Turning Over Scientology's Rocks: Tax Deductions for Members?!

First, the outrage: Scientologists can claim tax deductions for religious expenses. What's more, the IRS has agreed that it will only offer this benefit to Scientology.

But before I get into the nuts and bolts, some personal background. Scroll down if you want to get right to the meat.

I have never had much respect for the Church of Scientology, not since I wandered into their Boston office in September 1988, during my freshman year of college. I was told by the guy on the street that they were conducting "personality tests" and needed college-aged subjects. Since I was more or less just wandering around at the time, getting myself familiar with the city, and since I'd never heard of "Scientology," I said sure. They got me in the door, through the lobby, and sitting down at a table in front of a bubble test that looked like it was going to ask a lot of personal questions. At 17, I was naive but not stupid, and I got the hell out of there.

So much for my foundation story, but I wanted to be sure to come clean with my biases. I haven't lost friends or family, I haven't been scarred personally...but I have come to the conclusion that they are dangerous. So when I heard about the web-based "insurgency" being waged against them by Anonymous (based at Project Chanology), I was intrigued. I watched their video heralding their attacks; and after reading an article about them in The Economist, checked out the Chanology website. That's when I came across this entry, under "News and Announcements":

New York Sun - Feb. 8, 2008 - Judges Press IRS on Church Tax Break. This needs some major publicity, stat! This is an ongoing legal battle that may result in some serious damage for CoS.

Here's the meat.

The New York Sun article covers the case of a Jewish couple who wanted to deduct the costs of sending their child to religious education classes. Their deductions were disallowed by the IRS; but the couple sued, claiming that Scientologists were allowed to deduct their religious training expenses, and it is patently unfair to allow this for only one religion.

The case stems from an agreement the IRS reached with the Church of Scientology in 1993 to end more than a decade of lawsuits, audits, and other enforcement actions involving the tax agency, Scientology entities, and church leaders. The church paid $12.5 million, while the IRS agreed to drop arguments that Scientology, which was founded by L. Ron Hubbard, was not a bona fide religion.

At about the time of that deal, the IRS agreed to allow Scientologists to deduct at least 80% of the fees paid for "religious training and services."

Honestly, I couldn't believe that this was the case, so I did some digging. Apparently, this is well documented. According to section IV.A.3.ix.b of the "Closing Argument," which deals with the details of the 1993 agreement between Scientology and the IRS regarding tax-exempt status:

...the following actions will be considered to be a material breach by the Service...the issuance of a Regulation, Revenue Ruling or other pronouncement of general applicability providing that fixed donations to a religious organization other than a church of Scientology are fully deductible unless the Service has issued previously or issues contemporaneously a similar pronouncement that provides for consistent and uniform principles for determining the deductibility of fixed donations for all churches including the Church of Scientology"

Experts appear to hold that this clause contractually requires the IRS to discriminate in favor of Scientology.

The good news is that, as seen in the Sun article, judges are starting to sit up and take notice.

"The view of the IRS is it can unconstitutionally violate the Constitution by establishing religion, by treating one religion more favorably than other religions in terms of what is allowed as deductions, and there can never be any judicial review of that?" Judge Kim Wardlaw asked at the court session Monday in Pasadena, Calif.

"That is not at all what I said," a Justice Department lawyer representing the IRS, Ellen Delsole, said.

"That's the bottom line," Judge Wardlaw and a colleague on the panel, Harry Pregerson, both replied. "This does intrude into the Establishment Clause," Judge Wardlaw added.

An important disclaimer here: the case in question is being heard by the 9th Circuit Court of Appeals, famous for its judicial activism and for being the most-reversed court in the nation. But here's the point: is it fair to give a financial advantage to one religion while denying it to all others? I'm not sure there are a lot of people that would answer "yes" to that question.

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Update: Some documentation of Scientology's tax-privileged status is not difficult to find. In short, the IRS's Revenue Ruling 93-73 makes obsolete the earlier Revenue Ruling 78-189, which makes a detailed case against payments for "auditing" sessions counting as charitable contributions.