Mysterious Ways

Forbes Magazine / September 4, 2000
By Brigid McMenamin

What makes tuition paid for classes in one religion more deductible than tuition for classes in another?

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.

No dice. In April U.S. Tax Court Special Trial Judge Larry L. Nameroff ruled that Sklar hadn't shown he was in the same position as members of the Church of Scientology. He was denied all his religious-education deductions, including the $75 he paid for a special after-school class in the Talmud. Sklar is appealing.

Former IRS commissioner Sheldon S. Cohen doesn't give him much chance, in part because his kids went to a school that mixed religious and secular education. But the case does point out a glaring inequity that has existed since 1993, when the IRScut a controversial deal with the Church of Scientology, a 46-year-old Los Angeles-based religion that claims 3 million U.S. members, including actor John Travolta and composer Isaac Hayes. The agreement made the group tax-exempt and allowed its members to deduct fees not just for auditing, but also for such religious courses as "Success Through Communication" and "The Anatomy of the Human Mind."

Note that in 1989 the Supreme Court had upheld the IRS'refusal to allow deductions for auditing and Scientology classes. In that decision the Court even noted that if these deductions were allowed, it could open the door for taxpayers to claim deductions for parochial school. Big dollars are at stake, since Americans pay an estimated $11 billion a year for parochial schools and religious education.