scientology sklar case 2009 supremect writ s.ct.08-9180-sklar-cert_petition[1]

8/14/2019 Scientology Sklar Case 2009 SupremeCt Writ S.Ct.08-9180-Sklar-Cert_Petition[1]

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No.

IN TnnSUPREME COURT OF THE UNITED STATESMIcnRpl Sxrn eNn MeRLe SNlen.

PetitionersV.

C onnnrs sloNER op lNtpnNar. REvNUp,espondent.

Ou PnTIuoN FoR A WRIT oF CERTIoRARI To THEUNnno Srerps Corrnr oF AppEALS FoR rsp NrNru CmculrPETITION FOR A \ryRIT OF CERTIORARI

Jprrnpy Ine ZucxpRMANCounsel of RecordCuntls, MALLpT-PREVosr,Coi-r & Moslp LLP1200 NEw Hempsnmp AvnNup. N.W.Sunp 430WassrucroN, D.C.20036Qo 452-7850

A t torn ey for Pe ti ti on ersMarch L2.2009

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QUESTION PRESENTED

May the Internal Revenue Service permit practitioners of one religion-- members of the Church of Scientology -- to deduct as charitable contributionstheir payments for religious instruction, but disallow such deductions when claimedby practitioners of any other religion, such as the Jewish petitioners here?

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LIST OF PARTIES

All parties appear in the caption of the case on the cover page.

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TABLE OF CONTENTSPage

OPINIONS BELOW ...... 1JURISDICTION ............ 1CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED....................... 1STATEMENT OF THE CASE ...... 3

Historical Background............ ............ 6Petitioners' 1994 Case........ .............. 10The Present Case ..............72

REASONS FOR GRANTING THE WRIT...... ............ 16I. THE NINTH CIRCUIT ERRED IN SANCTIONING.. IN EFFECT,AUTHORIZING .. IRS' PATENTLY UNCONSTITUTIONALDISCRIMINATION IN FAVOR OF SCIENTOLOGISTS AND AGAINSTPRACTITIONERS OF ALL OTHER RELIGIONS........... ..... 16II. THE NINTH CIRCUIT I{AS DECIDED AN IMPORTANT FEDERALQUESTION IN A WAY THAT CONFLICTS WITH RELEVANTDECISIONS OF THIS COURT. ........... 24

III. IT IS VERY UNLIKELY THAT THIS COURT WILL EVER HAVEANOTHER OPPORTUNITY TO REVIETV IRS' UNCONSTITUTIONALDISCRIMINATION AGAINST NON.SCIENTOLOGISTS. ............... 26CONCLUSTON ............28INDEX TO APPENDICES

APPENDIX A: Opinion below of the United States Court of Appealsfor the Ninth Circuit, dated and filed December 12,2008,and reported as Sklar v. Commissioner, 549 F.3d L252 (?th Cir. 2008)

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TABLE OF AUTHORITIES CITEDPage

CASESAlleehenv Pittsbureh Coal Co. v. Countv Commission, 488 U.S. 336 (f g8g)........... 19Epperson v. Arkansas, 393 U.S. 97 (1968) ................" 17Everson v. Board of Education, 330 U.S. I Q94 ..... 17Folev v. Commissioner,844F.2d94 (z Cir. 1988) ... 22Gillette v. United States, 401 U.S. 437 Q97.............. ............. 17Henson v. Internal Revenue Service,2000 U.S. App. Lexis 23997 (gtt' Cir. 2000) ... 24Hernandez v. Commissioner. 490 U.S. 680 (19S9)............... ... 3,7,8,10,15,23Hillsboroueh Township v. Crowell, 326 U.S. 620 94.............. ............. 19Iowa-Des Moines National Bank v. Bennett, 284 U.S.239 (fg3f) .. 18,19,20Larson v. Valente, 456 U.S. 228 98.............. ... 77,L8McCulloch v. Marl'land., 17 U.S. (4 Wheat.) gra (r8rs) ............ 25McKesson v. Division of Alcoholic Beveraees & Tobacco, 496 U.S. 18 (fggO) .......... 20Sklar v. Commissioner, S4g F.3d 1252 (gttr Cir. 2008)....... .. 1,5,15,18,2I,23Sklar v. Commissioner , 282 F.3d 610 (gth Cir. 2002)............. 71,I2,I3,I8,2L,23,24,25Sklar v. Commissioner, T.C. Memo 2000'118 ............ 11United States v. American Bar Endowment, 477 U.S. 105 fi936) ........................... 11CONSTITUTIONAL PROVISIONS. STATUTES AND REGUI,ATIONSA.R.M. 2, C.8.1, 150 (rgrg) ........ 2lI.R.C. S 170 3,10,11,16,2r,23563 1646


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OTHER2006 Private School lJniverse Survey,National Center for Education Statistics, U.S. Department of Educaton........... 24Lawrence Zelenak, Should Courts Require the Internal Revenue Serviceto be Consistent?, 38 Tax L. Rev. 411 (1985).............. ........... 25"Scientology'sPuzzling Journey from Tax Rebel to Tax Exempt",

The New York Times, March 9,1997 ....... 9"Scientologists and IRS Settled for $12.5 Million",The Wall Street Journal, Dec. 30, 1997 ................... 9"$12.5 Million Deal with I.R.S. Lifted Cloud Over Scientologists",The New York Times, Dec. 31, 1997. ..... 9

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Petitioners respectfuliy pray that a writ of certiorari issue to review thejudgment below.

OPINIONS BELOWThe opinion of the lJnited States Court of Appeals for the Ninth Circuit is

reported. at Sklar v. Commissioner , 549 F.3d 1252 (gtt' Cir. 2008), and is attached tothis petition as Appendix A.

The Ninth Circuit affrrmed the opinion of the United States Tax Court, whichis reported at Sklar v. Commissioner, I25 T.C. 281 (ZOOS), and is attached to thispetition as Appendix B.

JURISDICTIONThe United States Court of Appeals for the Ninth Circuit rendered its

d"ecision on December 12,2008. No petition for rehearing was filed.The jurisdiction of this Court is invoked under 23 U.S.C. S 1254(1).

