Scientology tax break case back in court

February 11th, 2008 Posted by Peter Frouman

Last Monday afternoon in a Pasadena, California courtroom, a three-member panel (Judges Harry Pregerson, Kim M. Wardlaw and Ronald B. Leighton) of the 9th U.S. Circuit Court of Appeals heard arguments in the case of Sklar, et al v. Commissioner of Internal Revenue (Court of Appeals Docket #06-729601). A central issue in the case, which has been going on for more than a decade, is a special tax deduction that is granted only to members of the Church of Scientology according to the terms of a secret 1993 settlement agreement between the Church of Scientology and the IRS. Many people believe that it is a violation of the Establishment Clause of the First Amendment to the U.S. Constitution for a government agency like the Internal Revenue Service to give special treatment and tax benefits to the adherents of one religion while denying those benefits to members of other religions. Two of those people are former California residents Michael and Marla Sklar. In 1994, they decided to test the idea that Jews are entitled to the same tax breaks that the Internal Revenue Service grants to Scientologists.

In a September 4, 2000, story in Forbes magazine, Brigid McMenamin reported on their case:

Los Angeles accountant Michael Sklar was shelling out $24,000 a year to send his four children to Jewish day schools in 1994 when a four-line Internal Revenue Service ruling caught his eye.

The November 1993 edict declared “obsoleted” the IRS’ 1978 ruling barring members of the Church of Scientology from deducting the “fixed donations” they paid for religious education and “auditing”–a practice in which Scientology ministers ask members probing questions to identify areas in need of spiritual work.

Sklar wondered: If Scientologists can deduct their form of religious education, why can’t I deduct mine? The Orthodox Jew decided to write off 55% of his tuition bills, based on the proportion of time his children’s schools said was spent on religious courses.

The Sklars claimed the deduction on their 1994 tax return and amended their earlier returns to take the deduction. In correspondence included with their return, they stated that they believed that their Orthodox Jewish family was entitled to the same tax breaks granted to Scientologist families. The IRS apparently misunderstood their claim and informed them that, to take the religious education deduction, they would need to submit documentation proving they were members of the Church of Scientology. When they replied that they were Orthodox Jews and not Scientologists, the IRS denied their deduction. Thus began a legal battle that would continue for many years. Eventually, the Sklars were fortunate enough to get pro bono legal counsel from Jeffrey Zuckerman of Curtis, Mallet-Prevost, Colt & Mosle. After a number of unfavorable rulings, including one in the 9th Circuit appeals court in 2004, the case came back to the 9th Circuit Court of Appeals in 2006 and finally came to be heard on February 4, 2008.

In a recent article, Josh Gerstein of the New York Sun reported on the hearing:

A Jewish couple’s bid to take a tax deduction they say the Internal Revenue Service reserves only for members of the Church of Scientology is getting a friendly reception from a federal appeals court, increasing the possibility of a ruling that could create a tax break for taxpayers of many religions who pay tuition to religious schools.

During arguments on the case this week, three judges who ride the 9th Circuit Court of Appeals expressed deep skepticism of the IRS’s position that the way the agency treats Scientologists is irrelevant to the deductions the Orthodox Jews, Michael and Marla Sklar, took for part of their children’s day school tuition and for after-school classes in Jewish law.

“The view of the IRS is it can unconstitutionally violate the Constitution by establishing religion, by treating one religion more favorably than other religions in terms of what is allowed as deductions, and there can never be any judicial review of that?” Judge Kim Wardlaw asked at the court session Monday in Pasadena, Calif.

“That is not at all what I said,” a Justice Department lawyer representing the IRS, Ellen Delsole, said.

“That’s the bottom line,” Judge Wardlaw and a colleague on the panel, Harry Pregerson, both replied. “This does intrude into the Establishment Clause,” Judge Wardlaw added.

Fortunately for those who weren’t able to make it to Pasadena last week, an audio recording of the entire 48-minute hearing is available.

While it is clear to me that that the IRS shouldn’t favor one religion over another by granting its members special tax breaks that are denied to everyone else, the ideal solution in this case would not be expanding the tax deduction to include adherents of all religions but rather to get rid of it entirely. I would go even further and suggest that we should completely eliminate all religious tax breaks. They are part of a perverse and antiquated system that needs to be abolished. I am a member of a Church that is perhaps the only religion in the world that is proud to pay its taxes. It is time for other religions to do the same.

Update (March 2, 2008): While the 9th Circuit has yet to issue a ruling in this case, there is an excellent interview with Jeffrey I. Zuckerman, the attorney representing the Sklars, on GlossLip radio.

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  1. May 1st, 2008 at 10:50 am

    [...] typing this post, I realized that most (if not all) of this information, and more, can be found in this post by blogger Peter Frouman. Perhaps of most interest is GlossLip radio

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