Ninth Circuit Court Rejects Arguments That Children’s Religious School Tuition Should Be Tax Deductible

Couple had cited tax break given to Scientologists

(Media-Newswire.com) – WASHINGTON – The U.S. Court of Appeals for the Ninth Circuit today rejected taxpayers Michael and Marla Sklars’ argument that they were entitled to claim deductions for tuition and fees paid to their children’s Orthodox Jewish day schools, the Justice Department announced.

The Sklars sought charitable deductions under section 170 of the Internal Revenue Code 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 sections 170( f )( 8 ) and 6115 of the Internal Revenue Code, as enacted in 1993, 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 of the United States Constitution, 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 Internal Revenue Service ( 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.”

“We are pleased that the IRS’s denial of the Sklars’ claimed deductions was upheld by the Tax Court and the Ninth Circuit,” said Nathan J. Hochman, Assistant Attorney General of the Justice Department’s Tax Division. “While taxpayers may choose to enroll their children in religious schools, the Tax Code should not subsidize this choice.”

Assistant Attorney General Hochman thanked Tax Division attorneys Ellen DelSole and Kenneth Greene, who handled the case on appeal, as well as IRS Chief Counsel attorneys Henry Scheiderman and Keith Aqui who assisted them. He also thanked IRS Chief Counsel attorneys Louis Jack, Sherri Wilder and Julie Vandersluis, who handled the case in the U.S. Tax Court. More information about the Justice Department’s Tax Division is available at www.usdoj.gov/tax/. (http://www.usdoj.gov/tax)

A School Case To Watch — involving the secret IRS-Scientology deal

Oh, ye of little faith — and here we are speaking of those who doubt that some day a solution will be found to the problem of school choice — we say behold what is happening among the judges who ride the 9th circuit of the United States Court of Appeals.

There, our Josh Gerstein reports from the Coast, three judges are hearing a case that could force the Internal Revenue Service to explain why it has secretly allowed members of the Church of Scientology to take a tax deduction for religious education.

Scientology and the IRS

The Scientology cult can call itself a ‘religion’ because the US tax service says it is one.

The case was brought by a Jewish couple, Michael and Marla Sklar, who had taken deductions for part of the costs of the tuition for the education of their children for afterschool classes in Judaism. They are seeking to view an agreement the Internal Revenue Service reached with the Church of Scientology in 1993 as part of a settlement in a long-running dispute. The church, Mr. Gerstein reports, paid $12.5 million, while the IRS, as Mr. Gerstein characterizes it in his story on page one, “agreed to drop arguments that Scientology was not a bona fide religion.” And the IRS agreed to allow Scientologists to deduct at least 80% of fees paid for “religious training and services.”

A memo memorializing the agreement, which was secret, was later published by the Wall Street Journal, igniting a tumult. The Sklars, Mr. Gerstein reports, took similar deductions for religious education on their returns for the early 1990s, without challenge by the IRS, until 1994, when the IRS began rejecting their deductions. One of the questions being battled over in federal court now is whether the IRS has to disclose its secret agreement with the Scientologists and whether it sets a precedent in respect of others who wish to deduct tuition and other payments for religious education.

It’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.”

At one point, the IRS lawyer actually warned the court that the tax collector would have difficulty resolving tax disputes if the IRS were forced to disclose its secret agreement with the Scientologists. “Every person who can find out about it from any other religious group is going to come in and want the same thing and that would really tie the IRS’s hands,” she said. She went on to argue that the idea that the IRS can’t settle and keep the settlement confidential could lead to members of racial minorities trying to claim that taxpayers of other races got better deals. This prompted the lawyer for the Sklars to ask: “If the IRS were saying white people were entitled to a certain deduction and black people were not, why would it be such a parade of horrors for the courts to come in and say the government may not act that way?”

* * *

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.

• Original title: A School Case To Watch