ROBERT L. HERNANDEZ, PETITIONER V. COMMISSIONER OF INTERNAL REVENUE

   KATHERINE JEAN GRAHAM, ET AL., PETITIONERS V. COMMISSIONER OF
INTERNAL REVENUE

   No. 87-963, 87-1616

   In the Supreme Court of the United States

   October Term, 1988

   On Writs of Certiorari to the United States Courts of Appeals for
the First and Ninth Circuits

   Brief for the Respondent

                            OPINIONS BELOW

   In No. 87-963, the opinion of the court of appeals (87-963 Pet.
App. 1a-28a) is reported at 819 F.2d 1212.  The decision and order of
the Tax Court (87-963 Pet. App. 43a) is unreported.  In No. 87-1616,
the opinion of the court of appeals (Pet. App. 1a-18a) /1/ is reported
at 822 F.2d 844.  The opinion of the Tax Court (Pet. App. 36a-46a) is
reported at 83 T.C. 575.

                             JURISDICTION

   In No. 87-963, the judgment of the court of appeals (87-963 Pet.
App. 29a) was entered on June 1, 1987.  A petition for rehearing was
denied on July 15, 1987 (87-963 Pet. App. 30a).  On October 6, 1987,
Justice Brennan extended the time within which to file a petition for
a writ of certiorari to and including December 12, 1987.  The petition
was filed on December 11, 1987, and was granted on April 18, 1988.  In
No. 87-1616, the judgment of the court of appeals (Pet. App. 19a) was
entered on July 17, 1987.  A petition for rehearing was denied on
December 1, 1987 (Pet. App. 20a-21a).  On February 19, 1988, Justice
O'Connor extended the time within which to file a petition for a writ
of certiorari to and including March 30, 1988.  The petition was filed
on that date and was granted on May 23, 1988, at which time it was
ordered consolidated with No. 87-963.  The jurisdiction of this Court
is invoked under 28 U.S.C. 1254(1).

            STATUTES AND CONSTITUTIONAL PROVISION INVOLVED

   The First Amendment to the Constitution and Section 170 of the
Internal Revenue Code (26 U.S.C.) are set forth in an appendix (App.,
infra, 1a-2a).

                          QUESTIONS PRESENTED

   1.  Whether a payment to the Church of Scientology for auditing or
training sessions is deductible from gross income as a "contribution
or gift" under Section 170 of the Internal Revenue Code.

   2.  Whether the First Amendment requires that such a payment be
deductible from gross income.

                               STATEMENT

   1.  The issue in this case concerns the deductibility from gross
income of payments made by petitioners to the Church of Scientology.
The Church is an international network of organizations that consists
both of a central organization, the "mother" Church of Scientology of
California, and of numerous branches and divisions that are separate
entities for tax purposes.  The Church is organized in a hierarchical
fashion with the spiritual leadership provided by the highest
division, which issues policy letters and directives to the
lower-ranking divisions.  Scientology teaches that an individual is a
spiritual being having a mind and a body.  A process called "auditing"
is believed to help an individual to gain spiritual competence.
Auditing is administered in a one-to-one session by a trained
Scientologist who asks questions of the auditee and identifies areas
of spiritual difficulty by using an electronic device to measure skin
responses during the session.  Scientologists believe that the highest
level of spiritual ability and awareness can be attained only by
progressing on a step-by-step basis through ascending levels of
auditing, which is provided in short blocks of time known as
"intensives." The Church also provides "training" courses, in which
individuals study the doctrines and tenets of Scientology;
Scientologists are taught that spiritual gains also result from
participation in these courses, and training courses, like auditing,
are provided in ascending levels.  Pet. App. 24a-26a, 38a;  Church of
Scientology v. Commissioner, 83 T.C. 381, 385-388 (1984), aff'd, 823
F.2d 1310 (9th Cir. 1987), cert. denied, No. 87-1377 (May 16, 1988).

   The Church charges a "fixed donation" for training courses and
auditing intensives.  These charges are set forth in schedules, and
they vary depending upon the length and content of the programs (with
the price per hour generally declining for longer programs) (see J.A.
97, 99, 115, 121-125).  The charges for each particular program,
however, do not vary;  they are quite substantial, /2/ and they are
almost never waived.  Indeed, an official policy letter issued by the
Church states that "(p)rice cuts are forbidden under any guise" and
that "PROCESSING MAY NEVER BE GIVEN AWAY BY AN ORG." (Pet. App. 39a
n.6).  /3/ The Church does offer a standard 5% discount on its
programs, however, if full payment is made in advance of the services
to be rendered (id. at 40a;  J.A. 121).  Under certain conditions,
refunds are available for "undelivered" services if an individual does
not complete a particular program.  The refund must be sought in
writing within 90 days, and the individual must undertake to release
the Church from further obligation.  A 12% administrative charge is
deducted from the refund, and the Church will not again audit or train
an individual who obtains a refund.  J.A. 104-105.  Applicants for
auditing and training are expected to sign enrollment forms accepting
the conditions under which these services are rendered (see J.A.
131-133).  This system of mandatory, fixed charges for its programs is
an application of a tenet of the Church, the "doctrine of exchange,"
which provides that "anytime a person receives something, he must pay
something back" (Pet. App. 38a-39a).

   The Church aggressively promotes its auditing and training programs
by means of free lectures, handouts, magazines published by the
Church, and newspaper, magazine, and radio advertising.  These
promotional activities are geared to be responsive to community
concerns that are determined from surveys.  Pet. App. 29a-31a, 40a.
The promotional literature emphasizes the benefits -- "gains beyond
measure" (J.A. 111) -- that an individual will achieve from enrolling
in the particular Scientology program.  These advertised benefits
generally pertain to increasing one's happiness, control over one's
life, and ability to handle other people (see J.A. 107, 109-111).
Specifically, the Church's literature claims that its courses teach
one "how to correctly study," how to "control anything in life," "how
to become more efficient," "how to handle exhaustion," and "an
improved memory," and that they "reliev(e) a person of the need for
drugs or alcohol" (J.A. 110).  The advertisements also promise
"friendly, personal service" (J.A. 111) and encourage individuals to
take advantage of the advance payment discount and other "savings" on
"economical" package arrangements (J.A. 106-107, 120, 127;  C.A. App.
101).  /4/

   2.  Each of the petitioners made payments to a branch of the Church
of Scientology for auditing or training, or both, and sought to deduct
those payments on his or her income tax return as charitable
contributions under Section 170 of the Internal Revenue Code.  /5/
Petitioner Hernandez paid $7,338 to the Church in 1981 and took a
deduction in that amount on his 1981 tax return (87-963 Pet. App.
1a-2a).  Petitioner Graham paid a total of $1,682 to the Church of
Scientology, Hawaii, and to the Scientology and Dianetic Center of
Hawaii in 1972 and took a deduction in that amount on her 1972 income
tax return.  Of that amount, approximately $400 was for a training
course and the balance was for auditing;  some of the payments towards
courses were for Graham's daughters.  Pet. App. 40a-41a.  Petitioner
Hermann made payments of $4,875 to the Church of Scientology, American
Saint Hill Organization, in 1975 in order to take the Class 0-9
package of training courses, though he ultimately applied the payments
to other Scientology courses and auditing.  On his income tax return
for that year, he took a $3,922 deduction for payments to the Church.
Id. at 41a.  Petitioners Graham and Hermann each testified that they
understood that these payments were a prerequisite to receiving the
auditing and training that they sought (C.A. App. 283, 288, 321).
Petitioner Maynard paid $4,699 to the Church of Scientology, Mission
of Riverside, in 1977 as advance payments for auditing and training
courses.  He took a $5,000 deduction on his income tax return for that
year, reflecting a carryover from payments that he had made to the
Church in 1976 but had not deducted on his return for that year.  Pet.
App. 41a.

