In 2008 the debtors had earned gross income of $6,800.00 and social security income of $22,036. For 2008 debtors made 25 contributions to WLCC which totaled $3,478.00. For 2009 debtors earned gross income was $7,487.00 and social security income of $23,164.00 and made 7 donations totaling $1,280.00. The Religious Liberty and Charitable Donation Protection Act of 1997 (“RLCDPA”) provides a defense to against the trustee’s avoidance power which is contained is 11 U.S.C. Section 548(a)(2).
The RLCDPA provides: (2) A transfer of a charitable contribution to a qualified religious or charitable entity or organization shall not be considered to be a transfer covered under paragraph (1)(B) in any case in which – (A) the amount of that contribution does not exceed 15 percent of the gross annual income of the debtor for the year in which the transfer of the contribution is made. In this case the court had to decide whether social security payments are included in gross income, whether the 15% was applicable to individual transfers or the total amount of transfers, and whether if the total transfers exceeded 15% of the income was the entire amount avoidable or just the amount that exceeded 15%.
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Based upon the fact that social security income was not included in the means test as income and considering the Internal Revenue Code’s comments, the court decided that social security income could not be include in looking at the 15% cap. The court also ruled that only the amounts over the 15% cap could be avoided and that the 15% cap applied to the aggregate amount and not to individual transfers. As to the latter point, the court reasoned that to rule otherwise would mean debtors could make numerous transfers which totaled more that 15% of their gross income and that this would be contrary to the intention of the RLCDPA.
Therefore, the court ruled in this case that the McGoughs were entitled to donate to their church 15% of their gross income for 2008 and 2009, not including their social security income. In a nutshell this case simply says that you are entitled to make charitable contributions of up to 15% of your gross annual income, but you can not include your social security income in calculating the 15%.