CO NSTITUTIO NAL AND STATUTO RY PROVIS I O NS I}TVOLVEDTup Esreel-IsHMpur Cleusp. IJ.S. Cousr. avrNo. I

Congress shall make no law respecting an establishment of religion . . . .I.R.C. $170. Cnentreel-n. ptc.. coNtnmutIoNs eNo ctFts

(a) Ar,loweNCE oF DntucttoN.-'( GpNnneL RuLE.-There shall be allowed as a deduction any charitablecontribution (as defined in subsection (c)) payment of which is made within thetaxableyear....

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(c) CuenIt-BLn CoNTRIBUTIoN DnnNpo.-For purposes of this section, the term"charitable contribution" means a contribution or gift to or for the use of--(1)."..Q) A corporation, trust,, or community chest, fund, or foundation-(A)....

(B) organized and operated exclusively for religious, charitable, scientific,literary, or educational purposes . . . .*rkk*

( DiSer,lowANCE oF DEDUCTIoN IN CBnteIN Cesps AND SPECIAL RULES.-**:krk(B) sussraNTIATIoN REQUiREMENT FoR cERTATN coNTRIBUTIoNS.-

( GpNnner, RULE.-No deduction shall be allowed under subsection ( forany contribution of $250 or more unless the taxpayer substantiates thecontribution by a contemporaneous written acknowledgment of thecontribution by the donee organization that meets the requirements ofsubparagraph (B).(B) CONTnNT OF ACKNOWLEDcMENT.-An acknowledgment meets therequirements of this subparagraph if it includes the following information:

(il ttre amount of cash and a description (but not value) of any propertyother than cash contributed.(i Wtrettrer the donee organization provided any goods or services inconsideration, in whole or in part, for any property described in clause (.(iiil A description and good faith estimate of the value of any goods orservices referred to in clause (ii) or, if such goods or services consist solelyof intangible religious benefits, a statement to that effect.For purposes of this subparagraph, the term "intangible religious benefit"means any intangrble religious benefit which is provided by anorganzation organized exclusively for religious purposes and whichgenerally is not sold in a commercial transaction outside the donativeconbext.

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tr***

I.R.C. 56115. Drscr-osunp Rnrrs to Qulo Pno Quo CoNtnIsurIolrs.(a) DIsclosuRo RneumpuENT.-If an organizaton described in section 170(c) . . .receives a quid pro quo contribution in excess of $75, the organization shall, inconnection with the solicitation or receipt of the contribution, provide a writtenstatement which--

(1) informs the donor that the amount of the contribution that is deductible forFederal income tax purposes is limited to the excess of the amount of anymoney and the value of any property other than money contributed by thedonor over the value ofthe goods or services provided by the organization, and(2) provides the donor with a good faith estimate of the value of such goods orservices.

(b) Quid Pro Quo Contribution.-For purposes of this section, the term "quid proquo contribution" means a payment made partly as a contribution and partly inconsideration for goods or services provided to the payor by the doneeorganization. A quid pro quo contribution does not include any payment made toan organizaton, organized exclusively for religious purposes, in return for whichthe taxpayer receives solely an intangible religious benefit that generally is notsold in a commercial transaction outside the donative context.STATEMENT OF THE CASE

LR.C. S 170 generally allows a deduction for a contribution or gift to or for theuse of a religious or educational organzation. In June 1989, this Court held in

(hereinafter "Hernandez"), thaternandez v. Commissioner, 490 U.S. 630 (1989)members of the Church of Scientology may not deduct as charitable contributionstheir payments for religious instruction (known as "auditing" and "training" in theChurch of Scientology). Nonetheless, in October 1993, IRS and the Church ofScientology entered into an agreement that, inter alia, permitted members of theChurch of Scientology to deduct as charitable contributions their payments for

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reiigious instruction. Moreover, although that agreement expired in 1999, weunderstand that IRS continues to this day to permit members of the Church ofScientology to deduct as charitable contributions their payments for religiousinstruction. IRS disallows, however, any such deductions when claimed bypractitioners of any other religion. Specifically, IRS disallowed the JewishPetitioners' claim of a charitable deduction on their 1995 tax return for $15.000they paid that year for their children's religious instruction.

The Tax Court and the Ninth Circuit below upheld IRS' disallowance ofPetitioners deduction. Petitioners respectfulty submit that the policy and practiceof IRS to permit Scientologists to deduct their payments for religious instruction butto disallow such deductions when claimed by practitioners of other re.igionspatently violates the Establishment Clause. Petitioners therefore ask this Court, inaccordance with its long-established rule in cases involving unconstitutionaldiscrimination by tax authorities, to permit Petitioners, too, to deduct theirpayments for religious instruction as charitable contributions.

***trIn 1995, Petitioners Michael and Marla Sklar, a husband and wife who are

Orthodox Jews, sent their five children to two Orthodox Jewish schools: EmekHebrew Academy in North HollS.wood, California ("Emek"); and Yeshiva RavIsacsohn Torath Emeth Academy ("Yeshiva Rav Isacsohn") in Los Angeles.Petitioners "did so because of their sincerely and deeply held religious belief that asJews they have a religious obligation to provide their children with an Orthodox

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Jewish education in an Orthodox Jewish environment." Sklar v. Commissioner, 549F.3d. L252, 1254 (gtr' Cir. 2008) ("Sklar II").

Both schools provided daily exposure to Jewish heritage andvalues. Their goals included educating their students in Jewishheritage and values, as well as the tenets of the Jewish faith. To thisend, time was allocated in the school day for prayers and religiousstudies, students were required to adhere to Orthodox Jewish dresscodes, and boys and girls attended classes separately.A child's day at each school included specified hours devoted tocourses in religious studies and specified hours devoted to secularstudies. The length of time that each student participated in secularclasses,aSoppoSedtoreligiousstudies,andtheIengthoftheschooIday varied with the gender and grade level of the particular student.

Id. The classes in religious studies also varied with the gender and grade level ofthe particular student, and included Bible, Talmud, Prayer, Jewish law and Jewishhistory, Regardless of gender or grade level, each student spent more than 50% ofthe school day in religious studies classes.