   The Commissioner disallowed these deductions, concluding that the
payments to the Church were not "charitable contribution(s)" within
the meaning of Section 170 of the Code.  /6/ Petitioners sought
redetermination of the resulting deficiencies in the Tax Court.
Petitioner Hernandez's case was not tried, nor was there any
evidentiary submission.  Instead, petitioner Hernandez entered into a
stipulation with the Commissioner (87-963 Pet. App. 44a-45a) to be
bound, subject to the right of appeal, by "any relevant findings of
fact and conclusions of law" (excluding those relating to "subjective
intent") to be made by the Tax Court in the cases of petitioners
Graham, Hermann, and Maynard, which were consolidated for trial.  /7/
The stipulation further provided that the record in Graham would be
deemed part of the record in Hernandez for purposes of appeal.
Accordingly, no facts were developed pertaining to petitioner
Hernandez, apart from the information contained on his return that he
had made $7,338 in payments to the Church of Scientology in 1981, a
fact that the Commissioner had not questioned in his notice of
deficiency.

   3.  A trial was held in the Graham case, and the Tax Court upheld
the Commissioner's determination with respect to petitioners Graham,
Hermann, and Maynard (Pet. App. 36a-46a).  The decision was based in
part on certain stipulations concerning the Church (see id. at
22a-32a).  For purposes of this litigation only, the government did
not contest that Scientology was a religion and that each Scientology
organization to which the Graham petitioners paid money was a church
within the meaning of Section 170(b)(1)(A)(i) of the Code, a
tax-exempt organization under Section 501(c)(3), and an eligible
recipient of deductible charitable contributions under Section
170(c)(2) (Pet. App. 31a-32a, 37a).  The parties also stipulated to
the record in another case that was pending at the time, Church of
Scientology v. Commissioner, supra, which concerned the validity of
the "mother" church's tax exemption, and the Tax Court here
incorporated all relevant findings of fact from the tax exemption
litigation into the opinion in the Graham case.  Petitioners did not
argue that the Scientology entities that received their payments
operated differently from the "mother" Church, and accordingly the Tax
Court assumed that in these cases the Church operated in the same
manner as that reflected in the record in the tax-exemption
litigation.  Pet. App. 37a.  /8/

   In addition to the stipulated facts, the Tax Court made findings of
fact pertaining to the operation of the Church based on the record
developed at trial (see Pet. App. 37a-41a).  The court found that the
Church "charge(s) a 'fixed donation' for training and auditing" and
that "(w)ith few exceptions, these services are never given for free"
(id. at 39a (footnote omitted)).  The court also stated as a finding
of fact that the Church "operates in a commercial manner" in providing
its auditing and training services and that its stated "goal of making
money permeates virtually all of the Church of Scientology's
activities" (id. at 40a).

   Based on the stipulations and the facts found on the record before
it, the Tax Court concluded that the payments in question were not
deductible "contributions," but rather were nondeductible payments
made to purchase services (Pet. App. 41a-43a).  The court explained
that "(p)etitioners wanted to receive the benefit of various religious
services provided by the Church," but the Church "generally provided
those services only if they were purchased" (id. at 42a).  Noting that
advance payment discounts and refunds were available, the court stated
that "(p)etitioners thus made payments to the Church in exchange for
those services" (id. at 43a).  The court concluded (ibid.):  "The
record demonstrates clearly that these payments were not voluntary
transfers without consideration, but were made with the expectation of
receiving a commensurate benefit in return.  In addition, where
contributions are made with the expectation of receiving a benefit,
and such benefit is received, the transfer is not a charitable
contribution, but rather a quid pro quo."

   The court also rejected the contention that the denial of the
deductions violated the First Amendment (Pet. App. 43a-46a).  The
court explained that the denial of a deduction for the payments made
for auditing and training services does not "preclud(e) petitioners
from engaging in constitutionally protected activities" (id. at 44a).
The court also found that Section 170 establishes neutral "secular
criteria" for determining the deductibility of payments to charitable
organizations and hence does not unconstitutionally discriminate among
religions (id. at 45a-46a).  Finally, the court rejected petitioners'
contention that the denial of the deductions resulted from "selective
discriminatory action," finding no evidence that any discriminatory
action was taken against petitioners (id. at 46a).

   Following the entry of decisions sustaining the deficiencies in
Graham (Pet. App. 33a-35a), the Tax Court entered a decision
sustaining the deficiency in Hernandez "on the authority of Graham"
(87-963 Pet. App. 43a).

   4.  a.  The First Circuit affirmed the Tax Court's decision in
Hernandez (87-963 Pet. App. 1a-28a).  The court stated (id. at 5a)
that its inquiry into whether the payments were "contribution(s) or
gift(s)" within the meaning of Section 170 of the Code was framed by
this Court's recent analysis of that question in United States v.
American Bar Endowment, 477 U.S. 105, 118 (1986):  "The sine qua non
of a charitable contribution is a transfer of money or property
without adequate consideration.  The taxpayer, therefore, must at a
minimum demonstrate that he purposely contributed money or property in
excess of the value of any benefit he received in return." The court
rejected petitioner's contention that this inquiry into whether a
particular payment was a contribution or, instead, part of a quid pro
quo arrangement did not apply to payments for religious services.  The
court stated (87-963 Pet. App. 6a):  "We find no indication that
Congress intended to distinguish the religious benefits sought by
(petitioner) from the medical, educational, scientific, literary, or
other benefits that could likewise provide the quid for the quo of a
nondeductible payment to a charitable organization." The court noted
that petitioner Hernandez had not argued that he paid any part of the
price for the services with the intention of making a gift to the
Church or that his intentions were any different from those of the
Graham petitioners, who the Tax Court found had made the payments with
the expectation of receiving a commensurate return benefit (id. at 5a,
8a).  The court also noted that the Church itself had established the
prices for the services and that petitioner Hernandez had not argued
that those prices were excessive (id. at 8a).  Accordingly, the court
concluded that, on the record before it, including the factual
findings in Graham, petitioner Hernandez had "failed to shoulder (his)
burden" of demonstrating that the payments in question were in fact
charitable contributions (id. at 9a).

   The court also rejected petitioner Hernandez's constituional claims
(87-963 Pet. App. 9a-28a).  The court held that Section 170 does not
create any denominational preferences on its face (87-963 Pet. App.
9a-10a) or as applied in this case (id. at 10a-15a).  The court
explained that the statute is neutral (id. at 14a):  "gifts to all
charitable organizations are tax deductible;  quid pro quo payments
are not." The court also held that the denial of a deduction did not
violate petitioner's rights under the Free Exercise Clause to make
"fixed donations" in exchange for auditing and training classes (id.
at 15a-24a).  The court questioned whether the practice of making
payments in exchange for auditing and training services was required
by religious doctrine (id. at 17a-19a), but held that, in any event,
the denial of a tax deduction for the payments did not require
petitioner Hernandez to abandon that practice (id. at 19a-21a).  The
Court further stated that recognition of a First Amendment right to
make tax-deductible payments in exchange for religious services would
compromise the effectiveness and fairness of the tax system (id. at
23a-24a).  The court also held that petitioner had not shown that he
was the victim of selective prosecution in connection with the denial
of the claimed deduction (id. at 24a-28a).

   b.  The Ninth Circuit affirmed the Tax Court's decision in Graham
(Pet. App. 1a-18a).  The court upheld the Tax Court's holding that the
payments to the Church were not deductible contributions under Section
170, holding that the Tax Court applied the correct legal standards
and that its factual findings were not clearly erroneous (id. at
7a-11a).  The court of appeals explained that there is no contribution
if a "measurable, specific return comes to the payor as a quid pro quo
for the donation," finding that this formulation accords with that set
forth in this Court's decision in United States v. American Bar
Endowment, supra, (Pet. App. 8a).  Thus, the court stated that "(i)t
is the structure of the transaction, and not the type of benefit
received, that controls";  "(i)f a transaction is structured in the
form of a quid pro quo, where it is understood that the taxpayer's
money will not pass to the charitable organization unless the taxpayer
receives a specific benefit in return, and where the taxpayer cannot
receive the benefit unless he pays the required price, then the
transaction does not qualify for the deduction under section 170"
(ibid.).  The court rejected petitioner's contention that this
approach does not apply to payments for religious benefits or
services, stating that "(t)he inquiry remains whether the donation is
intended to benefit the charity without reference to a reciprocal and
specific benefit to the donor, whether or not the benefit is
religious" (id. at 9a).

