I’m surprised it’s taken this long for someone to challenge or otherwise appropriate the IRS/$cieno agreement to further their own tax/religion needs.
In a perfect world, the cult would have been dismantled under RICO a long time ago but as we know they are some wily, ruthless, deliberately obtuse, and endlessly litigious fuckers for sure. Hopefully this case will cause renewed examination of the cult and its demented practices.
Here is a public copy of said agreement, corrupt and questionable bargains of confidentiality not withstanding, courtesy of the mighty mighty xenu.net:
The anecdote making the rounds at the time was that the IRS was actually set to come down on them like a ton of bricks in '93, but then a last-minute 180 at the highest echelon of the IRS made some whisper that $cieno private investigators had come up with some juicy blackmail material.
Careful what you say or the Reader will be visited by guys with Cease and Desist orders, multiple lawsuits, subpoenas for the records of all Members and Guests, lawsuits against the same, and nasty rumors about Cecil.
It may be that these people just claimedthe deduction and the IRS never got around the checking it out. Incompetance beforte malice and all that. It wouldn’t be the first time for the IRS.
No, I don’t need to “take my meds.” Ha ha. Mental illness is a hoot. You’re so lucky to be not needing meds and in on the joke. I want to be just like you one day, cliquey funny unmedicated man.
Never fear, folks, the Official Tax Lawyer of the SDMB is on the case. I’ve read the linked article, and I’ll do some research and get back with the results.
First, though, here’s some background information.
The IRS has entered into many many “secret agreements” with taxpayers. The official name of this agreement is a “closing agreement,” and the authority to enter into such agreements is given by Section 7121 of the Code (in case you’re interested). Taxpayers typically enter into closing agreements to fully and finally settle their tax liabilty for a certain year with the IRS, and neither party can ever go back and contest any tax item from that year ever again. Also, these agreements are secret just like all taxpayer’s tax returns and other personal information is secret (see Section 6103).
However, the weird thing here is that a closing agreement typically (and I thought exclusively) relates to the tax liability of the taxpayer that enters into the closing agreement. Here, though, the Sklars are saying that the closing agreement allows members of the Church of Scientology to take a charitable contribution deduction for tuition paid to Scientology schools. This deduction is not a tax item for the Church of Scientology, so I’m not sure how a closing agreement between the Church and the IRS could affect the tax deductions allowable to other people.
The reason taxpayers are generally not allowed a deduction for tuition paid to church schools is that the tuition is not a charitable contribution. A charitable contribution is defined as a payment made out of a detached and disinterested generosity for which the payor does not expect anything in return. The parents of a child in a religious school expect education in return for the payment, so it’s not a charitable contribution.
This principle allows an easy resolution to the whole matter: the IRS realized that the education a child would receive in a Scientology school is so worthless that the parents really are making a payment to a church for which they could not possibly expect anything in return. Ha! (yeah, sorry, more of a groaner than a laugher)
OK, I’ll nose around Lexis and see what else I can find. The point of this post was just so y’all know that a secret agreement with the IRS isn’t a de facto weird thing (although the fact that it could affect the tax liability of a nonparty to the agreement kinda is).
There are churches in my area that do the whole amount. The church pays the child’s tuition, you pay the church and write the whole thing off as a contribution. Maybe your church limits the amount they are willing to cover because it can be a burden for a church to pay the whole tuition and then wait to be paid back.
Any WSJ online subscribers wanna find this article?
Also, I didn’t notice before that this opinion was from the Ninth Circuit. Ask any lawyer, those folks are known to be a bit kooky at times. This very well could be one of those times.
That sounds like Tax Fraud to me. TaxGuy, what do you think? I will refrain from a long discussion of Jesus and rendering unto Ceasar, and just how hypocritical it is for so-called christians to engage in such practices.
I don’t think this arrangement would withstand rigorous review. The “step transaction doctrine” would say that what’s really going on here is a payment from the parents to the school for education even though the form of the transaction is a payment from the parents to the church then from the church to the school.
It also seems weird from a religious perspective that the church is willing to do this, what with “render unto Caesar” and all that.
OH. I get it now. Sorry for the multiple posts, but I think I finally understand what’s going on. This has nothing to do with kids in Scientology schools v. kids in Jewish or Christian schools. It’s really quite simple and not all that exciting.
OK, how Scientology works is that members pay for classes and “auditing sessions,” which I understand is kind of like psychological counseling. They may also have church services and stuff too, but the classes and auditing forms the bulk of the Scientology experience.
A while back there was a case that ruled that Scientologists could not take a charitable contribution deduction for the amounts they paid to the Church of Scientology because they received services in return (see the analysis above). Then, apparently in 1993 the Church of Scientology entered into a closing agreement that allowed Scientologists to deduct 80% of the amounts they paid to the Church (I got this from the opinion, which quoted a letter from the IRS to the Sklars). The Church apparently convinced the IRS that the auditing services and classes really accounted for only 20% of the average contribution.
So, the Sklars are arguing that since Scientologists can deduct payments they make for religious instruction (i.e., auditing and classes), the Sklars should also be able to deduct payments for religious instruction (i.e., sending their kid to a Jewish school).
So, it’s not the case that parents that send their kids to Scientology schools can deduct their tuition (they can’t) while parents that send their kids to Jewish schools cannot. The Sklars are really just trying to revive the argument that Scientology members are really paying for instruction instead of making a charitable contribution, an argument that the IRS has apparently resolved in the Church of Scientology’s favor. It’s not really the case that members of the Church of Scientology are receiving “preferential treatment” under a secret agreement with the IRS, they’re just being allowed to deduct a contribution to a Church where the contribution is arguably for religious instruction. The Sklars payment to their son’s Jewish school was 100% definitely for religious instruction (and thus nondeductible).
So, it’s not so bad after all. Just goes to show how a journalist that doesn’t really have all the facts (or the background to understand them) can screw things up sometimes.
Thanks for for that cogent analysis, Taxguy. If everything as you say (and I have no reason to assume otherwise) then I am relieved to hear it.
It sounds like the CoS argument is that the charges for auditing are only a small percentage of what they really soak their members for on an annual basis. It’s like they told the IRS, "hey, what about the other 80% of the money that we extort from these people every year? can’t you let them write that off?
In which case this is little different than the people above who are making “charitable contributions” to their church—contributions which the church then transfers to the schools they operate—in lieu of tuition. Still sounds pretty shady, and actionable, to me.