In 1995, Petitioners paid a total of $ 27,283 to the two schools: $ 24,093 fortuitioni $ 1,300 for registration feesi $ I,715 for miscellaneous other chargesi and$175toEmek,foranextra-curricular,after.schoolclassinMishna1fortheirson.Id. On their 1995 tax return, Petitioners deducte d I 24,42L as charitablecontributions, including $ 15,000 which they attributed to the cost of their children'sreligious instruction at Emek and Yeshiva Rav Isacsohn. These $15,000 includedtheentire$175theypaidfortheirSon'Safter.school,extracurricularMishnacIaSs,and that portion of the other payments which Petitioners attributed to theirchiIdren,sreligiousinstructionduringtheregularschoold.ay.1 The Mishna is part of the Talmud, which is the compendium of Jewish oral law.-5-5631646


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In a notice of deficiency, IRS determined that Petitioners owed an additionalg 10,198 in federal income tax, based upon IRS'disallowing $ 15,000 of Petitioners'charitable contributions, and assessing additional self employment tax. IRS alsoassessed an accuracy-related penalty of $ 2,040 under I.R.C. $ 6662(a). Petitionerstimely asked the Tax Court to review this IRS determination, and IRS immediately(in its Answer in Tax Court) conceded that Petitioners did not o\tre any additionalseif'employment tax. The Tax Court was thus left to consider whether Petitionersowed an additional 93,209 of tax because of the disallowed deduction, and IRS'proposed $2, 040 accuracy'related penalty.

To understand this case and, Petitioners' contentions, it is necessary tounderstand the historical context in which Petitioners claimed the disallowedd.ed.uctionsin1995.Therefore,weturnnowtothishistoricalcontext,andwil1return afterwards to the facts of this case.Historical Backsround

Ford'ecad'es,IRSand.theChurchofScientoIogywereengaged.inwhatcanonly be described as a legal war, in which IRS refused to recognize the Church ofScientology and its affiliates as charitable organizations, and IRS disallowedvarious ded,uctions claimed by members of the Church of Scientology; and theChurchand'manyofitsmembersbroughtahostofIawsuitsagainstIRS.Ultimately, in 1989, this war reached this Court. In a 5-2 opinion, the Court ruledthat taxpayers may not deduct as charitable contributions payments made to

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branch churches of the Church of Scientology in order to receive services known as"auditing" and "training." Hernandez, Supla. This Court explained:

Scientologists believe that an immortal spiritual being exists inevery person. A person becomes aware of this spiritual dimensionthrough a process known as "auditing." Auditing involves a one-to'oneencounter between a participant (known as a "preclear") and a Churchofficial (known as an "auditor"). . . . The preclear gains spiritualawareness by progressing through sequential levels of auditng,provided in short blocks of time known as "intensives."The Church also offers members doctrinal courses known as"training." Participants in these sessions study the tenets ofScientology and seek to attain the qualifications necessary to serve asauditors. Training courses, like auditing sessions, are provided insequential levels. Scientologists are taught that spiritual gains resultfrom participation in such courses.The Church charges a "fixed donation," also known as a "price"or a "fixed contribution," for participants to gain access to auditing andtraining sessions. These charges are set forth in schedules, and pricesvary with a session's length and level of sophistication.

490 U.S. at 686 (citations and footnote deleted).The taxpayers in Hernandez recognized that "quid pro quo" payments,

which are payments in exchange for which goods or services are received,generally are not deductible as contributions under federal tax law. TheHernandez taxpayers argued, however, that they \Mere entitled to deductions"because a quid pro quo analysis is inappropriate under [t.n.C.] S 170 whenthe benefit a taxpayer receives is purely religious in nature." Id. at 692.They further argued that IRS discriminated against Scientologists bydisallowing their payments for auditing and training, while permittingadherents of other religions to deduct specified payments for pew rents,

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building fund assessments, periodic dues paid to a church, attendance atHigh Holy Day services, Torah readings, and memorial plaques. Id. at 701.

This Court rejected these arguments, holding that, "The Code makesno special preference for payments made in the expectation of gainingreligious benefits or access to a religious service." Id. at 693.2 The Courtfurther found that it could not on the record before it "appraise accuratelywhether the IRS' revenue rulings have correctly applied a quid pro quoanalysis with respect to any or all of the religious practices in question." Id.at 702.

The dissent in Hernandez castigated the Court for having acquiescedin IRS' decision "to manufacture a singular exception to its 7)'year practice ofallowing fixed payments indistinguishable from those made by petitioners tobe deducted as charitable contributions." Id. at 704 (O'Connor, J.,dissenting).

Notwithstanding this victory for IRS in Hernandez, barely four yearsIater, in October 1993, IRS entered into an ageement with the Church ofScientology in which, among other things, IRS agreed that at least through1999, it would not "contest the deductibility of Church of Scientology fixeddonations in connection with qualified religious services." "Qualifiedreligious services" were defined to encompass auditing and training.

2 This Court observed that permitting the Hernandez taxpayers to deduct their payments forauditing and training could lead other taxpayers to deduct tuition payments to parochial schools.490 U.S. at 693. -8-t) Ilf 4t)


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IRS announced in October 1993 that it had entered into an agreement withthe Church of Scientologr. However, it has never publicly disclosed the full termsor text of that agreement. In December 7997 , however, The Wall Street Journalpublished on the Internet what it described as the full text of the agreement, and inTax Court below, Petitioners offered this text into evidence as Ex. 62'P. (A copy ofthis text is attached to this petition as Appendix D.) Section VII(B) permitsmembers of the Church of Scientology to deduct as charitable contributions theirpayments for auditing and training.

It is unclear why IRS agreed in October 1993 to permit members of theChurch of Scientology to deduct their frxed payments for auditing andtraining after four years earlier winning a ruling from this Court that suchpayments are not deductible. Never having publicly conceded that it agreedto this, IRS of course has never explained why it did so. Some havesuggested that IRS simply was tired of litigating with the Church. See, e.s.,"Scientologists and IRS Settled for $12.5 Million", The WaIl Street Journal,Dec. 30, L997; "ScientologSr'sPuzzling Journey from Tax Rebel to TaxExempt", The New York Times, March 9,1997 " IRS, however, hasmaintained that the agreement was consistent with the law, but has notexplained why or how. See "$12.5 Million Deal with I.R.S. Lifted Cloud OverScientologists", The New York Times, Dec. 31, 1997.

