Charitable Contributions

Another federal appeals court has ruled that payments made to the Church of Scientology for “auditing” and “training” services were properly deductible as charitable contributions.

Another federal appeals court has ruled that payments made to the Church of Scientology for "auditing" and "training" services were properly deductible as charitable contributions.

The IRS had argued that the payments were not deductible contributions since the donors had received a benefit in return for their payments. The appeals court agreed with the IRS that "a payment of money generally cannot constitute a charitable contribution if the contributor expects a substantial benefit in return."

However, it specifically held that "a strictly spiritual or religious return is simply not enough" to make a contribution nondeductible. To hold otherwise would "present not only the problem of determining value but also the problem of excessive entanglement in the affairs of a religious institution," since courts would be required to monitor church records and activities in an attempt "to place a monetary value on the benefit of church services, group programs, and pastoral counseling."

The court observed that "any other conclusion has ominous implications for all religious institutions." Does this ruling lend support to the deductibility of "contributions" made to churches by persons who receive professional counseling from a staff counselor?

A growing number of churches are hiring staff counselors, and many of these churches require counselees to pay an hourly "contribution" for the counseling provided. Could not the Scientology case be cited as precedent in support of the deductibility of these payments? The answer is probably no, since it is likely (though not certain) that a court would conclude that counseling services provided by a staff counselor (particularly one with formal training in psychology) are not "spiritual" or "religious" benefits received in exchange for payments.

The court based its opinion in part on the fact that the "auditing" and "training" services provided by the Church of Scientology were not available from private businesses. If they had been available outside of the Church, the court observed, then it is difficult to characterize the services as "spiritual or religious" in nature. Similarly, it is entirely possible that a civil court would conclude that counseling services provided by a staff counselor in a church are services that could be obtained outside of the church.

If so, such services cannot be characterized as spiritual or religious, and therefore payments made in exchange for such services are not deductible as charitable contributions. The United States Supreme Court has agreed to determine whether payments made to the Church of Scientology for auditing and training services are deductible as charitable contributions. A decision is expected later this year. Neher v. Commissioner, 88-2 U.S.T.C. para. 9430 (6th Cir. 1988).

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