490 U.S. 680, 698, 109 S.Ct. 2136, 2148, 104 L.Ed.2d 766 (1989)
In the 1950s, L. Ron Hubbard founded Scientology.1 It is propagated today by a mother church in California and by numerous branch churches around the world.2 The mother church instructs laity, trains and ordains ministers, and creates new congregations.3 Branch churches known as franchises or missions provide auditing and training sessions at the local level under the supervision of the mother church.4
Auditing involves a one-to-one encounter between a participant known as a preclear and a Church official known as an auditor.5 An electronic device called the E-meter helps the auditor identify the preclear's areas of spiritual difficulty by measuring skin responses during question-and-answer sessions.6 The preclear gains spiritual awareness by progressing through sequential levels of auditing provided in short blocks of time known as intensives.7 The Church also offers members doctrinal courses known as training.8 Participants in these sessions study the tenets of Scientology and seek to attain the qualifications necessary to serve as auditors.9 Training courses like auditing sessions are provided in sequential levels.10
The Church charges a fixed donation also known as a price or fixed contribution for participants to gain access to auditing and training sessions.11 These charges are set forth in schedules and prices vary with a session's length and level of sophistication.12 In 1972 for example the general rates for auditing ranged from $625 for a 12 1/2-hour auditing intensive the shortest available to $4,250 for a 100-hour intensive the longest available.13 Specialized types of auditing required higher fixed donations such as a 12 1/2-hour Integrity Processing auditing intensive that cost $750 and a 12 1/2-hour Expanded Dianetics auditing intensive that cost $950.14 This system of mandatory fixed charges is based on a central tenet of Scientology known as the doctrine of exchange according to which any time a person receives something he must pay something back.15
The Church promotes these sessions not only through newspaper magazine and radio advertisements but also through free lectures free personality tests and leaflets.16 The Church also encourages and indeed rewards with a 5% discount advance payment for these sessions.17 The Church often refunds unused portions of prepaid auditing or training fees less an administrative charge.18 Petitioners Robert L. Hernandez Katherine Jean Graham Richard M. Hermann and David Forbes Maynard each made payments to a branch church for auditing or training sessions.19 They sought to deduct these payments on their federal income tax returns as charitable contributions under section 170.20 Hernandez was denied a deduction of $7,338 and was assessed a tax deficiency of $2,245 for 1981.21 Graham was denied a deduction of $1,682 and was assessed a tax deficiency of $316.24 for 1972.22 Hermann was denied a tax deduction of $3,922 and was assessed a tax deficiency of $803 for 1975.23 Maynard was denied a deduction of $5,000 including a carryover of $2,385 for contributions made in 1976 and was assessed a tax deficiency of $643 for 1977.24 The Commissioner disallowed these deductions finding that the payments were not charitable contributions within the meaning of section 170.25
Before trial the Commissioner stipulated that the branch churches of Scientology are religious organizations entitled to receive tax-deductible charitable contributions under sections 170(c)(2) and 501(c)(3) of the Code.26 This stipulation isolated as the sole statutory issue whether payments for auditing or training sessions constitute contributions or gifts under section 170.27 The Tax Court consolidated for trial the cases of Graham Hermann and Maynard.28 Hernandez agreed to be bound by the findings in the consolidated Graham trial reserving his right to a separate appeal.29 The Tax Court held a 3-day bench trial during which the taxpayers and others testified and submitted documentary exhibits describing the terms under which the Church promotes and provides auditing and training sessions.30 Based on this record the court upheld the Commissioner's decision.31 The Courts of Appeals for the First Circuit in Hernandez's case and for the Ninth Circuit in Graham Hermann and Maynard's case affirmed.32 The Supreme Court granted certiorari to resolve a Circuit conflict concerning the validity of charitable deductions for auditing and training payments.33
Whether payments made to branch churches of the Church of Scientology for auditing and training sessions qualify as deductible charitable contributions under section 170 of the Internal Revenue Code?34