In the courts below, Petitioners contended that certain 1993amendments to the Internal Revenue Code reversed Hernandez in some

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respects, and authorized taxpayers to deduct as charitable contributions theirpayments for religious instruction. Specifically, the Omnibus BudgetReconciliation Act of 1993, P.L. No. 103-66, 107 Stat. 312, among many otherunrelated provisions, enacted I.R.C. S$ 170((8) and 6115, which introducedthe phrase "intangible religious benefi.t" directly into the Code, and clarifiedthat a payment to a religious organization is deductible even if the payorreceives an intangible religious benefit in return. Thus, contrary to whenHernandez was decided, since 1993, the Code has contained "specialpreference for payments made in the expectation of gaining religious benefitsor access to a religious service." Hernandez, 490 U.S. at 692-93.Petitioners' 1994 Case

Upon learning of IRS' agreement with the Church of Scientology,Petitioners filed an amended tax return for 1991, claiming a refund on thebasis of deducting the part of their payments to their children's schools in1991 which was attributable to the children's religious instruction. Afterexamination by IRS, the deduction was allowed and the refund was paid.

Petitioners also claimed a deduction for part of their payments to theirchildren's schools on an amended tax return for L992, and on their tax returnfor 1993. They received a refund based upon their amended 1992 return, andIRS did not disallow the deduction on their 1993 return.

Petitioners claimed a similar deduction on their 1994 income taxreturn. That year, however, IRS disallowed this deduction after an audit.563 1646

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Petitioners petitioned the Tax Court to review this decision by IRS. As in1995, the contributions disallowed for 1994 consisted of two types ofpayments:1. payments to Emek for their son's extra'curricular, after-school Mishna

classi and2. the portion of their other payments to Emek and Yeshiva Rav Isacsohnattributable to their children's religious instruction.s

Petitioners argued both that these deductions \Mere authorized by I.R.C. $ 170 perthe 1993 amendments to the Code, and that in any event, because IRS permittedmembers of the Church of Scientologr to deduct as charitable contributions theirpayments for religious instruction, the First Amendment required that IRS permitPetitioners to deduct their payments for religious instruction, too.

The Tax Court upheld IRS in the 7994 case, Sklar v. Commissioner, T.C.Memo 2000'118, and the Ninth Circuit affirmed, Sklar v. Commissioner,2B2F.Bd,6L0,622 (z0Oz) ("Sklar I"). The Ninth Circuit held that Petitioners had "not shownthat their'dual'payment'tuition payments are partially deductible und,er the TaxCode, and, specifically, that the total payments they made for both the secular andreligious private school education their children received lin fgg] exceeded themarket value of other secular private school education available to those children."3 In United States v. American Bar Endowment, 477 TJ.5.105, 117 (tgSA), this Court held thata "duai payment", i.e., a payment made in part as consideration for goods or services and in part forcharitable purposes, is deductible "to the extent it exceeds the market value of the benefit reeived."+ A copy of the Ninth Circuit's decision in Sklar I is attached to this petition as Appendix C. In the1994 case, Petitioners proceeded p-Ie se in Tax Court, but were represented by counsel in the NinthCircuit. In the present case, Petitioners were represented by counsel both in Tax Court and in theNinth Circuit.

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Id. at 614 n.3, 622. Tlne Ninth Circuit also said that Petitioners had failed to showthat their chiidren's religious studies were similar to auditing and training. Id. at620. Neither the Tax Court nor the Ninth Circuit addressed Petitioners'paymentsfor solely religious instruction, i.e., their payments for their son's Mishna class,The Present Case

In light of the Ninth Circuit's decision in Sklar I, at trial below in theTax Court, Petitioners sought to prove (t) ttrat their tuition payments to the twoschools exceeded the market value of their children's secular education, and (Z) tnattheir children's religious studie s lvere j urisp rudentially indistinguishable fromauditing and training in the Church of Scientology.

In Sklar I, the Ninth Circuit held that Petitioners would have to show "thatany dual tuition payments they may have made exceeded this market value of thesecular education their children received" and that, "The market value lof thechildren's secular studies] is the cost of a comparable secular education offered byprivate schools." 282 F.3d at 621. Accordingly, at the trial below, Petitionerspresented substantial, uncontroverted evidence as to "the cost of a comparablesecular education offered by private schools." Specifically, Petitioners presentedtestimony and documents to show the cost and quality of the education at PagePrivate Schools in Los Angeles, which are two secular, private schools close toYeshiva Rav Isacsohni and expert testimony by Dr. Lewis C. Solmon,a distinguished economist, with particular expertise concerning the economics ofeducation, and former Dean of the Graduate School of Education at UCI,A

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(tggS-gt), concerning the value of the secular educations at Emek and Yeshiva RavIsacsohn.

Dr. Solmon concluded that the market value of the secular education for boysat Yeshiva Rav Isacsohn was no more than $1,483 per student, and at Emek was nomore than $1,700 per studenti and that the market value of the secular educationfor girls at Yeshiva Rav Isacsohn was no more than $1,583 per student, and atEmek was no more than $I,724 per student. Based upon these conclusions, inexchange for Petitioners' total payments to the schools of $27,283 in 1995, theirchildren received religious instruction plus secular educations worth no more thanfi7,484.50. Thus, Petitioners'paid at least $19,798.50 for their children's religiousinstruction in 1995, which exceeds the $15,000 they claimed and IRS disallowed ascharitable contributions. 5

Petitioners also attempted to address at trial the second factual issue cited bythe Ninth Circuit in Sklar I, i.e., whether their children's religious studies weresimilar (in a jurisprudential sense) to "auditing", "training" or other "qualifiedreligious services" in the Church of Scientolory. Petitioners also attempted toestablish that IRS permits members of the Church of Scientologr to deduct theirpayments for "auditing", "training" or other "qualified religious services" ascharitable deductions. Petitioners \Mere largely stymied in these efforts, because theTax Court sustained IRS'objections to making disclosures concerning the Church ofScientologyi and the Tax Court granted motions by the Church of Scientology and5 IRS also called an expert witness to testify at trial, but withdrew him and his testimony afterconceding that he lied during voir dire and in his written report.563 1646

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IRS to quash trial subpoenas that Petitioners served upon the Church ofScientology and its President.G

Ultimately, at trial, Petitioners could only (1) offer as an exhibit theageement between IRS and the Church of Scientology as published by The WallStreet Journal, and (2) make an offer of proof as to what the testimony andd,ocuments of the Church of Scientology would have shown.

