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Tuesday, December 27, 2005

No Deduction for Religious Education Expenses

In a recent Tax Court case, the taxpayers paid tuition to an Orthodox Jewish day school. The tuition was allocable in part to religious education, and part to secular education. The taxpayers sought to take a charitable deduction for the portion attributable to the religious education.

The basis for this claim was Code Section 170(f)(8). Generally, taxpayers cannot receive a charitable deduction for contributions when they receive something back of equal value - a "quid pro quo." When something is received back of lesser value than the contribution, rules apply to get documentation from the charity as to the value of what was received back. Code Section 170(f)(8) provides that payments for "intangible religious benefits" are deductible without such documentation. The taxpayers argued that under this provision the religious education given their children was an "intangible religious benefit" and thus deductible without being limited by the quid pro quo rules.

The Tax Court dodged the issue on a technicality by finding that Code Section 170(f)(8) did not apply and thus the tuition was not deductible because the school was not engaged EXCLUSIVELY in religious activities (a requirement of the applicable of the "intangible religious benefits" exception). Therefore, it left open for another day the question whether payments for religious instruction to an organization that does not engage in any secular activities would be deductible.

Where does this leave things under the law?

-amounts paid to organizations for secular, or combined secular and religious education, is not deductible

-amounts paid to organizations for religious education, if the organization conducts only religious activities - unknown deductibility

-amounts paid to wholly religious organizations as outright gifts or dues should be deductible

Sklar v. Comm.
, 125 TC No. 14 (12/21/05)

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