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Court To Decide Whether Scientology Payments May be Tax-Deductible

April 18, 1988

WASHINGTON (AP) _ The Supreme Court today agreed to decide whether payments, called ″fixed donations,″ made to the Church of Scientology by its members may be claimed as federal income tax deductions.

The court’s decision, expected sometime next year, will resolve conflicting rulings by federal appeals courts.

The case will be decided by a seven-member court. Justices William J. Brennan and Anthony M. Kennedy disqualified themselves today for unexplained reasons.

The Internal Revenue Service says a payment made by Church of Scientology members for ″auditing″ and training sessions is not a charitable contribution that can be counted as a tax deduction.

Scientologists say the IRS has singled out their church for unfair treatment and is interfering with their religious freedom.

Federal law allows taxpayers to reduce their tax liability by declaring various deductions, including money or things of value given to charities or religious organizations. But such a payment is not tax deductible if something of value is received in return.

A practice within the Church of Scientology is a process known as auditing, in which members are expected to reach a higher level of spiritual awareness. Auditing is administered in a one-to-one session in which the church member’s skin responses to questions are measured by an electronic device.

The church also engages in training sessions, in which members study the doctrines and practices of Scientology.

The church charges a ″fixed donation″ for training and auditing, and almost never waives the payment requirement.

The U.S. Tax Court ruled in a 1984 test case that the fixed donations required by the church are not tax-deductible contributions but instead are non-deductible payments made for services.

The tax court said the payments ″were not voluntary transfers without consideration but were made with the expectation of receiving a commensurate benefit in return.″

The individual Scientologists involved in the tax court decision were Katherine Jean Graham of Honolulu, Richard M. Hermann of Los Angeles and David F. Maynard of Rialto, Calif.

Three federal appeals courts, in challenges by those Scientologists and others to the tax court ruling, upheld the tax court. But one - the 8th U.S. Circuit Court of Appeals - ruled for the Scientologists.

″Participation in strictly religious practices is not a recognizable return benefit (under federal tax law),″ the St. Louis-based 8th Circuit court said.

It added: ″Regardless of the timing of the payment or the details of the church’s method of soliciting contributions from its members, an amount remitted to a qualified church with no return other than participation in strictly spiritual and doctrinal religious practices is a contribution within the meaning of (the tax code).″

In contrast, the Boston-based 1st U.S. Circuit Court of Appeals ruled that the payments by Scientologists are not tax-deductible.

″We find no indication that Congress intended to distinguish the religious benefits sought (by a Scientologist trying to claim his payments to the church as tax deductions) from ... other benefits that could likewise provide the quid for the quo of a non-deductible payment to a charitable organization,″ the 1st Circuit court said.

The justices chose the 1st Circuit court, involving Scientology member Robert L. Hernandez, to study the issue. Court documents did not indicate where Hernandez resides but he is represented by New Haven, Conn., lawyer Michael J. Graetz.

The case is Hernandez vs. Commissioner of Internal Revenue, 87-963.