The Tax Court upheld IRS' disallowance of Petitioners' 1995 deductions, butalso held. that Petitioners vere not subject to any accuracy-related penalty. Sklar v.Commissioner,125 T.C. 281 (ZOOS) (copy attached to this petition as Appendix B).

6 Petitioners first sought discovery on these issues from IRS in interrogatories and documentsrequests served on MJy 5, 2003. IhS moved for a protective order, and Petitioners moved to compeldisIosure. IRS correctly recognized that Petitioners' interrogatories and document requests werelargeiy "intend.ed to establish iacts probative of their ciaim of disparate treatment." IRS insisted,hoerr"", that "the Court need not, nd should not, reached the claim constitutional andadmilistrative inconsistency issues posed by Petitioners." Thus, IRS objected to the interrogatoriesand document requests as "irrelevatt." Thr Tax Court granted IRS' motion for a protective order asto all interrogatoiies and document requests concerning the Church of Scientology and thedeductibityf p"y-uttts to the Church of Scientology for religious instruction, and deniedPetitioners'-*otiott to compel disclosure, in two Orders dated July 28, 2003. Neither Order providesany reason for denying Petitioners discovery concerning these issues.Petitioners tried again by serving requests for admission on September 3,2003, a!d IRS againmoved- for a protec-tive order: "Iniofai as they relate to the tenets of the Church of Scientology, thecontents of a closing agreement entered into under i.R.C. S Jf Zf , and the deductibility of actual andhypothetical paymet mad.e to the Church of Scientolog-y, [IRS1 submits that petitioners' Requestsfor Admissions seek to establish facts that are irrelevant . . . ." The Tax Court again issueda protective order without explanation.Having failed to secue any information from IRS, the Sklars served trial subpoenas upon theChurch of Scientology and. its President, Reverend Heber C. Jentzsch. The Church andRev. Jentzsch movelt6 quash these subpoenas, arguing that the information sought "is not relevantto the matters at issue in this case." IRS made a motion in limine, to exclude testimony byRev. Jentzsch or anyone else from the Church ofScientology, on the ground that "evidence relatingto the Church of Scientology is not relevant." The Tax Court quashed the subpoenas, withoutexplanationFinaIIy, on Novemb er 4, 2004, Petitioners moved the Tax Court to reconsider its orders quashing thesubponas, granting a protective order with respect to their-requests for admissions, and grantinga protective order witl-r-respect to their i-nterrogatories and document requests. This motion wasdnied without explanation, and without any response by IRS'5631646

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Petitioners appealed to the Ninth Circuiti IRS did not appeal the Tax Court's denialof a penalty.

The Ninth Circuit affirmed the decision of the Tax Court. Sklar II, supra.The Court of Appeals held that the 1993 amendments to the Internal Revenue Codedid not reverse Hernandez in any way, and therefore Petitioners'payments forreligious instruction are not deductible under I.R.C. S 170. 549 F.3d at L260'64. Inaddressing Petitioners'constitutional claim, the Ninth Circuit first concluded "thattuition and fee payments to schools that provide secular and religious education aspart of one curriculum are quite different from payments to organzations thatprovide exclusively religious services." l. at 1264'65. This difference is apparentlyintuitively obvious to the Ninth Circuit, because it did not even attempt to explainthe difference. It is particularly not clear how Petitioners'payments to Emek fortheir son's Mishna class is in any way different jurisprudentially from payments toa branch of the Church of Scientolory for auditing or training. The Ninth Circuit'sconclusion also ignores the existence of the Delphi Schools Network, a group of eightprivate schools associated with the Church of Scientology, seehttp://www.delphian.ore/paee.cfm?p=313, http://www.delphian.ors/pase.cfm?p=277,which are presumably covered by the agreement between IRS and the Church.

In any event, however, the Ninth Circuit did not rest upon this conclusion toaffirm the Tax Court. Rather, it went on to hold firmly and clearly that IRS'agreement with the Church of Scientology "constitutes an unconstitutionaldenominationai preference." Id. at 7265. The Court of Appeals held, however, that

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Petitioners are not entitled to claim the same deduction as Scientologists becausethis(1)wouldcreateapo1icyfavoringalIreligions;(2)..could.requireexcessivegovernment entanglement with religion"; and (3) woutd permit Petitioners to violat"I.R.C. S 170.

Bothinthiscasebelowandinthe1994Iitigation,theTaxCourtandtheNinth Circuit each devoted considerable attention to Petitioners'contention that the1993amendmentstotheInternaIRevenueCodeauthorizetaxpayerstod'eductascharitablecontributionstheirpaymentsforreIigiousinstructioniandineachcaSe'each court rejected Petitioners' contention. Petitioners do not ask this Court toreview this questioni we assume here arsuendo that the Internal Revenue Codedoes not permit anyone to deduct their payments for religious instruction.Petitioners ask this Court to consider only whether because IRS permitsScientologists to claim such deductions, the First Amendment requires that IRSpermit practitioners of other religions, such as the Jewish Petitioners here, to claimsuch deductions.

REASONS FOR GRANTING THE PETITIONI. THE NINTH CIRCUIT ERRED IN SANCTIONING .. IN EFFECT,AUTHORIZING .. IRS' PATENTLY UNCONSTITUTIONALDISCRIMINATION IN FAVOR OF SCIENTOLOGISTS AND AGAINST

PRACTITIONERS OF ALL OTHER RELIGIONS.It would be difficult to imagine a clearer violation of the EstablishmentClause than the policy and practice of IRS that Petitioners challenge. IRS permitspractitioners of one religion " Scientologists -' to deduct as charitable contributions

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their payments for religious instruction, but does not permit practitioners of anyother religion " including the Jewish Petitioners " to deduct their payments forreligious instruction. This is an intolerable situation under the First Amendment,because the Establishment Clause bars the Government from preferring onereligion over another. "Government in our democracy . . . must be neutral inmatters of religious theory, doctrine, and practice. It may not be hostile to anyreligion or to the advocacy of no-religioni and it may not aid, foster, or promote orereligion or religious theory against another . . . . The First Amendment mandatesgovernmental neutrality between religion and religion . . . ." Epperson v. Arkansas,393 U.S" 97, 103'04 (fgAA). Accord, e.e., Everson v. Board of Education, 330 U.S. 1,75 6947) ("Neither a state nor the Federal Government . . . can pass laws which . . .prefer one religion over another"). Indeed, "ensuring governmental neutrality inmatters of religion" is "perhaps the central purpose of the Establishment Clause."Gillette v. United States, 401 U.S. 437, 449'50 (1971).

