Tax Legal Services · Primary-source case analysis

American Bar Endowment: Insurance Payments Were Not Proven Charitable Contributions

By Aneeta Mishra and Timothy Chan

Published August 19, 2026 · Updated October 29, 2026

Decision: United States v. Am. Bar Endowment, 477 U.S. 105 (1986).

United States v. American Bar Endowment involved group insurance sold to members, with experience-rating dividends assigned to the organization and used for its charitable activities.

The insurance activity was a trade or business

ABE negotiated policies, solicited members, collected premiums and administered coverage. Members had to assign the insurance dividends to ABE to participate; they did not individually choose to keep or donate those dividends. The Court rejected the inference that high profits or the members’ theoretical power to change the program proved voluntary contributions. American Bar Endowment, 477 U.S. at 107–108, 111–116.

Two unrelated-business elements were conceded

The statute required a trade or business, regularly carried on, that was not substantially related to the exempt purpose. ABE conceded the last two elements. The disputed issue was whether its insurance activity was a trade or business; calling the program fundraising did not resolve that question. American Bar Endowment, 477 U.S. at 109–110, 115–116.

A charitable deduction requires value and intent proof

For the separate deduction question, the taxpayers needed to show that they purposely paid more than the value of the insurance received. ABE’s own lower cost was not the same as the market value of comparable coverage to a member. The inquiry concerned both value and intent, not simply the organization’s later use of its profit. American Bar Endowment, 477 U.S. at 116–118.

The taxpayers did not carry that burden

Three taxpayers failed to show that comparable insurance cost less. Sherwood did identify a cheaper policy for which he was eligible, but failed to show that he knew about it during the relevant years. He therefore did not establish that he intentionally paid an excess as a gift. The Court reversed and remanded with different instructions for ABE’s organizational claim and the individual claims. American Bar Endowment, 477 U.S. at 117–119.

Justice Stevens dissented. He viewed the dividend assignments as charitable fundraising rather than an ordinary insurance business. He emphasized the absence of evidence that the program harmed commercial competitors and compared it with a program that returned dividends to members and asked them to donate the money back. He also would have allowed the individual deductions when the policies were purchased or renewed. His disagreement concerned both the nature of ABE’s activity and the members’ contributions. American Bar Endowment, 477 U.S. at 119–123, 130 (Stevens, J., dissenting).

Key takeaways

• Separate the exempt mission from each revenue-producing activity.
• Measure the fair market value of goods or services received.
• Document donative intent for any asserted excess payment.
• Apply current unrelated-business and charitable-acknowledgment rules.