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
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
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
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