The Ninth Circuit has twice clearly explained and held that IRS'policy andpractice violates the Establishment Clause:

Applying tl,arson,v. Vatente, 456 U.S. ZZe SAZ)I at 246-47,102 S.Ct. 1673,72L.E,d.2d 33,1 to the policy of the IRS towards theChurch of Scientology, the initial inquiry must be whether the policyfacially discriminates amongst religions. CIearIy it does, as this taxdeduction is available only to members of the Church of Scientology.

The second Larson inquiry is whether or not the faciallydiscriminatory policy is justified by a compelling governmentalinterest. 456 U.S. at246'47, 102 S.Ct. 1673, 72L.Ed.2d 33. Althoughthe IRS does not concede that it is engaging in a denominationalpreference, it asserts in its brief that the terms of the settlementagreement cannot be used as a basis to find an Establishment Clause563 1646

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violation because "in order to settle a case, both parties are required tomake compromises with respect to points on which they believe theyare legally correct." This is the only interest that the IRS proffers forthe alleged policy" Although it appears to be true that the IRS hasengaged in this particular preference in the interest of settling a longan litigious tax dispute with the church of scientology, and ascompelling as this interest might otherwise be, it does not rise to theIevel that would pass strict scrutiny. The benefi.ts of settlinga controversy with one religious organization can hardly outweigh thecosts of engaging in a religious preference. Even aside from theconstitutional considerations, a contrary rule would create a procedureby which any d,enomination seeking a denominational preference couldbypass Congressional law-making and IRS rulemaking by engaging involuminous tax litigation. Such a procedure would likely encouragethe proliferation of such litigation, not reduce it. Larson, 456 U.S.at 248,102 s.ct. 1673, 72 L.Ed.2d 33 (holding that even assumingarguendothat the government has a compelling governmental interestfor a denominational preference, it must show that the rule is "closelyfi.tted to further the interest that it assertedly serves"). Because thefacial preferences for the Church of Scientology embodied in the IRS'spolicy regarding its members cannot be justified by a compellinggovernmental interest, . . . the IRS policy constitutes anunconstitutional denominational preference under Larson, 456 U.S.at 230, 102 S.Ct. 1673, 72 L.Ed.zd 33.

Sklar II, 549 F.3d at L265-66, quoting Sklar I, 282 F.3d at 618-19.This Court has long held that where a tax authority's practice results in someItaxpayers paying higher taxes than they would have paid had they been part of an

unconstitutionally favored group, as Petitioners here have paid higher taxes thanthey would have paid had they been Scientologists, the overtaxed taxpayers areentitled to a refund of their excess taxes paid. In Iowa-Des Moines National Bankv. Bennett,284 U.S. 239 (fg3f) ("Bennett"), this Court found that lowa'sad.ministration of its tax law constituted discrimination against certain taxpayers inviolation of the Equal Protection Clause. The Iowa Supreme Court had recognzedthat there was systemic discrimination because certain taxpayers \ere

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underassessed, id. at 241'43, but held "that the discrimination thus effected wasremediable onl,y by correcting the wrong under the state law in favor of thecompetitors and not by extending the benefits as [sic] of a simiiar wong to thepetitioners." Id. at 244. This is also the holding of the Ninth Circuit below.

This Court rejected the Iowa Supreme Court's analysis. The Court held thatpetitioners had been subjected to an Equal Protection violation, and were entitled torefunds, notwithstanding the fact that they had been properly assessed under theIowa statute:

It may be assumed that all grounds for a claim for refund would havefallen if the state, promptly upon discovery of the discrimination, hadremoved it by collecting the additional taxes from the favoredcompetitors. By such collection the petitioners' grievances would havebeen redressedi for these are not primarily overassessment. The rightinvoked is that to equal treatmenti and such treatment will be attainedif either their competitors' taxes are increased or their own reduced.But it is weII settled that a taxpayer who has been subjected todiscriminatory taxation through the favoring of others in violation offederal law cannot be required himself to assume the burden of seekingan increase of the taxes which the others should have paid. Nor mayhe be remitted to the necessity of awaiting such action by the stateofficials upon their own initiative.The petitioners are entitled to obtain in these suits refund of the excessof taxes exacted from them.

Id. at 247 (citations omitted). Accord,9,=B.,Alleeheny Pittsburgh Coal Co. v. CountvCommission, 488 U.S. 336 (f g8g) (although the petitioners had been properlyassessed under the statute. thev r'ere entitled to refund because of constitutionalviolation resulting in lower taxes paid by other, similarly situated taxpayers)iHillsboroueh Township v. CroweII, 326 U.S. 620, 623-24 (1946) (state law thatrequired property o\/ner who was assessed at true value of land but who had been

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singled out for discriminatory taxation to seek increase in assessment of otherswould violate the Equal Protection Clause)i McKesson v. Division of AlcoholicBeverages & Tobacco, 496 U.S. 18, 36 (1990) (quoting Bennett, E!P-r., 284 U.S.at 247, for the proposition that a taxpayer victimized by differential tax treatmentcannot be "remitted to the necessity of awaiting . . . action [against the favoredtaxpayers] by the state officials").

Thus, this Court has established that a taxpayer who has been correctlyassessed. under a taxing statute, but has been systematically and unconstitutionallyd,iscriminated against through underassessments of others, is entitled to a refund,and may not be required to seek elevation of others' taxes or any other correction ofthe situation. Refunds are proper relief for constitutional violations even where thed.isadvantaged party has been taxed in accordance with substantive law. Therefore,Petitioners are entitled to the deduction they claimed, even if it is not authozedbythe Internal Revenue Code.