   The Ninth Circuit found that the evidence in the record was "fully
sufficient" to justify the Tax Court's "determination of fact" that
the payments to the Church were not contributions.  Specifically, the
court pointed to the following factors:  "(s)olicitation for the
services and agreements to render them based on price;  conformity in
price lists, and graduated prices based on the level of instruction;
the contractual right to receive the service, and the right of refund
if the service was not performed;  account cards;  and discounts for
advance payments." These facts "all underscore that the payment
matched, with some precision, the benefits to be received." Examining
the testimony of the Graham petitioners, the court also found that
petitioners "looked upon their donations as payments made for the quid
pro quo receipt of a definite number of hours of auditing or
training." Pet. App. 10a.

   The court of appeals also rejected petitioners' constitutional
claims (Pet. App. 11a-18a).  The court held that, even if it assumed
that payment for auditing and training was compelled by religious
practice (which the court believed was not established by the record
(id. at 13a-15a)), the denial of a tax deduction for such payments did
not burden the exercise of petitioners' religious beliefs in violation
of the Free Exercise Clause (id. at 15a-17a).  The court also found no
Establishment Clause violation, reasoning that Section 170 is "neutral
in design and purpose" and reflects no intent "to visit a disability
on a particular religion" (id. at 18a).  And the court rejected the
contention that the denial of the deductions was a result of
disciminatory enforcement of the tax laws (ibid.).  /9/

                                  13

                          SUMMARY OF ARGUMENT

                                  I.

   A.  Section 170 of the Code permits a taxpayer to deduct from his
gross income the amount of a "contribution or gift" made to certain
eligible donees.  It is well settled that that phrase encompasses only
genuine contributions, not payments made for the purpose of receiving
a commensurate benefit in return.  Whether a particular payment is a
contribution or part of a quid pro quo arrangement is a case-specific
issue that turns on an assessment of all the facts and circumstances
surrounding the particular payment.

   B.  The record in this case clearly demonstrates that, as the Tax
Court and both courts of appeals below found, petitioners' payments to
the Church were part of a quid pro quo arrangement to receive auditing
and training services in exchange.  The Church marketed and provided
these services in a manner indistinguishable from the way any other
commodity is offered for sale in the marketplace -- to advance its
major policy goal of "mak(ing) money" (see Pet. App. 40a).  The
services were heavily promoted to the general public, emphasizing the
personal benefits that would accrue to an individual in his daily life
if he enrolled.  The Church sought to attract purchasers by
advertising the savings available on "package deals" and other
discounts, and by emphasizing the personal benefits of large
quantities of auditing.  And the promotional literature promised
refunds to dissatisfied customers.

   Moreover, auditing and training courses were provided "only if they
were purchased" (Pet. App. 42a).  The Church maintained a strict
policy against price cuts or the provision of free services, though it
did allow refunds for unused services under certain conditions.  The
result was a textbook quid pro quo arrangement -- a structure in which
it was understood that petitioners' money would "not pass to (the
Church) unless (they) receive(d) a specific benefit in return" and
where petitioners could not "receive the benefit unless (they paid)
the required price" (see Pet. App. 8a).  Petitioners' testimony at
trial confirmed their understanding that they could receive auditing
and training only by purchasing the services at the price fixed by the
Church.  Because the payments in question were made by petitioners not
as contributions but in order to secure the benefits of auditing and
training, the payments are not deductible under Section 170.

   C.  Section 170 does not contain an exception for payments made in
exchange for religious benefits.  The requirement that a payment
qualify as a "contribution or gift" in order to be deductible is a
threshold one that applies to payments made to any eligible donee, and
there is no basis for treating religions organizations differently for
this purpose from the other types of charitable organizations listed
in Section 170(c)(2).  The fact that the payments for auditing and
training here may have furthered the purposes of the Church provides
no basis for distinguishing them from payments made to other
tax-exempt organizations in exchange for specific benefits.  Whether
the exempt organization is religious or secular, such payments may
serve to further "charitable" purposes under Section 170, but the
payments are not deductible contributions under Section 170.

   The IRS has recognized that there may be "incidental" benefits
received by an individual as a result of a charitable contribution
that do not render that payment nondeductible, but the services
received by petitioners as a quid pro quo in this case are not
"incidental" in that sense.  In the secular context, the IRS has found
that recognition of a donation and certain attributes of membership
are incidental benefits;  in the religious context, the IRS has stated
in a ruling that the saying of mass or the conduct of similar
religious observances is a benefit to all members of the faith and any
benefit to a given family is incidental.  The latter conclusion is an
application of general principles to a particular fact situation;
contrary to petitioners, it does not stand for the proposition that
all religious benefits must be treated as "incidental." The facts of
this case show that the benefits paid for by petitioners were more
than "incidental." The Church's promotional literature and enrollment
form promised personal, individual benefits;  there is no basis for
concluding that petitioners' payments for these courses were intended
to, or did, provide any significant broader-based benefits than those
advertised by the Church.

   The determination whether a religious benefit has been received as
a quid pro quo for a payment depends on the circumstances surrounding
the payment and the provision of the benefit.  The fact that a
religious benefit may have no value to one who is not an adherent of
the religion does not mean that the benefit must be ignored under
Section 170 when it is structured as part of an inflexible quid pro
quo arrangement.  In this case, the rigid connection between the
provision of auditing and training services and payment of the fixed
price demonstrated a quid pro quo relationship and reflected the value
that petitioners expected to receive for their money.

   There is no administrative practice recognizing that payments made
in exchange for religious benefits are tax-deductible.  For example,
the IRS has consistently challenged the deductibility of payments made
to obtain religious schooling.  The rulings cited by petitioners,
relating to church dues and pew rents, reflect an effort by the IRS to
apply to particular fact situations the same principles that are
applied to payments to other tax-exempt organizations.  Those
principles point to the opposite result on the record in this case.
While the IRS has reasonably concluded that church dues and pew rents
ordinarily are intended as contributions, not for "personal
accommodation," the record here clearly shows that the petitioners'
payments were made for personal accommodation, "with the expectation
of receiving a commensurate benefit in return" in the form of
personal, individual services (Pet. App. 43a).

   Petitioners' citation (Pet. Br. 18-25) to diverse fund-raising
practices of other religions provides no basis for doubting the
correctness of this conclusion.  The practices described by
petitioners, most of which have not been passed upon by the IRS, cover
a spectrum -- some are deductible, some may not give rise to a
deduction, others may be "close to the line" (Foley v. Commissioner,
844 F.2d 94, 99 (2d Cir. 1988), petition for cert. pending, No. 88-102
(Newman, J., dissenting)).  What they have in common is that they are
all significantly different from the commercial, inflexible quid pro
quo arrangement at issue here.  Neither the IRS nor the courts have
allowed a deduction for quid pro quo payments that can reasonably be
analogized to the ones at issue here, and petitioners' attempt to
bring the facts here under the umbrella of an established
administrative practice is misconceived.

                                 II.

   The denial of petitioners' claimed deductions does not violate the
First Amendment.  Section 170 sets forth a neutral, secular standard
in limiting deductions to genuine contributions;  application of that
standard involves no impermissible denominational preference.  The
failure to create a special statutory exception that would permit
deduction of payments for auditing and training does not impermissibly
burden the exercise of petitioners' faith;  the relatively light
burden of denial of a tax advantage is clearly outweighed by the
importance of maintaining even-handed administration of the tax laws.
The quid pro quo inquiry into the circumstances surrounding the
payment and the provision of the benefit does not necessitate an
unconstitutional entanglement between church and state.

