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Metropolitan News-Enterprise, Monday, December 15, 2008 Page 1

Religious School Fees Not Deductible, Ninth Circuit Rules


Tuition and fees for religious day schools are not deductible for federal income tax purposes, the Ninth U.S. Circuit Court of Appeals ruled Friday.

The court, for the second time, rejected claims by local residents Michael and Marla Sklar that they received only intangible religious benefits as result of their five children’s attendance in Orthodox Jewish schools, so their school payments should be deductible, at least in part, as charitable donations.

The Sklars have been seeking to deduct their payments, going back to the early 1990s, since learning of a settlement between the Internal Revenue Service and members of the Church of Scientology that allows Scientologists to deduct a portion of their payments to the church for auditing and training.

The IRS allowed the deductions sought by the Sklars for 1991 through 1993, apparently because it believed the couple were Scientologists. But when the IRS and the Tax Court said the Sklars’ school payments for 1994 were not deductible, they appealed to the Ninth Circuit, which ruled against them in Sklar v. Comm’r (2002) 282 F.3d 610.

The panel said it was doubtful that their deduction claim was constitutionally permitted, that it was “unlikely” that religious education for children could be considered equivalent to Scientology auditing and training, and that the deduction was not permitted in any event because there was no evidence that the payments the Sklars made exceeded the value of their children’s secular education—the schools offered both secular and religious classes—so none of the money could be considered a religious gift.

The court agreed with the Sklars that the Scientology settlement violated the Establishment Clause, but said the remedy would not be to make similar payments to other faiths’ institutions deductible.

Friday’s decision dealt with the Sklars’ disallowed $15,000 deduction for 1995 tuition and fees. The Sklars claimed the deduction based on their estimate that 55 percent of the tuition payments were for purely religious education, but the IRS, the Tax Court, and the Ninth Circuit all ruled against them.

Judge Kim M. Wardlaw, writing for the Ninth Circuit, rejected the argument that the school payments have the “dual character” of a purchase and a contribution and should thus be partially deductible.

She cited a U.S. Supreme Court decision requiring that a taxpayer claiming such a deduction “at a minimum demonstrate that he purposely contributed money or property in excess of the value of any benefit he received in return.” Wardlaw agreed with the Tax Court that the tuition charged by the two schools attended by the Sklar children were within the range charged by other private schools and was “not excessive for the substantial benefit they received in exchange, i.e. an education for their children.”

The judge went on to conclude, as the court did in Sklar I, that the Scientology settlement has no bearing on the Sklars’ claims because the Sklars are not similarly situated to Scientologists. The principle that a taxpayer is not entitled to “an unconstitutional denominational preference” just because the IRS gave one to members of another faith, Wardlaw wrote, is “as correct today as [it was] six years ago.”

Wardlaw was joined in her opinion by Judge Harry Pregerson and District Judge Ronald B. Leighton of the Western District of Washington, sitting by designation.

The case is Sklar v. Commissioner of Internal Revenue, 06-72961.

Copyright 2008, Metropolitan News Company

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Scientology’s Money Trail

by L. Christopher Smith December 2008 Issue

Celebrities! Tax shelters! Bart Simpson! A glimpse into the finances of the secretive church.

South Park has ridiculed it, protesters have attacked it, and Germany has tried to outlaw it. Yet the Church of Scientology still operates in 160 countries, with an extremely complex economic model that makes it hard for opponents to go after its finances. Ever since the 1980s, when it faced a potentially lethal class-action lawsuit and intense scrutiny from the U.S. government, the group has reportedly spread its revenues—and its liability—among a vast array of independent trusts, corporations, and nonprofits. All are reportedly tightly controlled by David Miscavige, a second-generation Scientologist who has run the church since the 1986 death of its founder, science-fiction author L. Ron Hubbard. Tax filings from the early 1990s show that the church was earning about $300 million a year back then, but the paper trail disappears after that. The church won tax-exempt status in 1993 and is not required to file annual returns with the I.R.S., so it’s extremely difficult to tell just how much Scientology takes in during a given year. (Groups that don’t have direct ties to the church’s executive branch, or “Mother Church,” as it’s known, often act as separate legal entities and file taxes individually.) We asked a number of sources—ex-Scientologists familiar with the church’s finances—to help us arrive at an estimate of its annual revenue.


According to a former Scientologist, a single 2007 event in the U.K. helped pay for dozens of new buildings and fueled a two-week pledge drive that netted nearly $50 million. The biggest recent U.S. gift was reportedly a $7.5 million donation from Nancy Cartwright, who does the voice of Bart Simpson. Other major donors include Tom Cruise, who’s given an estimated $25 million over the years, Kirstie Alley, and Jenna Elfman.

Estimated revenue: $50 million to $100 million

Membership Fees

Scientology boasts hundreds of organizations, centers, and missions around the world, which charge fees to members. (Followers also pay to be “cleared” of their problems via counseling sessions known as auditing, which average $500 an hour.) In something akin to a franchise model, the centers send 12.5 percent of such fees to Scientology’s management arm. The biggest chunk comes from the Flag Service Organization, the church’s largest center, in Clearwater, Florida.

Estimated revenue: $400 million


A web of church-related groups promotes the principles of L. Ron Hubbard. One licenses his management doctrines to small-business owners, particularly dentists and chiropractors, who pay fees in return. A portion of those licensing fees goes to a separate entity, which holds the copyrights to Hubbard’s works and which some ex-­Scientologists claim is connected to the church itself.

Estimated revenue: $50 million

Bottom Line

As long as Scientology can keep generating huge donations while fending off lawsuits, its doors will likely stay open.

Total estimated annual revenue: $500 million to $550 million

The guy who master minded the corporate structure for Hubbard,, escaped from the cult and tells how he did it HERE.