The Ninth Circuit chose simply to ignore this well-established rule.Notwithstanding its clear and correct holding that IRS' policy and practice patentlyviolates the Establishment Clause, the Ninth Circuit sanctioned IRS'unconstitutional policy and practice by upholding IRS' refusal to permit Petitionersto deduct as charitable contributions any of their payment for their children'sreligious instruction. The Ninth Circuit offered three reasons for permitting IRS tocontinue its unconstitutional policy and practice, none of which addresses thisCourt's rule in Bennett and its progeny, and none of which is persuasive:

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First, we would be reluctant ever to presume that Congress or anyagency of the government would intend that a general religiouspreference be adopted, as such preferences raise the highly sensitiveissue of state sponsorship of religion. In the absence of a clearexpression of such intent, we would be unlikely to consider extendinga poticy favoring one religion where the effect of our action would be tocreate a policy favoring all. Second, the Supreme Court has previouslystated that a policy such as the Sklars wish us to create would be ofquestionable constitutional validity under Lemon, because theadministration of the policy could require excessive governmententanglement with religion. Third, the policy the Sklars seek wouldappear to violate tI.R.C.l S 170.

Sklar II, 549 F.3d at 1266, quoting Sklar I, 282 F.3d at 619'20 (citations omitted).The Ninth Circuit's first argument ignores the fact that federal tax law

contains a number of preferences for religious organrzations, starting with the factthat every religious organzation is entitled to tax exemption pursuant toI.R.C. $ 501(cX3), and contributions to evey religious organzation are deductibleunder I.R.C. S 170. Religious organzations also are exempt from the generalrequirement that tax-exempt organzations file an annual return (Form 990) withrRS. r.R.C. $ 6033((s)((.

Furthermore, and particularly notable here, many types of payments toreligious organzations are exempt from the usual rule that "'quid pro quo'payments, where the taxpayer receives a benefit in exchange for the payment, aregenerally not d.eductible as charitable contributions." Sklar II, 549 F.3d at L259 -Ninety years ago, the Government declared that pew rents -- payments to a churchfor the right to sit in a designated pew -' are deductible as charitable contributions.A.R.M. 2, C.8.1, 150 (f gf g). IRS reaffirmed this position thirty-nine years ago.Rev. Rul. 70'47,1970'1 C.B. 49. The person paying a pe\ rent is receiving

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something in returtr, !-e=, the right to sit in a particular pew in a particular churchMoreover,thepersonmakingthepaymentpresumab1ybeIievesthatthisrightisatleast equal in value to the payment, for otherwise the person could simply make anunrestricted contribution to the church instead of paying a pew r.ent.

Duespaid.toachurchaIsoaredeductibIeasacharitab1econtribution.Id.Again, however, the payor is receiving in exchange for the dues payments benefitsfrom the church at least equal in value (to the payor) to the amount of the duespayments.CitingthesameRevenueRuling,theSecondCircuithasheldthat,"specified payments for attendance at High Holy Day services, for tithes, for torahreadings and for memorial plaques would fall into the same category", i.e., aredeductible as charitable contributions notwithstanding being payments in ichangefor specifically designated rights or services. Folel v. Commissioner, 844F "2d 94,e6 (1e8S).

Al1 these types of payments are in a literal sense " quid pro qud' payments.But they all have in common (t) that tlne " quid' in exchange for the taxpayer's" qud'is an intangible religious benefit, and (2) that IRS permits taxpayers to deduct themas charitable contributions.

Thus, there is a plethora of tax'related provisions and practices that providespecial treatment for religious organizations. Pace the Ninth Circuit, permittingPetitioners to claim the same deductions as Scientologists would not constitute"state sponsorship of religion." Sklar II , 549 F.3d at 1266, quoting Sklar I, 282 F.3dat 619.

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The Ninth Circuit's second reason for permitting IRS to continue itsunconstitutional policy and practice -' that permitting the Petitioners to claim thesame deductions as Scientologists "could require excessive governmententanglement with religion", id., citing Hernandez v. Commissioner, 490 U.S. 680,694 (1939) " is equally off'base. Determining whether a particular course isreligious instruction certainly does not require more government entanglement withreligion than determining whether a particular group is a religious organization inthe first place. No material entanglement with religion was required to determinethat the classes in Mishna, Talmud, Bible, prayer and Jewish law which Petitioners'children attended were religious instruction. No one " not IRS, not the Tax Court,not the Ninth Circuit -- has ever questioned that these courses are all religiousinstruction.

The Ninth Circuit's third and final reason for not permitting Petitioners toclaim the same deductions as Scientologists '- that it would violate I.R.C. S 170 --was rejected by this Court in Bennett, gupra., and its progeny. As we explainedabove, this Court has consistently held that where a tax authorityunconstitutionally favors certain taxpayers, a disfavored taxpayer is entitled to takeadvantage of the favorable treatment even if the favorable treatment violates thetax law.

Moreover, as a practical matter, denying the Petitioners' deductionsimmunizes, and thus in effect authorizes, IRS'patent violation of the First

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Amendment. As Professor Lawrence Zelenak has pointed out, "[t]here is virtuallynojudicial review ofa Service decision to be lenient" to other taxpayers:

Taxpayers directly affected will not chailenge the position because it isfavorable to them. The Service will not, of course, challenge its ownposition. Third parties may sue to prevent Service leniency towardother taxpayers . . . but such suits are almost always dismissed for lackof standing.Lawrence Zelenak, Should Courts Require the Internal Revenue Service to beConsistent?, 38 Tax L. Rev. 4LI, 429 (fggS) (footnote omitted).2

Thus, the Ninth Circuit erred by effectively authorizing IRS to continue itsunconstitutional policy and practice.II. THE NINTH CIRCUIT HAS DECIDED AN IMPORTANT FEDERALQUESTION IN A WAY THAT CONFLICTS WITH RELEVANTDECISIONS OF THIS COURT.

The question here '- whether IRS must permit Jews and other practitionersof religions other than Scientology to claim the same deduction for religiousinstruction as Scientologists -- is inherently important. In many ways, IRS ispotentially the most powerful, and therefore most dangerous, government agency.This Court long ago recognized "That the power to tax involves the power todestroyi that the power to destroy may defeat and render useless the power tocreate." McCulloch v. Marvland, 17 U.S. (4 Wheat.) 316, 411 (1819). tt ls critically

? A concurring opinion in Sklar I, 282 F.3d at 623, suggests that "the proper course of action" isa lawsuit to stop IRS' unconstitutional policy and practice, "not to let others claim the improperdeduction, too." As explained above, this Court rejected this position in Bennett and its progeny.Moreover, because one taxpayer lacks standing to challenge the tax treatment of other taxpayers, anaction to enjoin IRS' unconstitutional preference for Scientologists was dismissed for lack of standingand the Ninth Circuit affirmed that dismissal. Henson v. Internal Revenue Service, 2000 U.S. App.Lexis 23997 (Sept. 11, 2000).- 24-

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important to ensule that this po\Mer is only applied constitutionally, not to punishperceived enemies, nor to prefer favored (or litigious) religious groups.

