One Family Goes To Tax Court To Fight For Tax Breaks For Religious Education
Date: March 31, 2004
by Joe Berkofsky
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 United States 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 notes that the IRS allows followers of the Church of Scientology to write off the cost of religious instruction, which many say violates the First Amendment establishment clause banning government support of a religion.
"We must force" the IRS "to treat everybody equally," Sklar says. "To let the government do this for one religion is the worst possible scenario imaginable."
Whether or not he succeeds, 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.
"If the Sklars win and everybody is entitled to a tuition tax deduction, the implications are significant because it makes Jewish education much less costly since you are paying with before-tax dollars," says Marc Stern, assistant national executive director and general counsel of the American Jewish Congress.
The U.S. Supreme Court planted the seeds of this conflict in a 1989 case, Hernandez v. 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.
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.
Sure enough, the IRS audited Sklar. He challenged the move and wound up in tax court.
But 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.
This time, the fervently Orthodox group Agudath Israel of America filed a friend-of-the-court brief on Sklar's behalf. Washington lawyer Jeffrey Zuckerman, of the firm Curtis, Mallet-Prevost, Colt & Mosle, agreed to defend Sklar free of charge.
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.
Yet Silverman also indicated that he thought the solution was to deny such deductions to all religious groups.
Now, Stern says, "the question is: What remedy is appropriate?"
Typically, courts tend toward narrow deductions in tax battles, he says, and the tax court this fall could reverse a decade's worth of Scientology deductions.
To do the contrary "would open floodgates of amended tax returns," Stern says.
Yet Stern suggests the Supreme Court set a different precedent in Muller v. 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 says.
Nevertheless, AJCongress likely would oppose such a measure, believing such tax deductions amount to "a tax subsidy of religious schools," he says. "We would have to balance both the demand for equal treatment of all faiths with our opposition to government funding, directly or indirectly, of religious education."
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 adds.
But David Zweibel, executive vice-president for governmental and public affairs for Agudah, says 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.
Furthermore, legislators also could revise the tax code to benefit lower-income families who want to send their children to religious schools, he adds.
Yet Zweibel also warns 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 asks. "If the notion is that participation in churches and synagogues is not deductible, it would create mass uproar."
Ultimately, Zweibel expects the case to "percolate" through various state courts as separate challenges to the tax code surface, either forcing a judicial consensus at the appellate level or a Supreme Court ruling.
Right now "it's a Talmudic exercise," he says, noting that Sklar's argument invokes a non-Jewish group that originally cited Jews as a benchmark. Still, "the benefits of this will be much more tangible than spiritual."
Agudah is keeping a close watch on the case and likely will file another brief supporting Sklar should he return to the appellate courts, Zweibel says.
Also keeping close tabs is the United Synagogue, the congregational arm of the Conservative movement, which represents some 70 of the 200 Jewish day schools in North America.
Until now, the Conservative movement has opposed government aid for private school through such mechanisms as tuition vouchers because they violate the constitutional separation of church and state, spokeswoman Sarrae Crane says. The movement has yet to take a position on tax credits or this particular case.
Sklar's battle could trigger an even wider conflict. His attorney, Zuckerman, says one issue the 9th Circuit never tackled was Sklar's request to deduct the costs of his son's extra-curricular Mishnah Torah classes as well.
Should the court agree, it could open the door for many Jews whose children attend supplementary Hebrew and Sunday schools to claim such education as a write-off.