No. Petitioners made payments to branch churches according to fixed price schedules calibrated to session lengths and levels.38 The Church issued refunds for unperformed services distributed account cards to track prepaid services and barred free sessions.39 These external features establish a quintessential quid pro quo exchange in which petitioners received auditing and training sessions in return for their money.40 The payments therefore do not qualify as contributions or gifts under section 170.41
The payments do not qualify as deductible charitable contributions under section 170.42
Whether section 170 violates the Establishment Clause by creating a denominational preference among religions or by causing excessive governmental entanglement with religion?43
When a law is claimed to create a denominational preference the initial inquiry is whether the law facially differentiates among religions.44 If not the customary Lemon test applies under which the statute must have a secular purpose a primary effect that neither advances nor inhibits religion and no excessive entanglement with religion.45
No. Section 170 makes no explicit and deliberate distinctions between different religious organizations and applies instead to all religious entities.46 The provision is neutral both in design and purpose.47 Its primary effect of encouraging gifts to charitable entities neither advances nor inhibits religion.48 Section 170 threatens no excessive entanglement because routine regulatory inquiries into prices and waivers involve no inquiries into religious doctrine and no detailed monitoring of religious bodies.49
Section 170 does not violate the Establishment Clause.50
Related opinions on this issue
Joined by Justice Scalia
Justice O'Connor dissented on the ground that the IRS had unconstitutionally refused to allow deductions for auditing payments while permitting deductions for fixed payments to other religions for religious services such as pew rents, tithes, and Mass stipends.51 She emphasized that the stipulations established the payments as fixed donations for religious services.52 The IRS's selective application of the quid pro quo standard discriminated among religions in violation of the Establishment Clause.53
O'Connor concluded that the IRS had put an imprimatur on all but one religion and would reverse the decisions below.54
Whether disallowing deductions for such payments violates the Free Exercise Clause by substantially burdening the central practices of Scientology?55
The free exercise inquiry asks whether government has placed a substantial burden on the observation of a central religious belief or practice and if so whether a compelling governmental interest justifies the burden.56 Even a substantial burden is justified by the broad public interest in maintaining a sound tax system free of myriad exceptions flowing from religious beliefs.57
No. The burden imposed by the deduction disallowance derives solely from adherents having less money available to gain access to auditing and training sessions.58 This burden is no different from the burden imposed by any public tax or fee.59 The government's interest in maintaining a sound tax system free of myriad exceptions flowing from a wide variety of religious beliefs justifies any burden.60
Disallowing the deductions does not violate the Free Exercise Clause.61
Whether the IRS's administrative practice of permitting deductions for fixed payments to other religious organizations for religious services requires that payments for auditing and training also be treated as deductible?62
The inquiry in determining whether a payment is a contribution or gift under section 170 is whether the transaction is structured as a quid pro quo exchange.63 Without specific evidence about other religious faiths' transactions the court has no way to appraise whether the IRS has correctly applied the standard.64
No. Petitioners did not adduce at trial any specific evidence about other religious faiths' transactions.65 The IRS revenue rulings provide no specific facts about the nature of these other faiths' transactions.66 In the absence of such facts there is no way to determine whether the IRS rulings have correctly applied a quid pro quo analysis with respect to any or all of the religious practices in question.67
The IRS's administrative practice does not require that the payments be treated as deductible.68
Related opinions on this issue
Joined by Justice Scalia
Justice O'Connor dissented on this issue as well.69 She contended that the Court should not convert an Establishment Clause violation into an administrative consistency argument with an inadequate record.70 She stressed that the IRS had failed to offer any cogent neutral explanation for refusing to apply its seventy-year practice to the Church of Scientology.71 The selective enforcement discriminated against Scientology in the same manner as the statute invalidated in Larson v. Valente.72
O'Connor would have reversed the decisions below because the IRS misapplied its longstanding practice in a way that violates the Establishment Clause.73