April 1, 2004
Is Religious School Tuition Deductible?
Paying taxes may be one of life's great certainties, but there's a bit more wiggle room when it comes to tax deductions.
Michael Sklar, a California accountant and Orthodox father of six, will appear in a federal Tax Court in Los Angeles in October as he pursues a long legal struggle to claim the cost of his children's religious education as a tax deduction.
Sklar noted that the Internal Revenue Service (IRS) allows followers of the Church of Scientology to write off the cost of religious instruction, which many say violates the First Amendment clause banning government support of a religion. No matter what the outcome, Sklar has raised important questions about how tax breaks for religious institutions are applied and whether constitutionally mandated church-state separation bars such tax breaks.
Sklar's crusade has potentially enormous financial implications for the families of 200,000 Jewish day school students, as well as for non-Jewish parochial and religious school students. Altogether, parents of such students spend an estimated $11 billion annually in tuition. Sklar's fight also could have implications for families that spend money on supplementary religious instruction for their children.
The U.S. Supreme Court planted the seeds of this conflict in a 1989 case, Hernandez vs. Commissioner. In that case, the Church of Scientology claimed that fees for its auditing sessions -- a kind of spiritual training that can cost thousands of dollars -- should count as tax-deductible charitable contributions, just like gifts to other religious institutions. Ironically, the church said its auditing was no different than tax-deductible High Holiday seats in synagogues, dedicated Masses or pews in churches.
But the high court rejected the plea, distinguishing between fees for tangible services and charitable contributions, which are made voluntarily for more intangible spiritual benefits, such as synagogue seats or church pews.
In 1993, Congress amended the Tax Code to reflect the Supreme Court's so-called quid-pro-quo ruling, barring tax deductions for the auditing sessions. That same year, however, the IRS began allowing Scientologists to claim auditing fees as deductions.
Sklar amended his 1991 returns, seeking an additional $315 in allowances, reasoning that he was similarly entitled to write off some of his children's religious education. In 1994, the IRS denied the claim, referring in a letter to a specific "settlement" between the agency and Scientology that never had been made public. That motivated Sklar to warn the IRS that on his 1994 tax return he was seeking $13,240 in deductions for his children's religious education, a move he knew was likely to raise red flags. Subsequently, the IRS audited Sklar. He challenged the move and wound up in Tax Court.
Sklar, who represented himself, was rebuffed. The Tax Court judge said the religious schooling of Sklar's children differed from Scientology training. Sklar challenged the decision in the 9th U.S. Circuit Court of Appeals in 2000.
In that action, an ultra-Orthodox group, Agudath Israel of America, filed a friend-of-the-court brief on Sklar's behalf. Sklar was seeking to recoup $15,000 in deductions for the 1995 tax year, which represented the religious portion of his children's day-school classes.
The three-judge panel denied Sklar's bid in 2002, but one judge, Barry Silverman, wrote, "Why is Scientology training different from all other religious training?" Silverman recommended that the debate be resolved in court litigation but indicated that he thought the solution was to deny such deductions to all religious groups.
To do the contrary, "would open floodgates of amended tax returns," said Marc Stern, assistant national executive director and general counsel of the American Jewish Congress (AJCongress).Â
Yet Stern suggested that the Supreme Court set a different precedent in Muller vs. Allen, a 1983 Minnesota case that allowed parents of public and private school students to deduct purely educational costs, such as tuition, textbooks and transportation.
"If Congress were to create genuine deductions available for all educational expenses, whether public or private, it's pretty clear that would be constitutional," Stern said.
Nevertheless, AJCongress probably would oppose such a measure, believing that such tax deductions amount to "a tax subsidy of religious schools," he said.
If the court ruled for Sklar, "that's a deduction for people who can afford to send their kids to private schools and reduces tax revenue for public education that serves the poorest," Stern added.
However, David Zweibel, executive vice president for governmental and public affairs for Agudah, said Stern is invoking a stereotype of wealthy prep school families, while in fact, the Catholics and Jews who make up the bulk of the religious school population are not wealthy. Zweibel also warned of "mass upheaval" in America should the Tax Court ban tax breaks for religious activity generally.
"If the Scientology deduction is barred, what about the seat in shul?" he asked. "If the notion is that participation in churches and synagogues is not deductible, it would create mass uproar."
Agudah is keeping a close watch on the case and may file another brief supporting Sklar, should he return to the appellate courts, Zweibel said. Â