                               ARGUMENT

   THE COURTS BELOW CORRECTLY HELD THAT THE COMMISSIONER ACTED
CONSTITUTIONALLY AND IN ACCORDANCE WITH THE STATUTE IN DETERMINING
THAT PETITIONERS COULD NOT DEDUCT FROM GROSS INCOME PAYMENTS THEY MADE
TO THE CHURCH OF SCIENTOLOGY

   I.  Petitioners' Payments To The Church Of Scientology For Auditing
And Training Are Not Deductible From Gross Income As "Contribution(s)
Of Gift(s)" Under Section 170 Of The Internal Revenue Code

   The Internal Revenue Code generally makes an individual's income
subject to taxation, but it also affords income tax deductions for
certain types of expenditures.  Those deductions are purely a creation
of statute and their availability is subject to the limitations
established by Congress in the Code.  Section 170 allows an individual
to deduct "contribution(s)" to certain eligible donees, including
certain religious, educational, and scientific organizations.  It is
well established that a payment to an eligible donee is not a
deductible contribution if it is made with the expectation of
receiving a commensurate benefit in return, i.e., if the payment is
made as part of a quid pro quo arrangement for the receipt of
particular goods or services.  The Tax Court and both courts of
appeals below found that the record in this case establishes that
petitioners' payments to the Church of Scientology were part of
precisely such a quid pro quo arrangement;  the payments -- in the
amounts fixed by the Church -- were an absolute prerequisite to
receipt of the auditing and training services that petitioners desired
and the payments were made with the expectation of receiving those
services in exchange.

   Petitioners do not seriously dispute the factual conclusion that
the payments were made as part of a quid pro quo arrangement for the
receipt of services.  Petitioners maintain, however, that this fact is
irrelevant because the benefits they received were religious services
for which payments must be deductible even if they are made as part of
a quid pro quo.  Section 170, however, which governs the scope of the
charitable contribution deduction, provides no basis for excepting
payments for religious services from the requirements applicable to
payments for other services provided by tax-exempt organizations.  Nor
do constitutional considerations or any established administrative
construction of the statute justify such an exception.  Accordingly,
the courts below correctly rejected petitioners' claimed deductions
for their payments to the Church.

   A.  The Deductibility Of A Payment To A Charitable Organization
Turns Upon The Factual Question Whether The Payment Is Part Of A Quid
Pro Quo Arrangement For The Purchase Of Benefits Or Is Instead A
Genuine Contribution

   Section 170(a) allows a taxpayer to deduct a "charitable
contribution" from his gross income.  Section 170(c) defines that term
as a "contribution or gift" to certain eligible donees, including
organizations "operated exclusively for religious, charitable,
scientific, literary, or educational purposes" that otherwise meet the
statutory qualifications (I.R.C. Section 170(c)(2)).  The key phrase
"contribution or gift" is not further defined in the Code.  The
legislative history of the 1954 Code, however, clearly indicates
Congress's understanding that the term encompasses only payments that
are "made with no expectation of a financial return commensurate with
the amount of the gift" or of any "quid pro quo." S. Rep. 1622, 83d
Cong., 2d Sess. 196 (1954);  H.R. Rep. 1337, 83d Cong., 2d Sess. A44
(1954).  It is thus well settled that determining the deductibility of
a payment under Section 170 involves a factual inquiry into whether
the payment is a contribution or instead a purchase of goods or
services;  and it is recognized that drawing the line between these
two categories of payments can be a difficult task that "requir(es) an
assessment of all the facts and circumstances." See generally 2 B.
Bittker, Federal Taxation of Income, Estates and Gifts Paragraph
35.1.3 (1981);  id. at 35-9.

   The case law developed under Section 170 illustrates the dichotomy
between payments to a charity in exchange for services and a true
contribution.  For example, in Sedam v. United States, 518 F.2d 242
(7th Cir. 1975), the court disallowed a charitable contribution
deduction claimed for a payment made to a retirement home.  The
payment was required as a condition of admitting the taxpayer's mother
to the home, and the court reasoned that "a payment is not a
contribution or gift under section 170 if it is made with the
expectation of receiving a commensurate benefit in return" (id. at
245).  By contrast, in Dowell v. United States, 553 F.2d 1233 (10th
Cir. 1977), the court allowed a deduction for a payment to a
retirement home where there was not the same nexus between the payment
and receiving admission to the home.  The court explained that there
was lacking a "direct gain or benefit to the donor such as that found
in Sedam" (id. at 1239), and it emphasized that the outcome must be
"predicated entirely on the facts in evidence and the circumstances
reflected in the record of this case" (id. at 1237-1238 (emphasis in
original)).

   The fundamental distinction between a contribution and a quid pro
quo arrangement -- and the degree to which deductibility turns on the
particular facts -- is similarly illustrated by Singer Co. v. United
States, 449 F.2d 413 (Ct. Cl. 1971).  In that case, the taxpayer sold
its sewing machines at a discount to churches, hospitals, and schools,
and sought to deduct the amount of the discount as a charitable
contribution.  The court of appeals allowed the deduction for the
machines that went to the churches and hospitals, reasoning that the
taxpayer's primary purpose was to foster the charitable activities of
the recipients;  the "favorable public image" that resulted from these
discount sales was viewed as only an "incidental" benefit, not a quid
pro quo that would be inconsistent with a gift (id. at 424).  The
court denied a deduction for the discounts on the machines given to
the schools, however, reasoning that the predominant motive for those
transfers was to encourage the students to buy the taxpayer's sewing
machines in the future.  The court held that this was a "substantial"
and specific return benefit quite apart from that which ordinarily
inures to a charitable contributor.  With respect to the transfers to
the schools, the court concluded that "the transferor has received, or
expects to receive, a quid pro quo sufficient to remove the transfer
from the realm of deductibility under section 170" (id. at 423).

   This Court's recent decision in United States v. American Bar
Endowment, 477 U.S. 105, 116-118 (1986), reflects the same distinction
between a quid pro quo arrangement and a genuine contribution.  The
taxpayers ther sought to deduct under Section 170 part of their
payments to a charitable organization for insurance coverage,
contending that the excess of their premiums over the cost to the
organization of providing the insurance qualified as a "contribution
or gift" within the meaning of the statute.  As a condition of
participating in the group insurance program, the policyholders were
required to agree that the organization could retain that excess
(which was refunded by the insurance company), rather than
distributing it to the policyholders.  The Court denied the claimed
deduction.  Citing Singer Co. v. United States, supra, the Court
stated that "(a) payment of money generally cannot constitute a
charitable contribution if the contributor expects a substantial
benefit in return" (477 U.S. at 116).  The Court further explained
(id. at 118):  "The sine qua non of a charitable contribution is a
transfer of money or property without adequate consideration.  The
taxpayer, therefore, must at a minimum demonstrate that he purposely
contributed money or property in excess of the value of any benefit he
received in return." The Court agreed with the trial court that, as a
factual matter, the individuals had made payments for the quid pro quo
of acquiring insurance coverage and that the taxpayers had not shown
that the amount of the payments exceeded the value of the benefits
received (see id. at 109, 118).  Accordingly, the Court concluded that
the taxpayers had not carried the burden of proof required to obtain a
charitable deduction, i.e., they did not "demonstrate that (they)
intentionally gave away more than (they) received" (id. at 118).

   By its terms, Section 170 allows a deduction to be taken only for a
"contribution or gift," regardless of the type of organization to
which the payment is made.  Thus, if the record demonstrates that the
payments made to the Church by petitioner were not contributions but
rather were in exchange for services to be rendered to them, as the
courts below found, the payments were not "contributions," and Section
170 does not provide a basis for deducting them.  In that event,
petitioners have failed to carry their burden of establishing their
entitlement to a deduction, because they are not "able to point to an
applicable statute and show that (they) come() within its terms" (New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934)).

   B.  The Record Supports The Findings Of The Courts Below That
Petitioners' Payments To The Church Were Not Contributions But Were
Part Of A Quid Pro Quo Arrangement To Purchase Specific Services

   The Tax Court found that, on the basis of the record of these cases
as a whole, the payments to the Church were not contributions, but
rather were made in exchange for the quid pro quo of auditing and
training services.  The court relied on evidence adduced as to both
the structure of the system that provides these services for a "fixed
donation" and petitioners' expectations in making the payments.  The
Tax Court's factual conclusion, affirmed by both courts of appeals
below, is fully supported by the record.

