L.A. couple sues IRS to win tax deduction

Associated Press/April 8, 2004
By Gillian Flaccus

Los Angeles -- A federal tax case quietly working its way toward trial could have financial implications for many families, as an Orthodox Jewish couple sues the Internal Revenue Service to try and win a deduction for their children's religious education.

In their lawsuit, Michael and Marla Sklar of Los Angeles contend the IRS erred by disallowing their tax deduction claim when the agency permits Scientologists to write off the cost of spiritual counseling and instruction on that religion's tenets.

"You have a particular sect that's being favored by the state based on religion," said Michael Sklar, an accountant. The case "will have enormous ramifications whatever the ruling is. I didn't do this for the $3,000 that's at stake."

The Sklars hope the legal action in U.S. Tax Court will clarify whether millions of Americans who send their children to private religious schools can deduct part or all of those costs. But legal experts said it could raise even more difficult questions about separation of church and state.

"If the Sklars prevail, they may have created a bigger problem than they've solved," said Steve Johnson, a law professor at the University of Nevada, Las Vegas. "What the U.S. Supreme Court has repeatedly said is that one of the things we're trying to avoid is excessive entanglement of the government in religion."

The case has gone largely unnoticed -- most parents probably don't know about it, said Ron Reynolds, executive director of the California Association of Private School Organizations in Van Nuys.

"It's not as if there's a groundswell of support around this case," said Reynolds, whose organization represents about 1,700 private schools statewide. "But the law obviously has to be applied fairly, and if there is one group that is receiving special benefits, that's something to look at."

The root of the suit is a 1993 decision by Congress that allowed taxpayers to more easily write off charitable donations that resulted in "intangible religious benefits." Examples of such contributions could include Jewish temple dues or tickets to religious events.

Under an agreement with the IRS that year, members of the Church of Scientology were allowed to deduct contributions that lead to one-on-one spiritual counseling sessions and doctrinal courses.

The practices, called "auditing" and "training," are a crucial part of Scientologists' spiritual advancement, said Linda Simmons Hight, a church spokeswoman. She said they are deductible as "intangible religious benefits" because -- counter to the Sklars' claim -- they constitute spiritual guidance rather than education.

The Sklars first sued the IRS in 1997 after the agency disallowed their deductions for tuition at their children's private Jewish day schools. The tax agency's position has been that the Sklars' tuition payouts are a payment for service, not a donation.

But Sklar, representing the couple, argued the tuition was a charitable contribution that resulted in the religious education of his children -- in his view, as much an "intangible religious benefit" as the Scientologists' counseling.

The couple lost the case. The 9th Circuit Court of Appeals later upheld the lower court's ruling.

Those courts focused on the narrow question of whether the tuition could be considered a charitable contribution. Judges found the cost of the Sklars' religious tuition didn't exceed the cost of a nonreligious private education -- thus disqualifying it as a deductible donation.

"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," wrote 9th Circuit Judge Barry D. Silverman in his concurring opinion.

"If the IRS does, in fact, give preferential treatment to members of the Church of Scientology ... then the proper course of action is a lawsuit to put a stop to that policy," he wrote.

The Sklars' current lawsuit was filed in 2001, over a 1995 tax return in which they claimed about $15,000 in religious tuition deductions. That could have saved the couple about $3,200 in actual taxes if the IRS had granted the deductions.

They say they don't want to stop deductions for Scientologists -- instead, they want to clear the way for write-offs for other religions.

Monique Yingling, attorney for the Church of Scientology International, declined comment on the case because the church is not a party in the lawsuit.

The case was scheduled to begin last month in U.S. Tax Court in Los Angeles but was delayed until October for procedural reasons.

The Sklars hope to prove their tuition exceeds the cost of a private nonreligious education by including fees for purely religious afternoon and Sunday classes that were left out of their first suit, said Jeffrey Zuckerman, their attorney.

"If we prevail, other taxpayers will certainly have the right to take advantage of the ruling to the extent that their situation is similar to the Sklars'," he said.