Hernandez v. Commissioner
Encyclopedia
Hernandez v. Commissioner, 490 U.S. 680
(1989), is a decision of the United States Supreme Court relating to the Internal Revenue Code
§170 charitable contribution deduction.
, founded by L. Ron Hubbard
, believe that an immortal spiritual being exists inside everyone. The Church uses the "auditing
" practice to help interested people become aware of this spiritual being. The Church uses the "training" courses to help participants to become auditors. The Church charges for those services due to the belief that, any time a person receives something, that person must pay something back in return. The income generated by those services constitutes the Church's primary source of income.
The taxpayers made payments to branch churches in exchange for auditing or training services. The taxpayers tried to deduct these payments on their Federal Income Tax returns under the charitable contribution
deduction.
began the majority opinion with a discussion of the legislative history
of the "contribution or gift" limitation as described in IRC §170(c). When the tax bill was enacted in 1954, Congress
distinguished between unrequited payments and payments made in return for goods and services. Specifically, the gift characterization was deemed to only apply "if there were no expectation of any quid pro quo
..." In later decisions, the quid pro quo analysis was expanded to also apply to charitable contributions.
Hernandez and other taxpayers argued that the "quid pro quo" determination did not apply to this situation because the benefit they were receiving through the auditing and training was purely religious. The Court emphasized that IRC §170(c) clearly states that donations to religious organizations are only deductible if they are contributions or gifts, regardless of the expectations underlying the payments. The Court hesitated to broaden the scope of the deduction to any payments designed to achieve a religious benefit, since that could open the door to deductions such as those for parochial school tuition or payments to church-affiliated hospitals. The Court noted that refraining from characterizing the services provided by religious institutions prevented the government - the IRS and court system - from effectively monitoring the practices of a church.
and Justice Scalia
disagreed with the majority opinion. The opinion noted that there have been no instances where the IRS has previously denied deductibility on a quid pro quo basis even though the benefit was entirely spiritual or religious. Because of the difficulty in putting a dollar value on intangible religious benefits, the Government had, up until this case, chosen to ignore the quid pro quo argument and allow these deductions.
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(1989), is a decision of the United States Supreme Court relating to the Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
§170 charitable contribution deduction.
Facts
The Church of ScientologyChurch of Scientology
The Church of Scientology is an organization devoted to the practice and the promotion of the Scientology belief system. The Church of Scientology International is the Church of Scientology's parent organization, and is responsible for the overall ecclesiastical management, dissemination and...
, founded by L. Ron Hubbard
L. Ron Hubbard
Lafayette Ronald Hubbard , better known as L. Ron Hubbard , was an American pulp fiction author and religious leader who founded the Church of Scientology...
, believe that an immortal spiritual being exists inside everyone. The Church uses the "auditing
Auditing (Scientology)
Auditing was developed by L. Ron Hubbard, and is described by the Church of Scientology as "spiritual counseling which is the central practice of Dianetics and Scientology".-Description:...
" practice to help interested people become aware of this spiritual being. The Church uses the "training" courses to help participants to become auditors. The Church charges for those services due to the belief that, any time a person receives something, that person must pay something back in return. The income generated by those services constitutes the Church's primary source of income.
The taxpayers made payments to branch churches in exchange for auditing or training services. The taxpayers tried to deduct these payments on their Federal Income Tax returns under the charitable contribution
Charitable contribution
Charitable contribution deductions for United States Federal Income Tax purposes are defined in section 170 of the Internal Revenue Code as contributions to or for the use of certain nonprofit enterprises. See...
deduction.
Issue
Whether taxpayers may deduct payments to the Church of Scientology for auditing and training as a charitable contribution under IRC §170?Holding
The payments for auditing or training sessions do not satisfy the "contribution[s] or gift[s]" inquiry necessary for deductibility under IRC §170 because it amounted to a quid pro quo for the taxpayer. In other words, the taxpayer received a benefit in consideration for his contribution.Reasoning
Justice Thurgood MarshallThurgood Marshall
Thurgood Marshall was an Associate Justice of the United States Supreme Court, serving from October 1967 until October 1991...
began the majority opinion with a discussion of the legislative history
Legislative history
Legislative history includes any of various materials generated in the course of creating legislation, such as committee reports, analysis by legislative counsel, committee hearings, floor debates, and histories of actions taken...
of the "contribution or gift" limitation as described in IRC §170(c). When the tax bill was enacted in 1954, Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
distinguished between unrequited payments and payments made in return for goods and services. Specifically, the gift characterization was deemed to only apply "if there were no expectation of any quid pro quo
Quid pro quo
Quid pro quo most often means a more-or-less equal exchange or substitution of goods or services. English speakers often use the term to mean "a favour for a favour" and the phrases with almost identical meaning include: "give and take", "tit for tat", "this for that", and "you scratch my back,...
..." In later decisions, the quid pro quo analysis was expanded to also apply to charitable contributions.
Hernandez and other taxpayers argued that the "quid pro quo" determination did not apply to this situation because the benefit they were receiving through the auditing and training was purely religious. The Court emphasized that IRC §170(c) clearly states that donations to religious organizations are only deductible if they are contributions or gifts, regardless of the expectations underlying the payments. The Court hesitated to broaden the scope of the deduction to any payments designed to achieve a religious benefit, since that could open the door to deductions such as those for parochial school tuition or payments to church-affiliated hospitals. The Court noted that refraining from characterizing the services provided by religious institutions prevented the government - the IRS and court system - from effectively monitoring the practices of a church.
Dissent
Justice O'ConnorSandra Day O'Connor
Sandra Day O'Connor is an American jurist who was the first female member of the Supreme Court of the United States. She served as an Associate Justice from 1981 until her retirement from the Court in 2006. O'Connor was appointed by President Ronald Reagan in 1981...
and Justice Scalia
Antonin Scalia
Antonin Gregory Scalia is an American jurist who serves as an Associate Justice of the Supreme Court of the United States. As the longest-serving justice on the Court, Scalia is the Senior Associate Justice...
disagreed with the majority opinion. The opinion noted that there have been no instances where the IRS has previously denied deductibility on a quid pro quo basis even though the benefit was entirely spiritual or religious. Because of the difficulty in putting a dollar value on intangible religious benefits, the Government had, up until this case, chosen to ignore the quid pro quo argument and allow these deductions.
See also
- List of United States Supreme Court cases, volume 490
- List of United States Supreme Court cases
- Lists of United States Supreme Court cases by volume
- List of United States Supreme Court cases by the Rehnquist Court
- Scientology and the legal systemScientology and the legal systemThe Church of Scientology has been involved in court disputes in several countries. In some cases, when the Church has initiated the dispute, question has been raised as to its motives. The Church says that its use of the legal system is necessary to protect its intellectual property and its right...