   The undisputed evidence in this case shows that auditing and
training services were marketed by the Church and purchased by
petitioners just like any other commodity that is offered for sale in
the marketplace.  One of the Church's primary goals articulated in its
policy statements is to "make money," /10/ and the Tax Court found
that this goal "permeates virtually all of (its) activities,"
including the provision of auditing and training services (Pet. App.
40a).  To further this goal, the Church heavily promoted its services,
not merely as an informational matter to its parishioners, but to the
general public by means of flyers and radio and newspaper advertising
(ibid.).  The promotions emphasized the benefits that would accrue to
an individual in his daily life if he purchased the Church's services
-- including improvement of study habits, efficiency, memory, and the
ability to handle other people (see J.A. 110) -- thereby seeking to
make the services attractive to persons having no prior connection to
or involvement with the Church.  Indeed, the promotions were
specifically geared to address community concerns that had been
determined by surveys (Pet. App. 40a).

   Like its promotional activities, the Church's pricing policies
mirrored those of other retail businesses in seeking to advance the
goal of making money.  The Church offered a 5% advance payment
discount and in its literature strongly urged individuals to take
advantage of this discount (see J.A. 106-107).  Moreover, the Church
made efforts to persuade individuals to subscribe to large quantities
of auditing and training courses, at considerable expense.  Its
pricing structure incorporated a quantity discount in that the price
per hour of auditing intensives declined as the number of hours
increased (see J.A. 97, 111-112), and the Church offered and heavily
promoted the "savings" available on "package" deals (see J.A. 115,
120, 127;  C.A. App. 101).  Apart from the price discount, the
advertising strongly emphasized the benefits to be gained from taking
"a lot of continuous auditing," characterizing that as "(t)he key to
total freedom and happiness" that would yield "more gains than you
dreamed possible" (J.A. 111 (emphasis in original)).  Finally, the
Church sought to attract customers for its services by promising that
"(a)ll fees (would be) promptly refunded to any dissatisfied student"
(see J.A. 97).  /11/

   Furthermore, auditing and training courses were provided to
individuals "only if they were purchased" (Pet. App. 42a) at the
prices fixed by the Church.  Those prices were almost never discounted
or waived.  /12/ This strict policy against provision of auditing or
training courses without full payment of the prices set by the Church
was strongly communicated throughout the organization in Church policy
letters, which stated that "(p)rice cuts are forbidden under any
guise" and "PROCESSING MAY NEVER BE GIVEN AWAY BY AN ORG." (Pet. App.
39a n.6) and characterized attempts to reduce prices as "high
crime(s)" and "suppressive acts" (Church of Scientology v.
Commissioner, 83 T.C. at 416 n.21).  And the Church's practice of
allowing refunds for unused services was consistent with this
overriding policy of linking the provision of services to the payment
of the full prices fixed by the Church.  In sum, the record fully
supports the Tax Court's finding that the Church "operate(d) in a
commercial manner" in providing its services (Pet. App. 40a).  Just
like the typical seller of a commodity in the marketplace, the Church
promoted its product, sought to induce customers to purchase it in
large quantities, made it available to anyone willing to pay the full
purchase price, and categorically refused to provide it to persons who
would not pay that full price.  /13/

   The Church's approach to marketing and providing its services can
leave little doubt in the mind of an interested individual that, in
order to obtain the services, one must provide full payment in
exchange;  the record here shows that petitioners fully understood
this quid pro quo arrangement and made their payments accordingly.
Petitioner Graham acknowledged in her testimony that she understood
that she could not have taken the training courses that she desired
without having paid the "fixed donation" (C.A. App. 288-289).
Similarly, petitioner Hermann acknowledged that he understood that he
could not have enrolled in the "class 9 package" of training without
joining the staff of the Church or "donating" the price charged for
the course (id. at 321).

   The bookkeeping for the payments also reflected the common
understanding that they were part of a quid pro quo arrangement for
the receipt of auditing and training.  On one of petitioner Hermann's
checks to the Church, he had written the following (J.A. 113):  "Down
payment on vital information rundown, total price $500;  balance to be
added on to balance of class IX package.  Next payment of $100 due
Nov. '75." Other of his checks carried notations designating the class
9 package as the one for which the payments were being made (C.A. App.
119-120), and one was annotated "Package Payoff" (J.A. 113).
Petitioner Graham received a "billing" for 8 1/2 hours of auditing
(J.A. 96), which she understood as detailing "what (she) owed the
church" (C.A. App. 289).  Petitioner Maynard signed a "Customer's
Order" form, acknowledging his understanding that "it contains the
basis upon which the above religious services of auditing and/or
training are delivered by the Church";  that basis, according to the
form, was the "sale" to him of a particular course at the designated
"price at time of purchase" (J.A. 129-130).

   Thus, the record establishes a direct and inflexible connection
between the payments made by petitioners and the auditing and training
services they received.  Petitioners' transactions fall unmistakably
into the category of a quid pro quo arrangement as defined by the
Ninth Circuit below, namely "where it is understood that the
taxpayer's money will not pass to the charitable organization, unless
the taxpayer receives a specific benefit in return, and where the
taxpayer cannot receive the benefit unless he pays the required price"
(Pet. App. 8a).  On this record, the courts below all found that the
payments had been made as part of a quid pro quo arrangement in
exchange for the services received (see Pet. App. 10a, 43a;  87-963
Pet. App. 5a, 9a).  The Fourth Circuit, reviewing the same record,
cogently explained why this conclusion is inescapable:

         The transactions at issue in this appeal were unequivocally
      structured as payments made with the expectation of a
      commensurate return benefit.  The Church advertised its auditing
      sessions, published price lists, and refused to provide the
      sessions without payment.  The Church recognized the member's
      contractual right to receive the service and refunded payments
      if the sessions were not performed.  * * * Since the Church
      member does not receive the service unless she pays the
      scheduled fee, the service, however labelled or analogized, is a
      quid pro quo for the payment and the payment is not
      'charitable.'

   Miller v. Commissioner, 829 F.2d 500, 503 (1987), petition for
cert. pending, No. 87-1449.  See also Christiansen v. Commissioner,
843 F.2d 418, 421 (10th Cir. 1988), petition for cert. pending, No.
87-2023 ("examination of the structure of these payments clearly
reveals that they were made on a quid pro quo basis for services");
Foley v. Commissioner, 844 F.2d 94, 98-99 (2d Cir. 1988), petition for
cert. pending, No. 88-102 (Newman, J., dissenting) ("Auditing sessions
are advertised, priced, and marketed by the seller and bought by the
customer as specific benefits for the purchaser, and the Tax Court
could hardly have found otherwise.").  Under established principles of
law, therefore, the payments made by petitioners to the Church of
Scientology were not "contributions or gifts" and hence not deductible
under Section 170.

   C.  Section 170 Does Not Except Payments For Religious Benefits
From The General Requirement That A Payment Be A "Contribution,"
Rather Than Part Of A Quid Pro Quo Arrangement, In Order To Be
Deductible

   Petitioners do not seriously dispute that the payments they made to
the Church were part of a quid pro quo arrangement to receive auditing
and training services.  Instead, they maintain that this fact is
irrelevant because the benefits they received were religious in
nature.  Petitioners contend that payments to tax-exempt religious
organizations are treated differently from payments to other eligible
donees under Section 170 -- that even if a payment to a religious
organization is made to obtain a benefit, it is a "contribution," so
long as the benefit received is a religious one.  The courts of
appeals that have reversed the Tax Court on teh statutory issue
presented here have similarly maintained that Section 170 embodies a
distinction between secular and religious benefits.  See Neher v.
Commissioner, No. 86-1275 (6th Cir. July 19, 1988);  Foley v.
Commissioner, 844 F.2d 94 (2d Cir. 1988), petition for cert. pending,
No. 88-102;  Staples v. Commissioner, 821 F.2d 1324 (8th Cir. 1987),
petition for cert. pending, No. 87-1382.  Those courts have primarily
based this holding on special properties that they find inherent in
religious benefits, which, coupled with the policies underlying
Section 170, suggest that payments to obtain such benefits must be
tax-deductible.  Petitioners, on the other hand, primarily rest their
argument on two related assertions -- that for 70 years the IRS has
consistently administered Section 170 by drawing a distinction between
religious benefits, on the one hand, and "benefits sold in the secular
marketplace" (Pet. Br. 32), on the other hand, and that the payments
made by petitioners in this case are indistinguishable from payments
made to other religious organizations by their adherents that are
universally recognized as tax-deductible (see id. at 10-32).  The
courts below correctly rejected these arguments and held that Section
170 does not except payments for religious benefits from the general
rule that a quid pro quo arrangement for the receipt of benefits is
not a "contribution."

