Paul L. Caron
Dean




Friday, February 8, 2008

9th Circuit to Permit Parents to Deduct Tuition Payments to Their Children's Religious Schools?

I previously blogged the Tax Court's decision in Sklar v. Commissioner, 125 T.C. No. 14 (12/21/05), holding that a couple's tuition and fee payments to their children's Jewish day schools are not charitable contributions because they received a substantial benefit from their payments and lacked charitable intent.

The Ninth Circuit heard oral argument in the case on Monday (the audio is available here), and today's new York Sun has a detailed article on the case and an accompanying editorial:

Judges Press IRS on Church Tax Break, by Josh Gerstein:

A Jewish couple's bid to take a tax deduction they say the IRS reserves only for members of the Church of Scientology is getting a friendly reception from a federal appeals court, increasing the possibility of a ruling that could create a tax break for taxpayers of many religions who pay tuition to religious schools.

During arguments on the case this week, three judges who ride the 9th Circuit Court of Appeals expressed deep skepticism of the IRS's position that the way the agency treats Scientologists is irrelevant to the deductions the Orthodox Jews, Michael and Marla Sklar, took for part of their children's day school tuition and for after-school classes in Jewish law.

"The view of the IRS is it can unconstitutionally violate the Constitution by establishing religion, by treating one religion more favorably than other religions in terms of what is allowed as deductions, and there can never be any judicial review of that?" Judge Kim Wardlaw asked at the court session Monday in Pasadena, Calif.

A School Case To Watch (editorial):

I's always dangerous for a newspaper to predict the outcome of a court case, but at one point, Mr. Gerstein reports, Judge Kim Wardlaw put it this way: "The view of the IRS is it can unconstitutionally violate the Constitution by establishing religion, by treating one religion more favorably than other religions in terms of what is allowed as deductions, and there can never be any judicial review of that?" A hapless lawyer for the IRS tried to argue that's not what she was saying. Snapped two judges from the bench: "That's the bottom line." Added Judge Wardlaw: "This does intrude into the Establishment Clause." ...

Our own view on school vouchers and the like is that the right place to work out a solution is in the legislatures. But one of the things the courts are made for is abuses of the state power, and it certainly is starting to look like there has been an enormous one if the Internal Revenue Service is denying Jews, or Christians, or any other religion, the right to make deductions for religious education it is permitting to another group on the grounds that it is a religion. So there is at least the possibility here that the riders of the 9th United States Circuit could simply order the IRS to grant the Sklars — and others similarly situationed — deductions for certain costs of religious education similar to what the government is secretly allowing the Scientologists. Or in other words, one could make a giant leap forward in parental choice in the education of children, all in one judicial fell swoop.

See also:

(Hat Tip:  Howard Bashman.)

https://taxprof.typepad.com/taxprof_blog/2008/02/9th-circuit-to.html

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Comments

Can't the judge hold the IRS lawyer in contempt for not providing the copy? I know that's what I would be doing...

Posted by: Fred Brown | Feb 12, 2008 7:10:39 PM

After Googling some information, I think the real focus should be on why the IRS treats Scientology more favorably than other religions in the first place.

One of the judges specifically asked for a copy of the agreement between the IRS and the Church of Scientology struck in 1992, but the IRS lawyer refused. Even today with the "Freedom of Information Act", you still cannot obtain a copy of this agreement from the IRS - the New York Times has tried many times. Rumors of blackmail of IRS officials have shrouded this deal since it was struck.

The IRS had long taken the stance that Scientology was, in fact, not a religion, but a business. In 1973, 11 Scientologists, including the wife of the church's founder, were sent to prison for breaking into IRS buildings and stealing critical documents in what was known as "Operation Snow White". The church's founder, L. Ron Hubbard, was also found to be a co-conspirator in the case and lived out the rest of his life in hiding to avoid charges.

In short, Scientology was never in good standing with the IRS. For the IRS to show such favoritism after so many past incidents seems questionable at best. I hope the questionable inner workings of this case doesn't pave the way for any more breaches of the Establishment Clause.

Posted by: Bryan | Feb 11, 2008 3:09:52 AM

Each adult scientologist pays a "fixed donation" for their auditing (counseling) and books. If they want to get into the religion they must pay these fees, but they can then deduct them from their taxes. From what I can see these fees are not charitable in intent and the scientologist receives a substantial benefit, which is what they are holding against this couple. Basically then, every single scientologist cheats on their taxes and gets away with it.

Posted by: Anonymous | Feb 11, 2008 12:24:18 AM

Here is a link to a clearinghouse of information regarding Scientology's tax break:
http://www.cs.cmu.edu/~dst/Cowen/essays/irs.html

Short story - Scientology is treated differently because it basically beat the IRS into submission. There are reports that it sent private investigators into the personal lives of many officials. In the end the agency just got sick of all the harassment and caved.

Posted by: anon (not affiliated with anonymous) | Feb 10, 2008 10:49:30 PM

Just as long as every religion is treated the same. I wasn't aware of the IRS treating Scientologists differently than Catholics, Jews, etc.

One thing I can think of to tilt me towards not allowing charitable for religious school tuition is the possibility of Islamic fundamentalist madrassas being set up in the US and getting a tax break while they teach jihad against the US.

Posted by: Brian | Feb 9, 2008 9:49:29 PM

Or, it should simply deny that the tuition expenses are "charitable contributions" to all. It's a crock of crap to even consider them as such, as they DO aqquire a substantial benefit from their payments and they lacked charitable intent.

Posted by: Robert | Feb 9, 2008 6:15:29 PM