Paul L. Caron

Saturday, December 13, 2008

9th Circuit: Parents Cannot Deduct Payments to Their Children's Religious Schools

The Ninth Circuit yesterday affirmed the Tax Court (125 T.C. 281 (2005)) in holding that a couple's tuition and fee payments to their children's Jewish day schools do not qualify for the charitable deduction  because they received a substantial benefit from their payments and lacked charitable intent.  Sklar v. Commissioner, No. 06-72961 (9th Cir. Dec. 12, 2008).  From the DOJ press release:

The Sklars sought charitable deductions under § 170 for portions of their tuition payments made to the religious day schools their children attended, asserting that those portions of the tuition payments were for "intangible religious benefits." The Sklars made three arguments in support of their position, each of which was rejected by the Ninth Circuit.

First, the Sklars argued that their tuition and fee payments to exclusively religious schools were deductible under a "dual payment analysis" to the extent the payments exceeded the value of the secular education their children received. The Ninth Circuit rejected this argument, finding that the Sklars had not shown that the payment exceeded the fair market value of the benefit received for their payments (i.e., an education for their children), and they had not shown that any excess payment was made with the intent of making a gift.

Second, the Sklars argued that §170(f)(8) and 6115 ... authorized the deduction of tuition payments for religious education made to exclusively religious schools. In dismissing this argument, the Ninth Circuit explained that the amendments to these tax sections referring to "intangible religious benefits" did not expand the types of payments for which charitable deductions were available, but rather merely created exceptions to the substantiation requirements added in those sections.

Third, the Sklars argued that denial of their claimed deductions violated the Establishment Clause ... as well as principles of administrative consistency, because allegedly similar deductions were allowed for members of the Church of Scientology under a closing agreement with the IRS. The Ninth Circuit rejected these arguments as well, because "[t]o conclude otherwise would be tantamount to rewriting the Tax Code, disregarding Supreme Court precedent, only to reach a conclusion directly at odds with the Establishment Clause—all in the name of the Establishment Clause."

Prior TaxProf Blog coverage:

UpdateEllen P. Aprill (Loyola-L.A.) offers her thoughts on the case here.

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