The potential gift tax implications of Clarence Thomas’s luxury trips

Following the report that Supreme Court Justice Clarence Thomas has been accepting luxury trips and hospitality from Dallas businessman Harlan Crow for decades, experts are now looking into whether Thomas violated ethics rules, the law, or both, in failing to report the gifts on required financial disclosure forms.

While Thomas maintains that these trips were the result of personal hospitality from close friends and therefore not reportable under the Ethics in Government Act, guidelines recently issued by the Committee on Financial Disclosure of the Administrative Office of the U.S. Courts suggest otherwise.

The latest version specifically provides that the “personal hospitality exception” does not apply to transportation that substitutes for commercial transportation. In other words, Thomas should report the value of any trips he receives. Thomas has stated that going forward, he intends to comply with these rules. 

The value of the many luxury trips taken by Thomas and his wife, Ginni, on Crow’s dime is estimated to be in the hundreds of thousands of dollars. A nine-day cruise the Thomases took in Indonesia in 2019 would have cost over $500,000 had Thomas paid for it himself. Annual trips to Crow’s invitation-only private resort, Camp Topridge, in an exclusive part of the Adirondacks — with 68 structures, 3 boathouses, a soda fountain and a replica of Hagrid’s cottage from Harry Potter — would have cost Thomas $2,250 a night if he and his wife had stayed at the nearby hotel built by the Rockefellers. Thomas was also the guest of Crow at the Bohemian Club, an all-male private club described by one commentator as “a fraternity party in the woods” with an initiation ceremony and a $25,000 initiation fee. 

Crow, a political megadonor, is in the unprecedented position of owning the house that Thomas’s mother allegedly lives in rent-free for the remainder of her life. The full extent of all of Crow’s largess is not fully known and may never become public unless a group of angry Democrats has their way. 

So far, most of the attention has understandably been on Justice Thomas (although news of Crow’s creepy sculpture garden certainly raises eyebrows). There’s one important question that no one is yet asking, though. 

Did Harlan Crow make taxable gifts to Thomas in the form of this luxury travel and hospitality?  

If Thomas had rented his own private jet to fly round trip from Washington, D.C., for a three-hour stay in New Haven, Conn., the home of his law school alma mater, Thomas would have incurred a bill of about $70,000. So, the question then is whether Crow made a $70,000 gift when he allowed Thomas to use the corporate jet for that three-hour trip. What if Crow were already planning to take his corporate jet to the exclusive all-male summer retreat at Bohemian Grove in California, and invited Thomas to hop a ride? Is that a taxable gift in the amount of whatever Thomas would have paid to fly, perhaps even first class, to California? It turns out that the answer is not obvious.  

The federal gift tax is mostly uninterested in the subjective intent of the donor. The gift tax is imposed on the transfer of property, and whether a gift has been made involves a simple comparison of what Crow transferred (thousands of dollars worth of travel to Clarence and Ginni Thomas) with what Crow got in return (nothing, it would seem, other than the pleasure of his guests’ company, one hopes). Arguably travel is a service, not property, and thus outside the scope of the gift tax.   

Here’s the wrinkle. Long before Clarence Thomas became a justice, the Supreme Court decided in a 1984 case called Dickman v. United States that “property” is an expansive concept. In that case, the court held that when a husband and wife made interest-free demand loans to their son, they were making “transfers of property” for federal gift tax purposes. It turns out that the right to use property, whether that property is money or even a jet, is subject to the gift tax. 

The reason that Crow’s gift tax obligations are not 100 percent clear, though, is what the Supreme Court had to say in the Dickman case about what the tax law did not reach. The court said that the IRS did not appear to be extending the gift tax to the “traditional family matters,” like when parents lend their adult children use of a car or a vacation home. When or if the moment arrived, the court said, that the government attempted to tax “such commonplace transactions as a loan of the proverbial cup of sugar to a neighbor or a loan of lunch money to a colleague,” there would be time to consider the issue.  

If one accepts at face value Thomas’s declaration that Crow is one of his dearest friends, perhaps all of these luxury trips are the equivalent of a cup of sugar or lunch money. While there’s a certain appeal to that reasoning, we think it is time to consider the issue. 

To be clear, it is not the purpose of the Internal Revenue Code to serve as a stopgap to hold justices accountable when impropriety falls between the cracks of ethics rules. However, Clarence Thomas has cast into sharp relief the need to clarify the scope of the tax laws, perhaps through Treasury regulations. 

Private jets and luxury yachts are instrumentalities of the uber-wealthy. Gifts of luxury vacations should not escape taxation because someone utters the words, “We are good friends.”  

There will be some who argue that gifts of travel, like Crow’s gifts to Thomas, should not be subject to the gift tax. Their rationale will be that the tax should only reach estate-depleting transfers, like if Crow were intentionally trying to give money away so that he couldn’t be taxed on it when he dies. Arguably, Crow is not doing that when he invites Clarence and Ginni Thomas to join him on a yacht that is already taking a friends-and-family cruise around Indonesia or on a jet that is already taking Crow to a particular destination where Thomas needs to go as well.

But lending someone a jet for a three-hour trip (at a cost of $70,000) is not a de minimis expenditure, the way lending a friend a car for three hours might be. Even if a billionaire like Crow might not feel any financial “pain” when he lends his jet, the tax system as a whole suffers a loss of integrity when these transactions are treated as commonplace simply because of the wealth of the donor. The right to use a jet should be treated the same as the right to use money: It is a gift.  

Ultimately, wealthy individuals like Crow are mostly free to do with their money as they wish. Crow, in fact, could allow his yacht and jet to sit unused as long as he desires. What Crow should not be able to do, though, is an end-run around rules that are designed to capture gifts — including gifts of the use of property — that are well beyond the realm of what the Supreme Court in Dickman called “commonplace transactions,” even adjusted for billionaires. The integrity of the tax system depends on it. 

Bridget J. Crawford is a distinguished professor at the Elisabeth Haub School of Law at Pace University. Her scholarship focuses on issues of taxation, especially wealth transfer taxation. Victoria J. Haneman is the Frank J. Kellegher Professor of Trusts & Estates at Creighton University School of Law. Her scholarship focuses on tax law and the death services industry. They are coauthors of, “Federal Taxes on Gratuitous Transfers: Law and Planning, Second Edition.”