Constitutional Law

9th Circuit Could OK Big Religious Education Tax Break

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Judges on a 9th Circuit panel hearing a New York couple’s appeal of an adverse Internal Revenue Service tax ruling this week reportedly appeared sympathetic to the couple’s claim that the federal agency isn’t treating members of all religious groups fairly concerning charitable deductions for educational expenses.

That could potentially mean a significant tax break for those claiming deductions for religious education, reports the New York Sun.

The appellants in the San Francisco-based 9th U.S. Circuit Court of Appeals case, Michael and Marla Sklar, are Orthodox Jews. They took deductions for some of the private religious school tuition they paid for their children, and for after-school classes in Jewish law. Although the IRS eventually disallowed these deductions by the Sklars, starting in 1994, the agency meanwhile reportedly has allowed members of the Church of Scientology, under a 1993 settlement agreement, to take substantial deductions for “religious training and services.”

Although the Scientology settlement agreement is confidential, it was reported by the Wall Street Journal in 1997. The Sklars have been seeking to discover the document, and the 9th Circuit appeared sympathetic this week to their argument that the way the IRS treats educational expenses for members of other religious groups is relevant to their case, the Sun reports.

The IRS contends that the settlement agreement is a private matter, and says that it involves religious training rather than the kind of religious education for children that is at issue in the Sklars’ case. However, their counsel argues the IRS position represents unconstitutional favoritism of one religious group over another, in violation of the establishment clause.

Asked by Judge Kim Wardlaw at a Monday hearing in Pasadena to confirm that the IRS believes it can violate the establishment clause in this manner, without judicial review, Ellen Delsole, the Justice Department lawyer representing the IRS replied, “That is not at all what I said,” the Sun reports.

But Wardlaw and another panelist, Judge Harry Pregerson, both replied “That’s the bottom line.” Added Wardlaw: “This does intrude into the Establishment Clause.”

This case is the second time the Sklars have contested the IRS position, according to the National Law Journal. The first time around, concerning their 1994 tax return, they lost. Now, however, they are trying again concerning their 1995 return.

Even if the IRS did discriminate by allowing the Scientology training deductions, that doesn’t necessarily mean that the Sklars will get to take similar education deductions. “Then the proper course of action is a lawsuit to [put a] stop to that policy,” explains a concurring judge in the 9th Circuit’s 2002 written opinion (PDF) on the Sklars’ earlier appeal.

Additional coverage:

New York Times: ” Scientologists’ Tax Break Cited in Suit Against IRS”

New York Sun: “Scientologist Tax Trial to Open Today”

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