## Facts

- Michael and Marla Sklar, Orthodox Jewish taxpayers, paid tuition and required fees for their children to attend Orthodox Jewish day schools that were tax-exempt under I.R.C. § 501(c)(3).
- The schools provided both secular and religious instruction; tuition payments were required for enrollment and receipt of educational services.
- For the tax year at issue, the Sklars claimed charitable contribution deductions under I.R.C. § 170 for the alleged “excess” of tuition over the fair market value of comparable secular education.
- The IRS disallowed the deductions and issued a notice of deficiency, treating the payments as nondeductible personal education expenses.
- The United States Tax Court upheld the deficiency, concluding the Sklars failed to substantiate any deductible contribution component and rejecting attempts to compare the case to IRS treatment of certain Church of Scientology payments; the Tax Court also excluded some Scientology-related materials as not sufficiently analogous.
- The Sklars appealed to the Ninth Circuit.

## Issues

1. Whether any portion of mandatory tuition and fees paid to tax-exempt religious day schools qualifies as a deductible “contribution or gift” under I.R.C. § 170 when measured as an alleged excess over the value of secular education received.
2. Whether the taxpayers carried their burden to prove a quid pro quo allocation and substantiate the fair market value of benefits received so as to establish a deductible contribution component.
3. Whether alleged favorable IRS treatment of certain Church of Scientology “auditing” and “training” payments required allowing the deduction on administrative-consistency or constitutional (Establishment Clause/equal treatment) grounds, or required admission of related comparative evidence.

## Decision

- The Ninth Circuit affirmed the Tax Court’s decision disallowing the claimed charitable contribution deductions.
- The court held the tuition and related payments were personal education expenses made in exchange for substantial educational benefits and therefore were not deductible as charitable contributions.
- The court agreed that the Sklars failed to provide reliable evidence establishing any “excess” payment over the value of the benefits received.
- The court rejected reliance on alleged IRS treatment of Church of Scientology payments as a basis to allow the Sklars’ deductions in this case.

## Legal Principles

- A § 170 deduction requires a “contribution or gift”; payments made in exchange for substantial goods or services are not deductible except to the extent the taxpayer proves an excess over the fair market value of what was received (quid pro quo).
- Tuition and required fees paid for a child’s education, including at religious schools, are generally personal, nondeductible expenses rather than charitable gifts.
- The taxpayer bears the burden to substantiate any claimed deductible component, including credible valuation of return benefits and proof that any portion was a gratuitous transfer.
- The “intangible religious benefits” concept does not convert mandatory tuition payments for comprehensive schooling into deductible contributions when the payer receives substantial educational services.
- Alleged inconsistent or preferential tax treatment of other taxpayers does not, by itself, supply a legal basis to grant a deduction absent satisfaction of § 170’s statutory and evidentiary requirements.

## Conclusion

The Ninth Circuit held that Orthodox Jewish day-school tuition and required fees were nondeductible personal expenses and that the taxpayers failed to prove any separable, substantiated “gift” component under § 170; claims of unequal treatment based on Scientology-related deductions did not change the result.


Sklar v. Commissioner, 549 F.3d 1252 (9th Cir. 2008)