Hernandez v. Commissioner Internal Revenue Service (1989)
Religious Tax Deductions
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If a person pays a religious or other non-profit group for services rendered, do those payments count as a charitable contribution that can be deducted from taxes?
Background Information
The Church of Scientology offers auditing sessions to members for the purpose of increasing their spiritual awareness. It also offers training courses where members study Scientology's doctrines and may learn the qualifications necessary to conduct auditing sessions themselves. Based upon a central tenet called the "doctrine of exchange," Scientology has schedules of mandatory fixed fees for both auditing and training sessions. These fees vary according to factors such as the length of a session and level of sophistication involved. Fees are paid to the branch churches.
Members of the Church of Scientology sought to have these fees count as tax deductible charitable contributions, normally defined as gifts or contributions rather than fees. The IRS disallowed such deductions, deciding that payments for services are not the same as charitable gifts.
Court Decision
The Supreme Court agreed with the Tax Court that, in the Internal Revenue Code, the term "charitable contribution" is essentially the same as "gift," which is defined in case law as meaning "as a voluntary transfer of property by the owner to another without consideration therefor." Thus, any payment of a fee in exchange for a service cannot qualify as any sort of "gift."
It was argued that such standards, while generally reasonable, should not apply to "the return of a commensurate religious benefit, as opposed to an economic or financial benefit." The Court, however, found that there was nothing in the law that warranted making a distinction between religious benefits and other scientific, literary, educational, or medical benefits which a person might receive from other non-profit organizations.
In a dissent joned by Justice Scalia, Justice O'Connor argued that the IRS was not treating the Church of Scientology in a manner consistent with other religions.
Significance
This ruling emphasized the difference between paying a non-profit group for its services and giving that same group a free gift. Just because the services are claimed to be religious in nature does not therefore mean that payments for those services qualify as a gift.
However, this decision was made moot when the IRS made a deal with the Church of Scientology to allow payments for auditing and training sessions to be tax deductibel as charitable contributions.
Further Information
Back To: Court Decisions on Religious Liberty (main page)
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