   1.  There is Nothing in Section 170 or Inherent in the Nature of
Religious Benefits that Justifies Excepting Payments for Such Benefits
from the Rule that a Payment Made Specifically to Obtain a
Commensurate Benefit in Return is Not Deductible

   a. The terms of Section 170 plainly offer no support for
petitioners' contention that payments to religious organizations in
exchange for religious benefits are inherently different from payments
to other eligible donees under Section 170(c)(2).  Section 170 allows
a deduction for a "contribution or gift" to the types of organizations
listed, including "religious, charitable, scientific, literary, or
educational" organizations (I.R.C. Section 170(c)(2)).  Thus, it is a
threshold requirement that the payment be a "contribution or gift,"
i.e., a genuine donation rather than a payment in exchange for
particular benefits -- regardless of what type of organization is the
recipient of the payment.  In the absence of any special status
explicitly conferred by statute, religious institutions will
ordinarily be viewed as standing on an equal footing in the
contemplation of the tax law with the other charitable organizations
named in Section 170(c)(2).  For example, in Bob Jones University v.
United States, 461 U.S. 574 (1983), this Court held that a religious
school, like other types of tax-exempt organizations, must meet the
common law description of "charitable" in order to qualify as exempt
under Sections 170(c)(2) and 501(c)(3) of the Code.  See also Walz v.
Tax Commission, 397 U.S. 664, 673 (1970);  id. at 687-689 (Brennan,
J., concurring).

   The Sixth Circuit in Neher suggested that the payments for auditing
and training obtained here must be viewed as deductible because they
"furthered the charitable purposes of the Church * * * (as the)
predominant means of raising money to support its activities" (slip
op. 12).  See also Staples, 821 F.2d at 1327 (relying on "inherently
charitable nature of strictly religious practices").  But that
reasoning is fallacious, and it provides no basis for distinguishing
between payments for religious benefits and those for other kinds of
benefits.  All of the organizations listed as eligible donees in
Section 170(c)(2) are obliged to operate for "charitable purposes" and
to put the public interest above the private interest;  that is the
basis for retaining their tax exemption.  See Bob Jones University v.
United States, 461 U.S. at 591.  Thus, a payment to a school, a
hospital, a museum, or any other organization included in Section
170(c)(2) goes to further the "charitable purposes" of the
organization just as surely as a payment to a religious organization.
In either case, Section 170 provides that the payment may be deducted
if, but only if, it is a "contribution" -- i.e., it is not a quid pro
quo in exchange for a specific benefit.  In short, as the Ninth
Circuit below concluded, "(t)he statute cannot be read to permit
religions to offer a deductible quid pro quo while other charitable
organizations may not" (Pet. App. 9a).  See also Hernandez, 87-963
Pet. App. 6a;  Christiansen, 843 F.2d at 420;  Miller, 829 F.2d at
503-504.

   b.  Petitioner argues (Br. 35) that the receipt of a relgious
benefit cannot serve as a quid pro quo that would render nondeductible
the payment for that benefit because "individual religious benefits
are by law treated as 'incidental.' " This assertion is echoed by the
courts of appeals that have agreed with petitioner.  See Foley, 844
F.2d at 96;  Staples, 821 F.2d at 1326.  But the premise of this
argument is incorrect.  Neither the courts nor the IRS has ever
recognized a general principle to the effect that any religious
benefit received by an individual must be regarded as a matter of law
as primarily a public benefit of only "incidental" value to him.  Such
a principle would not comport with reality, and that point could not
be more starkly illustrated than by the facts of this case.

   The courts and the IRS have recognized that there may be
"incidental" benefits received by an individual as a result of a
charitable contribution that do not render that contribution
nondeductible.  That is an inevitable consequence of the fact that
individuals usually have some reason for acting and therefore any
contribution almost certainly provides some return to the donor,
perhaps in the form of enhanced reputation or internal satisfaction
for advancing a worthy cause.  See Neher, slip op. 11.  Obviously,
that has much to do with why different people choose to contribute to
different organizations.  Accordingly, the IRS has been required to
engage in drawing lines between benefits that are "incidental," such
as "the satisfaction of fostering a worthy cause, even if the donor's
name is memorialized by a cornerstone or professorial chair" (B.
Bittker, supra, at 35-8), and benefits that constitute the kind of
quid pro quo that disqualifies the payment as a contribution under
Section 170.  In particular, the IRS has grappled with this
distinction in the context of membership dues, ruling that privileges
such as the right to vote, hold office, or become known as a
benefactor, are "incidental," but the right to discounts or to attend
exclusive events is not.  See id. at 35-9;  Rev. Rul. 77-160, 1977-1
C.B. 351;  Rev. Rul. 68-432, 1968-2 C.B. 104;  Rev. Rul. 55-70, 1955-1
C.B. 506.

   Thus, it is apparent that the concept of "incidental" benefits is
not unique to the provision of religious benefits.  Rather, the
concept has been applied on a case-by-case basis to many different
kinds of benefits provided by charitable organizations, including both
secular and religious benefits.  In one of its rulings concerning a
payment claimed as a contribution to a religious organization, the IRS
has stated:  "(T)he saying of mass or the conduct of similar religious
observances under the tenets of a particular religion are of a
spiritual benefit to all the members of that faith and to the general
public.  Any private benefit to a given family or individual that may
result is regarded as merely incidental to the general public.  Any
private benefit to a given family or individual that may result is
regarded as merely incidental to the general public benefit that is
served" (Rev. Rul. 71-580, 1971-2 C.B. 235, 236).  But this conclusion
is a factbound one addressed to masses or "similar religious
observances";  contrary to petitioner's assertion (Br. 35), it plainly
does not stand for the proposition that all religious benefits must be
treated as "incidental."

   On the record of this case, there is no basis for concluding that
the individual benefits paid for and received by petitioner were
merely "incidental" to a broader benefit received by the general
public or other members of the Church of Scientology.  The benefits
attributed by the Church to the receipt of auditing and training were
quint-essentially personal, relating to such matters as the
improvement of one's memory, efficiency, study habits, family life,
and ability to handle other people (see, e.g., J.A. 110, 111).
Indeed, the Church's literature, in exhorting people to subscribe to a
lot of auditing, emphasized that one should "(m)ake certain you get a
lot for yourself" (J.A. 111 (emphasis in original)).  The enrollment
form signed by applicants for Church programs states that "the
benefits obtainable from Church services * * * are personal and are
experienced by the individual himself or herself" (J.A. 132).  On the
other hand, it is not apparent that an auditing session for a
particular individual was believed to yield any significant benefit to
other members of the Church.  Thus, the record in this case indicates
that participants in the Church's auditing and training sessions paid
for and received "far more than incidental benefits" (Foley, 844 F.2d
at 98 (Newman, J., dissenting)).  See also Pet. App. 10a-11a.

   c.  Petitioners contend (Br. 37-41) that only secular benefits can
be considered part of a quid pro quo for a payment because religious
benefits have no "calculable financial or economic value" (Br. 39).
This argument is also made by the courts of appeals that have reversed
the Tax Court on this issue.  See Neher, slip op. 15;  Foley, 844 F.2d
at 97;  Staples, 821 F.2d at 1327.  This objection lacks substance,
however, because the ascertainment of a benefit's intrinsic "financial
or economic value" is not an element of the inquiry into whether a
payment for that benefit is a genuine contribution that is deductible
under Section 170.  Many, if not all, commodities cannot be said to
have an intrinsic economic value;  rather, their "value" is
ascertained by what people are required and willing to pay for them.
When religious benefits are provided in a setting that is essentially
indistinguishable from the setting in which other commodities are
provided, the benefits have a "value" in the same way.  Even if the
ultimate benefit to be derived from the religious services is
spiritual, as opposed to the more material benefits that are the
motivation for purchasing other types of commodities, that does not
defeat the possibility that the religious services may be provided on
a quid pro quo basis in which the value to the purchaser is reasonably
measured by the price he must pay for the services.  When the facts
demonstrate such a quid pro quo arrangment, Section 170 does not allow
a deduction for the payment.  As the Ninth Circuit below remarked on
this point (Pet. App. 9a):  "The test is not the economic character of
what the payor receives but whether there is a specific, measurable
quid pro quo for the donation in question.  Though the economic aspect
of a reward makes it easier to identify such a transaction, it is not
a precondition to application of the test."

