Sklar v. Commissioner
2008 U.S. App. LEXIS 25039, 549 F.3d 1252, 102 A.F.T.R.2d (RIA) 7282 (2008)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Payments made to a religious school for a combined secular and religious education are a non-deductible quid pro quo exchange for educational services, not a deductible charitable contribution under IRC § 170. An unconstitutional tax preference granted to one religious group does not entitle other religious groups to the same unlawful benefit as a remedy.
Facts:
- Michael and Marla Sklar, who are Orthodox Jews, enrolled their five children in two Orthodox Jewish day schools, Emek Hebrew Academy and Yeshiva Rav Isacsohn Torath Emeth Academy.
- The Sklars sent their children to these schools to fulfill what they sincerely believed to be a religious obligation to provide them with an Orthodox Jewish education.
- In 1995, the Sklars paid a total of $27,283 to the schools for tuition, registration, and other mandatory fees.
- The schools provided a curriculum combining secular studies that met California state requirements with religious studies, daily prayers, and adherence to Orthodox Jewish dress codes.
- The Sklars became aware of a confidential closing agreement between the Internal Revenue Service (IRS) and the Church of Scientology, which they believed allowed Scientologists to deduct payments for religious educational services.
Procedural Posture:
- On their 1995 federal income tax return, Michael and Marla Sklar claimed a $15,000 charitable deduction for a portion of the tuition paid to their children's religious schools.
- The Internal Revenue Service (IRS) disallowed the deduction and issued a notice of deficiency.
- The Sklars petitioned the U.S. Tax Court for a redetermination of the deficiency.
- The Tax Court ruled in favor of the IRS, upholding the disallowance of the deduction.
- The Sklars, as appellants, appealed the Tax Court's decision to the U.S. Court of Appeals for the Ninth Circuit, with the Commissioner of Internal Revenue as the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does Internal Revenue Code § 170 permit a tax deduction for tuition payments made to a religious school that provides both secular and religious education, on the grounds that a portion of the payment constitutes a charitable contribution for intangible religious benefits?
Opinions:
Majority - Wardlaw
No. Tuition payments made to a religious school providing a combined secular and religious education are a non-deductible quid pro quo exchange for services, not a charitable contribution. The Supreme Court's decision in Hernandez v. Commissioner established that payments made with the expectation of a substantial benefit in return, even a religious one, are not deductible gifts under § 170. The Sklars' payments fail the two-part 'dual payment' test from United States v. American Bar Endowment because they did not prove their payments exceeded the market value of the secular education received, nor did they demonstrate an intent to make a gift with any excess amount; they paid out of a sense of religious obligation. Furthermore, the 1993 amendments to the tax code concerning 'intangible religious benefits' were procedural changes to substantiation requirements, not substantive changes creating a new deduction that would overrule Hernandez. While the IRS's closing agreement with the Church of Scientology may constitute an unconstitutional denominational preference, the proper remedy is not to extend that unconstitutional preference to other religious groups, which would violate the tax code and create excessive government entanglement with religion. The Sklars are also not similarly situated to Scientologists because their payments were for a comprehensive K-12 education, unlike the exclusively religious 'auditing' and 'training' services.
Analysis:
This decision reinforces the long-standing legal principle that tuition payments are a personal expense for services rendered, not a deductible charitable gift, even when paid to a religious institution for a religiously-infused education. The court firmly closes the door on using procedural tax code amendments about 'intangible religious benefits' to create a substantive deduction that Supreme Court precedent has foreclosed. Significantly, the case establishes a crucial rule for Establishment Clause challenges: the remedy for an unconstitutional preference given to one religion is not to extend the unlawful benefit to others, but to invalidate the preference itself, thus preventing courts from compounding constitutional violations.
Unlock the full brief for Sklar v. Commissioner