Court rules tuition for religious schools not tax deductible
By MARGIE MASON Associated Press Writer
Tuesday, Jan. 29, 2002
http://www.sacbee.com/state_wire/story/1546234p-1622647c.html SAN FRANCISCO (AP) - A couple cannot use their Jewish school tuition payments as a tax write-off similar to deductions members of the Church of Scientology receive from the Internal Revenue Service, a federal appeals court ruled Tuesday.

The three-member panel of the 9th U.S. Circuit Court of Appeals upheld a federal tax court's ruling that Michael and Marla Sklar of Los Angeles are not eligible to deduct 55 percent of the tuition they paid for their four children to attend two Jewish schools.

In 1993, the couple filed an amendment to their 1991 tax return seeking the deduction based on the amount of secular and religious instruction their children received. They argued 55 percent of their children's time at school was spent on religious study and should therefore be tax deductible.

The couple based their argument on tax deduction allowances made by the IRS for members of the Church of Scientology.

They also argued that part of the tuition should be considered a "charitable contribution" because they received "solely intangible religious benefits," according to the opinion.

Details of the Church of Scientology's tax deduction were not discussed in the opinion because they were not made available to the court. After a long tax dispute with the Church of Scientology, the IRS apparently compromised in 1993 by allowing the church a deduction for "auditing,"

"training" and other qualified religious services, the opinion said.

The IRS said it could not release the specifics of the agreement at the risk of disclosing confidential returns and return information.

In the opinion, Judge Stephen Reinhardt wrote that the Scientology case does not enhance the Sklars' appeal because "religious education for elementary or secondary school children does not appear to be similar to the 'auditing' and 'training' conducted by the Church of Scientology."

"While we have no doubt that certain taxpayers who belong to religions other than the Church of Scientology would be similarly situated to such members, we think it unlikely that the Sklars are," Reinhardt wrote.

Michael Sklar, a certified public accountant, said he views the issue as separation of church and state gone awry.

"It's very disheartening," Sklar said Tuesday. "It really sweeps under the rug the subsidizing of one religion to the exclusion of others."

The Church of Scientology headquarters in Los Angeles did not immediately return calls seeking comment.

Judge Barry G. Silverman wrote a concurring opinion stating that the Scientology argument should not even be addressed by the appeals court in this case.

"The sole issue before us is whether the Sklars' claimed deduction is valid, not whether members of the Church of Scientology have become the IRS' chosen people," Silverman wrote. "The Sklars receive something in return for their tuition payments - the education of their children. Thus, they are not entitled to a charitable deduction."
From: "Bat Child (Sue M.)" <batchild1@cox.net>
Subject: LA Times, 1/30/2002: Couple denied bid for tax refund for tuition, cited IRS break for Scientology
Organization: Knights of Xemu
Message-ID: <t36j5uo8uungi4ikdts7r723eifj527grq@4ax.com>
Date: Thu, 31 Jan 2002 19:19:37 GMT
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http://www.latimes.com/news/nationworld/politics/scotus/la-000007564jan30.story?coll=la%2Dnews%2Dpolitics%2Dsupreme%5Fcourt ==================== THE STATE Couple Lose Bid for Tax Refund Tied to Tuition Courts: They had claimed that part of their payments to Jewish day schools constituted charitable contributions and cited an IRS break given to Church of Scientology members.
By HENRY WEINSTEIN, TIMES LEGAL AFFAIRS WRITER
A federal appeals court Tuesday unanimously denied the claim of a North Hollywood couple that they were entitled to a partial tax refund for tuition payments they made to two Orthodox Jewish day schools.

The couple had contended that 55% of the tuition payments--the portion of the school day devoted to religious education--represented charitable contributions to a tax-exempt religious organization.

Michael and Marla Sklar also maintained that they were entitled to the refund because the Internal Revenue Service since 1993 has permitted members of the Church of Scientology to obtain deductions for "auditing," the process Scientology adherents use for spiritual self-examination. In essence, three judges of the U.S. 9th Circuit Court of Appeals ruled that two wrongs don't make a right, upholding a ruling of a U.S. Tax Court judge denying the refund.

The judges said the Sklars were not entitled to a refund under either IRS regulations or applicable Supreme Court precedents.

The leading precedent, the judges said, is a 1989 high court decision holding that payments Scientologists made for "auditing" did not constitute charitable contributions.

That decision, Hernandez vs. Commissioner, was based on a section of the Internal Revenue Code that states that quid pro quo donations, for which a taxpayer receives something in return--such as education--are not deductible. The Hernandez decision held that the section applies to religious quid pro donations.

In Tuesday's decision, the appellate court criticized the IRS for refusing to disclose the terms of a 1993 settlement with the Church of Scientology. That agreement, among other things, permits Scientologists to get deductions in conflict with the 1989 Supreme Court decision, according to the 9th Circuit.

In support of their claim, the Sklars presented a 1997 Wall Street Journal article that provided details of the settlement. The 9th Circuit said that since the IRS failed to present any contradictory evidence on the nature of the settlement, the court was obliged to accept the Sklar's representations.

The settlement ended years of litigation that began in 1967 when the agency said the church should lose its tax-exempt status because it was, in reality, a for-profit enterprise that enriched its officials.

Although it was not directly at issue in the case, the 9th Circuit panel said that "it appears to be true that the IRS" had given Scientology a "preference in the interest of settling a long and litigious tax dispute."

In his majority opinion, Judge Stephen Reinhardt suggested that the preference represented unconstitutional favoritism toward a religious organization. Judges Harry Pregerson and Barry G. Silverman joined in the ruling.

In a separate concurring opinion, Silverman made an allusion to the Passover Holiday when he asked:

"Why is Scientology training different from all other religious training? We should decline the invitation to answer that question.

The sole issue before us is whether the Sklars' claimed deduction is valid, not whether members of the Church of Scientology have become the IRS's chosen people."

In a highly unusual move, Silverman invited people who are troubled by the IRS settlement with Scientology to file a lawsuit to unravel the deal.

"If the IRS does, in fact, give preferential treatment to members of the Church of Scientology--allowing them a special right to claim deductions that are contrary to law and disallowed to everybody else--then the proper course of action is a lawsuit to put a stop to that policy.

"The remedy is not to require the IRS to let others claim the improper deduction, too," Silverman wrote.

Jesse Choper, a constitutional law professor at UC Berkeley's Boalt Hall School of Law, said Tuesday's ruling appeared to be correct, based on the Internal Revenue Code and the prior cases interpreting it.

Choper also said that he believed taxpayers would have standing to bring a suit challenging the IRS settlement with Scientology under a 1968 Supreme Court decision, Flast vs. Cohen.

In that case, the high court upheld a taxpayer's standing to challenge federal subsidies to parochial schools as violating the 1st Amendment's prohibition against government establishment of religion.

Michael Sklar said he was disappointed that the decision "didn't address the serious inequities on the part of the government--basically subsidizing one religion to the exclusion of all others."

He added: "The problem with Judge Silverman's remedy is there is no way to undo the past. Scientology already has gotten the benefit."

Sklar's attorney Jeffrey I. Zuckerman said he was considering asking for a rehearing before a larger panel of 9th Circuit judges or asking the U.S. Supreme Court to review the decision.

No one was available at the IRS for immediate comment.

If you want other stories on this topic, search the Archives at latimes.com/archives. For information about reprinting this article, go to www.lats.com/rights.

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