   The ultimate question is whether the payment claimed to be a
contribution "is intended to benefit the charity without reference to
a reciprocal and specific benefit to the donor" (Pet. App. 9a).  In
some cases, that question can be answered quite clearly by examining
the structure created by the organization for the provision of that
benefit, i.e., the circumstances under which the payment is made and
the benefit received.  That is the case here.  The Church established
a firm tie between the provision of auditing and training services and
the payment of the advertised price for those services.  On the one
hand, the services would not be provided unless payment was made;  on
the other hand, payment of the advertised price entitled an individual
to receive the services.  That is undeniably a description of a quid
pro quo arrangement, which does not give rise to a charitable
contribution deduction.  /14/

   Thus, the courts of appeals have recognized that the services
received by petitioners in exchange for their payments had a "value"
to them for purposes of the Section 170 inquiry;  that is just another
way of saying that the services were provided as part of a quid pro
quo arrangement.  As the Fourth Circuit explained, "the value which
the taxpayer expects to receive, whether religious or secular, can be
measured when she must pay a fixed fee in order to receive it.  * * *
(Therefore,) in the peculiar circumstances before us it is the
structure of the Church's fixed donation plan, and not any post hoc
characterization of the service rendered, that should determine
whether the taxpayer is paying for a service of value to her or making
a 'charitable contribution.'" Miller, 829 F.2d at 504 (emphasis in
original).  The Ninth Circuit below listed numerous attributes of the
structure set up by the Church to market its services, remarking that
they "all underscore that the payment matched, with some precision,
the benefits to be received" (Pet. App. 10a).  The court further found
that "(t)he value of the quid pro quo received by the taxpayers was
easy for the Tax Court to determine, simply by looking at the amount
of money they were willing to pay for it in a market setting," and the
court noted that the fact "(t)hat the benefit may have had value only
to religious adherents is not significant, given its measurable
attributes" (ibid.).  The First Circuit noted that "the Church of
Scientology itself established and advertised the monetary prices
('fixed donations') for the services at issue" (87-963 Pet. App. 8a).
The Tenth Circuit stated that "(a) benefit does not have to be
economic to bar the deduction" (Christiansen, 843 F.2d at 420);
"examination of the structure of these payments clearly reveals that
they were made on a quid pro quo basis for services" (id. at 421).
The court added that "there is no problem in determining the value of
the services since the value has been set by the Church and is not
contested by the taxpayers" (ibid.).  /15/

   Each of these formulations amounts to the same conclusion -- that
the record here unequivocally demonstrates that payments made to the
Church of Scientology were not contributions, but rather were made to
receive the specific quid pro quo of auditing and training.  As Judge
Newman succinctly stated, the issue whether these payment were part of
a quid pro quo arrangement "is not even close.  Auditing sessions are
advertised, priced, and marketed by the seller and bought by the
customer as specific benefits for the purchaser, and the Tax Court
could hardly have found otherwise" (Foley, 844 F.2d at 98-99 (Newman,
J., dissenting)).  /16/

   2.  Disallowance of Petitioners' Claimed Deductions Does Not
Represent a Departure from any Established Administrative Practice

   Petitioners' primary contention is that, regardless of the plain
import of the language of Section 170, "seventy years of consistent
IRS interpretations" (Br. 10) have recognized that payments made in
exchange for religious benefits are deductible (Br. 10-32).  To
support this contention, petitioners refer to a few IRS rulings (see
Pet. Br. 10-11, 25) and to the fund-raising practices of other
religious organizations (see id. at 18-27), which assertedly have been
recognized by the IRS as yielding deductible contributions and also
are claimed to be "indistinguishable" (id. at 14) from those at issue
in this case.  See also Neher, slip op. 18-20;  Staples, 821 F.2d at
1326.  This contention is mistaken on both counts.  Neither IRS
rulings nor the practices of other religious support the proposition
that there has ever been an admiministrative construciton of Section
170 that permits a taxpayer to take a charitable deduction for
payments made to obtain commensurate religious benefits in return.

   a.  At the outset, the IRS's treatment of payments made to
religious schools (see note 14, supra) belies the assertion that it
invariably treats as a deductible contribution a payment to a
religious organization for a religious benefit.  The IRS has
consistently taken the position that a payment to a religious school
is not a "contribution or gift" when it is primarily designed to
defray the costs of educating the taxpayer's child, and the courts
have consistently sustained that position.  See generally Rev. Rul.
83-104, 1983-2 C.B. 46.  The payments have been held not to be
contributions because "the parent taxpayers both anticipated and
received substantial benefits from their payments" (Winters v.
Commissioner, 468 F.2d 778, 781 (2d Cir. 1972)).  /17/ The close
connection between the payment to the school and the rendition of
services has been deemed inconsistent with deductibility even though a
significant element of the benefit received was a religious education.
 See, e.g., DeJong v. Commissioners, 309 F.2d 363, 374 (9th Cir. 1962)
(noting that the school was "God-centered" and taught Christian
religion and doctrines "as a part of (its) regular curriculum").  As
the First Circuit below noted (87-963 Pet. App. 8a), the outcome of
the school cases has not rested on a finding that the "return
benefits" received by the taxpayers were exclusively or even
predominantly secular;  the courts made no effort to determine what
aspects of the education were "strictly religious." Similarly, we are
advised by the IRS that it would not allow a deduction for payments
made in exchange for a strictly religious educational benefit, such as
tuition to a divinity school or seminary (although to our knowledge
this precise issue has never been the subject of litigation or a
revenue ruling).

   Even apart from the religious school cases, there is little basis
for petitioners' assertion that the IRS has administered Section 170
to provide a special exception for payments made in exchange for
religious benefits.  The ruling that gives rise to petitioners' claim
of "seven decades of consistent IRS interpretations" (Pet. Br. 11) is
A.R.M. 2, 1 C.B. 150 (1919), which concluded that pew rents, church
dues, and basket collections all "ordinarily and customarily" fall
within the definition of "contribution" for purposes of the charitable
deduction provisions.  The explanation in the ruling is terse and
fairly cryptic.  The ruling stated that "(i)t is believed that the
real intent is to contribute and not to hire a seat or a pew for
personal accommodation." The ruling also noted that "in practice the
so called 'personal accommodation' (pew rents) may afford is
conjectural";  "basket contributors sometimes receive the same
accommodation informally." Ibid.  That ruling was reaffirmed in Rev.
Rul. 70-47, 1970-1 C.B. 49, without substantial elaboration.  Treasury
stated there that "(p)ew rents, building fund assessments, and
periodic dues paid to a church * * * are all methods of making
contributions to the church."

   A subsequent ruling in a related context added some further
explanation for this treatment of payments of this type to a church.
In Rev. Rul. 77-160, 1977-1 C.B. 351, Treasury indicated that the same
standards applicable to membership dues in secular organizations (see
Rev. Rul. 68-432, 1968-2 C.B. 104) apply to church dues.  The ruling
then observed that church dues generally "confer no significant rights
on the individual members, and are paid for the purpose of supporting
the congregation and furthering its religious activities," whereas any
personal benefits that a person may receive by virtue of church
membership would best be described as "incidental" (Rev. Rul. 77-160,
1977-1 C.B. 351, 352).

   The infrequency and brevity of these rulings perhaps leave
something to be desired for purposes of articulating a complete
analytical framework, but it is clear enough that the rulings do not
reflect the establishment of a special exception under Section 170 for
payments made to religious organizations to obtain religious benefits.
 Instead, the rulings attempt to apply on a case-by-case basis the
basic inquiry applicable to all payments sought to be deducted under
Section 170 -- whether the payment is made as part of a quid pro quo
arrangement to secure a particular benefit.  The premise of the 1919
ruling is not that religious benefits are special;  it is the more
factbound conclusion that church dues, pew rents, and basket
collections are all designed as contributions for the general support
of the church and that any privileges that the donor receives are
incidental to that end and disproportionate to the size of the
contribution.  Treasury concluded, not unreasonably, that the "real
intent" of such payments "is to contribute and not to hire a seat or a
pew for personal accommodation" (A.R.M. 2, 1 C.B. 150), i.e., the
payments are not designed to obtain a quid pro quo return benefit.

