Religious School Fees Not Deductible, Ninth Circuit Rules

Metropolitan News, Los Angeles/December 15, 2008

Tuition and fees for religious day schools are not deductible for federal income tax purposes, the Ninth U.S. Circuit Court of Appeals ruled Friday.

The court, for the second time, rejected claims by local residents Michael and Marla Sklar that they received only intangible religious benefits as result of their five children's attendance in Orthodox Jewish schools, so their school payments should be deductible, at least in part, as charitable donations.

The Sklars have been seeking to deduct their payments, going back to the early 1990s, since learning of a settlement between the Internal Revenue Service and members of the Church of Scientology that allows Scientologists to deduct a portion of their payments to the church for auditing and training.

The IRS allowed the deductions sought by the Sklars for 1991 through 1993, apparently because it believed the couple were Scientologists. But when the IRS and the Tax Court said the Sklars' school payments for 1994 were not deductible, they appealed to the Ninth Circuit, which ruled against them in Sklar v. Comm'r (2002) 282 F.3d 610.

The panel said it was doubtful that their deduction claim was constitutionally permitted, that it was "unlikely" that religious education for children could be considered equivalent to Scientology auditing and training, and that the deduction was not permitted in any event because there was no evidence that the payments the Sklars made exceeded the value of their children's secular education-the schools offered both secular and religious classes-so none of the money could be considered a religious gift.

The court agreed with the Sklars that the Scientology settlement violated the Establishment Clause, but said the remedy would not be to make similar payments to other faiths' institutions deductible.

Friday's decision dealt with the Sklars' disallowed $15,000 deduction for 1995 tuition and fees. The Sklars claimed the deduction based on their estimate that 55 percent of the tuition payments were for purely religious education, but the IRS, the Tax Court, and the Ninth Circuit all ruled against them.

Judge Kim M. Wardlaw, writing for the Ninth Circuit, rejected the argument that the school payments have the "dual character" of a purchase and a contribution and should thus be partially deductible.

She cited a U.S. Supreme Court decision requiring that a taxpayer claiming such a deduction "at a minimum demonstrate that he purposely contributed money or property in excess of the value of any benefit he received in return." Wardlaw agreed with the Tax Court that the tuition charged by the two schools attended by the Sklar children were within the range charged by other private schools and was "not excessive for the substantial benefit they received in exchange, i.e. an education for their children."

The judge went on to conclude, as the court did in Sklar I, that the Scientology settlement has no bearing on the Sklars' claims because the Sklars are not similarly situated to Scientologists. The principle that a taxpayer is not entitled to "an unconstitutional denominational preference" just because the IRS gave one to members of another faith, Wardlaw wrote, is "as correct today as [it was] six years ago."

Wardlaw was joined in her opinion by Judge Harry Pregerson and District Judge Ronald B. Leighton of the Western District of Washington, sitting by designation.

The case is Sklar v. Commissioner of Internal Revenue, 06-72961.

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