IRS knows that it is violating the Establishment Clause. Otherwise, it wouldnot go to such lengths to try to keep its preference for Scientologists secret. IRS'refusal to produce its agreement with the Church of Scientology in the Tax Courtbelow, notwithstanding the Ninth Circuit's ruling in Sklar I that the agreementmust be publicly disclosed, 282 F.3d at 618, and IRS' motion in Tax Court to quashPetitioners' trial subpoenas to the Church of Scientology and its President, arefrightening, for they indicate that IRS is determined to discriminate against non-Scientologists, in secret, forever. IRS must not be allowed to hide, and to continue,its patently unconstitutional favoring of Scientologists.

The issue presented in this case also has extremely substantial financialimplications. The most recent available Private School lJniverse Survey by theU.S. Department of Education, National Center for Education Statistics, reportsthat in 2005'06, over 4 million students lvere enrolled in private schools witha religious orientation, including about 205,000 in Jewish schools.http://nces.ed.eov/survevs/pss/tables/table 2006 02.asp. The Tax Court belowultimately ordered Petitioners to pay an additional $3,209.00 of tax for 1995, about$642 per child. Assuming this is reasonably typical for children in Jewish schools,and without taking into consideration increases in charges for religious instruction,based upon the 2005-06 enrollment data, the total additional tax imposed that year

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upon Jewish taxpayers alone as a result of IRS' unconstitutional discriminationagainst them \/as over $130 million!

We understand that Jewish schools spend more time on religious instructionthan most other religious schools. For example, Catholic schools, which are theoverwhelming majority of religious private schools, devote only one in eight or onein nine periods per day to religious instruction'- Il.I-72.5% of the school day,compared, to over 50% ofthe school day devoted to religious instruction at theJewish schools attended by Petitioners'children. Assuming, however, that theadditional tax being paid by non-Scientologists averages even only 20% of thead.ditional tax paid by Petitioners, i.e., $130 per child, in 2005'06, non-Scientologistspaid over 9530 million in additional taxes because of IRS' discrimination againstthem!! Moreover, this reflects only payments to full-time religious schools forreligious instruction of childreni it does not reflect, for example, payments forreligious instruction of adults.

Thus, this case presents an important question of federal law both because itis extremely important to ensure that IRS respects the Constitution, and becausethe financial penalty imposed upon non'scientologists by IRS' unconstitutionaldiscrimination is enormous.III. IT IS \TERY UNLIKELY THAT THIS COURT WILL EVER HAVE ANOTHEROPPORTUMTY TO REVIEW' IRS' UNCONSTITUTIONAL DISCRIMINATIONAGAINST }TON- SCIENTOLOGISTS.

The only way a person can challenge IRS'policy and practice ofdiscrimination against non'scientologists is by claiming a deduction for payments

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for reiigious instruction on an individual tax return, and then seeking either TaxCourt or District Court review aft,er IRS disallows the deduction. It is not possiblefor a taxpayer to bring a class action on behalf of all victims of IRS' discrimination.As a practical matter, however, no taxpayer has a substantial individual financialclaim or interest: Petitioners here, with fi.ve children in schools which devoted overhalf their school days to religious instruction, \ /ere assessed only $3,209 inadditional tax. Few taxpayers would have any greater financial interest inlitigating this issue.

Moreover, Petitioners' experience here suggests other barriers to futurelitigation over this issue. Because they claimed a deduction for payments forreligious instruction, in both 1994 and 1995, IRS audited Petitioners'tax returns.Moreover, for 1995, in addition to assessing $3,209 additional tax by disallowingPetitioners' deduction for religious instruction payments, IRS assessed about $7,000in additional self-employment tax, and a 82,040 "accuracy-related" penalty. TheIatter two assessments were pure harassmentl IRS conceded quickly, in its Answerin Tax Court, that no additional self-employment tax was duei and IRS did notappeal the Tax Court's finding that no penalty was due. Thus, any non-Scientologist considering claiming a deduction for payments for religious instructionwould have to take into consideration not only the relatively small potentialfinancial benefit, but also a very real possibility of substantial harassment by IRS.a

8 During a trial recess in the Tax Court below, the lead trial lawyer for IRS said that anyone whomakes a claim tike the Petitioners should be treated like the tax protesters who claim that thefederal income tax is unconstitutional and therefore refuse to pay any income tax. We hope that thisview is not widely held within IRS. -27 -oo,J ro40


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In light of these considerations, it is not surprising that there is no otherreported.caseofataxpayercha1lengingIRS'unconstitutiona1discriminationagainstnon-Scientologists by claiming a deduction for religious instruction payments andlitigatingIRS,d.isallowanceofthatd'ed.uction.Asweexplained.above,thetotaltaximposed upon non'Scientologists by IRS' discrimination may exceed $530 miliionannually. Nonetheless, no single taxpayer has sufficient interest to justifichallenging IRS on this issue, which is obviously extremely sensitive andembarrassing for IRS. Therefore, unless this Court undertakes'to review thedecision of the Ninth Circuit below, IRS' discrimination against non-Scientologistsis likely to continue forever.

CONCLUSIONFor the foregoing reasons, Petitioners respectfully submit that the Court

should issue a writ of certiorari to review the judgment below of the United StatesCourt of Appeals for the Ninth Circuit.Respectfully submitted,Jpmnnv Ine ZucxpRMANCounsel of RecordCuRITs, MaT,IpT.PREVOST,Colr & Moslp LLP12OO Nuw HUPSHINE AVENUE, N.W.Suirs 430WesnwcroN, D.C. 20036Qo 452-7850Attorney for Pe ti ti on ersMarch 12.2009

scientology sklar case 2009 supremect writ s.ct.08-9180-sklar-cert_petition[1]

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