local churches (qualified donees) and

petitioners’ contributions were given to them in this capacity,

petitioners’ contributions were given “to” a qualified donee

within the requirements of section 170.     Therefore, petitioners

are entitled to deduct under section 170 the $6,000 contribution

to Mr. Smith and the $6,500 contribution to Mr. Small claimed on

their 2005 tax return.

III. Constitutional Claims

     Petitioners claim that respondent’s denial of part of their

charitable contribution deduction is an infringement of their

constitutional rights.   Petitioners’ religious beliefs do not

allow for the existence of a manmade hierarchical structure that

governs their religious practice.     They believe that all

followers of the Church of Jesus Christ worship directly under

the guidance of Jesus Christ and that the creation of any

intermediary organization is against their religious teachings.

They argue that this belief causes respondent to treat them
                                 -14-

differently from other religious organizations in the United

States with respect to the application of charitable

contributions.     Petitioners conclude that this discriminatory

effect provides grounds to assert a violation of their rights

under the First Amendment to the Constitution.

      The Supreme Court has held that section 170 does not

violate the First Amendment to the Constitution and provided the

framework for future questions on this issue.      Hernandez v.

Commissioner, 490 U.S. 680 (1989).      First, the Supreme Court

states that section 170 does not violate the Establishment

Clause.    Id. at 695.   Section 170 makes no distinctions among

different religious entities.     Id.   The primary effect of section

170 “is neither to advance nor inhibit religion.”      Id. at 696.

Even if the statute creates a disparate burden on certain

religious organizations, “a statute primarily having a secular

effect does not violate the Establishment Clause merely because

it ‘happens to coincide or harmonize with the tenets of some or

all religions.’”     Id. (quoting McGowan v. Maryland, 366 U.S. 420,

442 (1961)).   Additionally, section 170 “threatens no excessive

entanglement between church and state.”      Id. at 696.

     Second, the Court sets forth the test for a free exercise

inquiry.   The test is whether “government has placed a

substantial burden on the observation of a central religious

belief or practice, and, if so, whether a compelling governmental
                                 -15-

interest justifies the burden.”    Id. at 699.   In Hernandez, the

taxpayer was neither prevented from practicing his religion nor

forced to violate any of his religious beliefs.    The only

identifiable burden in the case entailed the loss of funds from

the denied deduction that the taxpayer could use to finance

additional religious services.    Id.   This burden was “no

different from that imposed by any public tax or fee” and was

insufficient to meet the substantial burden requirement.       Id.

Additionally, the Government had an interest in maintaining a

uniform tax system without myriad exceptions for each religious

faith.   This interest was sufficiently compelling to overcome any

identifiable burden that the taxpayer raised.     Id.

     Petitioners have failed to distinguish their case from

Hernandez.    They provide no justifiable reason to conclude

section 170 now violates the Establishment Clause.      Additionally,

petitioners acknowledge that the Government has not prevented

them from performing acts of charity or from practicing their

religion.    They bear only the burden of a denied deduction.

Petitioners acknowledge their religious beliefs do not prevent

them from complying with the tax law.    Mr. Wilkes stated that

documenting compliance with the tax law is one of his

responsibilities for the Westside Church.    Petitioners could have

structured their contributions to needy individuals and foreign

missionaries through the Westside Church to achieve compliance
                              -16-

with section 170 in various ways.    Neither the burden of

complying with the tax law nor the burden of increased taxes due

to denied deductions rises to the level of a substantial burden

necessary to invoke a violation of the Free Exercise Clause of

the First Amendment to the Constitution.

Conclusion

     Petitioners’ donations to needy individuals are private

gifts and are not deductible as charitable contributions.    Also,

petitioners’ contributions to Mr. Saayman for missionary work in

South Africa are not deductible as charitable contributions

because petitioners directed the contributions to an organization

formed outside the United States.    However, petitioners’

contributions to Mr. Smith and Mr. Small are deductible as

charitable contributions because petitioners gave the

contributions to authorized agents of a charitable organization

and met the requirements of section 170.

     To reflect the foregoing and the concessions of the parties,


                                           Decision will be entered

                                      under Rule 155.
