Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division - No. IP 69 C 495 William E. Steckler, Judge.
Fairchild, Chief Judge, Swygert and Tone, Circuit Judges.
The government appeals from a judgment of the District Court holding that a taxpayer was entitled to charitable deductions on his federal income tax returns under section 170 of the Internal Revenue Code (26 U.S.C. § 170) for payments made to a retirement home in connection with placing his mother in the home for her lifetime. We reverse that judgment.
Plaintiff Herbert L. Sedam, whom we shall call the taxpayer (his wife is a party only because she signed the returns), sought in 1963 to have his mother admitted to the Methodist Home for the Aged, a non-profit charitable corporation, in Franklin, Indiana. Since its constitution and by-laws required applicants who were financially able to pay for their care for the rest of their lives to do so, the home followed the practice of conducting an investigation of the financial status of both the applicant and the applicant's children. When the investigation revealed the financial ability to make a payment, the applicant would not be admitted unless he or his family made the prescribed payment. During the period 1963 through 1966, between 80 and 85 percent of the 200 or more people at the home had made admission payments.
At the time the taxpayer's mother was admitted to the home, the amount of the payment was determined in accordance with a plan, called the founder's gift plan, which was related to the home's construction of an addition and other improvements in 1963. A brochure describing the plan, addressed to prospective applicants, states as follows:
"There is only one way in which these additional facilities can be provided and that is by the first occupants paying for the construction of the units in which they will live.
"Here's how the Founder's Gift plan works:
"Choose the type of unit in which you wish to live.
"Choose the location of the unit you wish.
"Make the required deposit, so that construction may be started and completed at an early date.
"Pay the balance within one year."
The person who was superintendent of the home at the times pertinent here testified, "I think it was very clear that if they wanted to come into the home and were able to make a contribution, we -- they had to do it."
In addition to the admission payment, applicants were required to pay for their care while in the home. The brochure ...