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
Los Angeles Times
January 30, 2002
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
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
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.
Copy of IRS Secret Settlement Agreement HERE
PDF file of opinion at 9 Circuit Court of Appeals website "An IRS Closing agreement cannot overule Congress and the Supreme Court"...." If the IRS does in fact give preferential treatment to members of ...Scientology-- allowing them a special right to claim deductions that are contrary to law and rightly disallowed to everybody else -- then the proper course of action is a lawsuit to put a stop to that policy ---"
IRS Timeline summary here [ by Chris owen ]
See 1977 Grand Jury Indictment of Scientology
More documents in http://www.lermanet2.com/reference/and