   It is not fairly possible to reach a similar conclusion on the
record in this case.  The Tax Court found, and the courts below
agreed, that petitioners' payments were "not voluntary transfers," but
"were made with the expectation of receiving a commensurate benefit in
return" (Pet. App. 43a).  Thus, the Ninth Circuit below specifically
found that "(t)he Tax Court had sufficient evidence to distinguish
(petitioners') fixed donations from deductible payments to religious
organizations in which the primary motivation is presumed to be
charitable" (id. at 11a).  In short, denial of the deductions claimed
by petitioners here does not mark a "dramatic reversal" (Pet. Br. 28)
of the IRS's prior positions.  To the contrary, the basic approach
here is not significantly different from that in the 1919 ruling.  The
difference is that the unusual facts in these cases do demonstrate
that the payments were made primarily for "personal accommodation,"
and therefore they should not be deductible under Section 170.  As the
the Fourt Circuit explained in Miller, the fact that payments to a
church or other non-profit organization "may be ordinarily deductible
* * * because the benefits (the taxpayer) receives are 'incidental' to
the benefits which flow to other members of her church or to the
general public" does not mean that payments to a church are always
deductible;  "even payments to a church for 'religious services' can
be structured as here so that their benefit is a quid pro quo -- a
direct commensurate benefit -- which the member is purchasing" (829
F.2d at 505).

   b.  There is similarly no merit to petitioners' assertion (Br.
14-29) that the payments in this case are indistinguishable from
fund-raising techniques of many other religions that allegedly are
recognized as yielding tax-deductible contributions.  In support of
this contention, petitioners describe a litany of fund-raising
practices in different religions (Br. 18-25), most of which have not
been passed upon by the IRS.  These practices are diverse;  some seem
clearly to yield deductible contributions, some may be "close to the
deductible contributions, some may be "close to the line" (Foley, 844
F.2d at 98 (Newman, J., dissenting)), and some may not yield
deductible contributions.  Their respective tax consequences would
depend on the facts surrounding the payments that would have to be
developed in an appropriate setting.  What these diverse practices do
have in common is that they all are different from the inflexible quid
pro quo arrangement present in these cases, and none of them provides
any reason to doubt the correctness of the decisions below.

   First, there is no reason to accept petitioners' assertion that the
IRS has approved a tax deduction for all of the practices enumerated
by petitioners, even if we assume that they in fact operate as
petitioners describe.  For example, petitioners contend (Br. 25) that
their payments for auditing and training should be analogized to a
practice in Jewish Reform temples of using special fess to raise
funds, such as a fee to participate in a Passover meal.  The source
that petitioners cite describes this fee as a "nominal" one "to help
contain the costs," not to raise funds.  National Association of
Temple Administrators, Temple Management Manual Ch. 4, at 11 (J.
Feldman, H. Fruhauf & M. Schoen eds. eds. 1984).  There is no reason
to assume that taxpayers generally would even claim a deduction for a
fee to help defray costs of providing them with a meal, and certainly
no reason to believe that the IRS would agree that they were entitled
to such a deduction.  Indeed, the other example given in the Temple
Management Manual of such a special fee is a charge for the use of
facilities in connection with the celebration of a Bas Mitzvah.  Ibid.
 The IRS has successfully challenged an attempt to take a deduction
for such a payment.  Feistman v. Commissioner, 30 T.C.M. (CCH) 590
(1971).

   More generally, even without making a detailed factual inquiry, it
is apparent that the practices described by petitioners differ in
significant respects from the highly commercialized provision of
individual benefits present in these cases.  "Mass stipends" (see Pet.
Br. 18-20) have been regarded by the IRS as conferring only an
incidental benefit upon the donee.  See Rev. Rul. 71-580, 1971-2 C.B.
235, 236.  This conclusion is a reasonable one given that the masses
are said for the benefit of all church members and that the masses
would be said anyway even without the payment of the stipend (see Rev.
Rul. 78-366, 1978-2 C.B. 24a);  in that situation, the application of
the mass in the name of a particular person may be more analogous to a
plaque honoring a donor, which is generally regarded as an incidental
benefit, than to the provision of personal auditing and training
services involved in this case.  Mormon "tithing" (see Pet. Br. 21-22)
plainly does not involve a quid pro quo arrangement in which "it is
understood that the taxpayer's money will not pass to the charitable
organization unless the taxpayer receives a specific benefit in
return" (Pet. App. 8a).  "Temple recommends" are issued only to
"worthy" members.  There are several tenets of the Mormon faith, of
which tithing is only one, that must be observed in order to meet the
"worthiness" standard.  Therefore, unlike the payments here, tithing
is not a "ticket" to a "temple recommend";  a Mormon who tithed but,
for example, did not abstain from alcohol would not be entitled to a
"temple recommend." See Church of Jesus Christ of Latter-Day Saints,
General Handbook of Instruction, at 6-1 (1985).

   By the same token, the Jewish fund-raising practices described by
petitioners differ significantly from those of the Church of
Scientology.  Membership dues (Pet. Br. 22-23), like those paid to
secular organizations, often do not confer anything more than
incidental benefits on the members.  And such dues generally are not
fixed like the payments in this case;  rather, petitioners' source
indicates that they are paid either on a "self-evaluation" basis or on
a sliding scale according to financial status.  See Temple Management
Manual, supra, Ch. 4 at 9.  While there are variations among
synagogues, there is no basis for assuming that those that do sell
High Holy Day tickets to raise funds (Pet. 23) do so in a manner
analogous to the activities at issue here.  Rather, synagogues
frequently make arrangements for people of limited means to attend
services without purchasing a ticket;  there is no edict declaring
that "(p)rice cuts are forbidden under any guise" (Pet. App. 39a n.6).
 Nor is there any reason to believe that one who paid money to obtain
a High Holy Day ticket would expect a refund if he did not attend
services.  In sum, the fund-raising practices of other religions cited
by petitioners are not suffused with the money-making intent and rigid
linkage between payment and the provision of individualized services
that is the hallmark of the Church of Scientology's system of "fixed
donations" for auditing and training.  Each type of payment must be
judged on its own facts to determine whether it is a genuine
contribution or part of a quid pro quo arrangement.  The existence of
the cited practices of other religions therefore provides no basis for
questioning the correctness of the decision below.

   II. The Denial of Petitioners' Claimed Charitable Deductions
Because Their Payments to the Church Were Not "Contributions Or Gifts"
Does Not Violate the First Amendment

   Petitioners argue that the denial of deductions for their payments
to the Church violates the First Amendment.  They argue that the
denial violates the Establishment Clause by creating a "denominational
preference" (Pet. Br. 46-48) and because an inquiry into whether a
payment is made in exchange for a religious benefit necessarily
creates an unconstitutional "entanglement" with religion (id. at
43-46).  These arguments were correctly rejected by the courts below
(Pet. App. 11a-18a;  87-963 Pet. App. 9a-24a) and the other courts of
appeals that have considered them (see Christiansen, 843 F.2d at 421;
Miller, 829 F.2d at 505-506).

   A.  Petitioners argue that Section 170, as interpreted by the
courts below, establishes an unconstitutional denominational
preference, apparently because it does not provide a tax deduction for
the Church of Scientology's chosen method of fund-raising, while it
does permit tax deductions for payments made in the context of
fund-raising by other religions.  This argument is entirely without
merit.  Section 170 establishes neutral, secular criteria for
determining when a payment to a tax-exempt organization is deductible,
and it does not create a denominational preference.

   It is well established that a statute does not necessarily violate
the First Amendment merely because its application happens to be more
advantageous for one religion than for another.  Thus, in Bob Jones
University v. United States, supra, it was clear that the denial of a
tax deduction to racially discriminatory religious schools did not
violate the First Amendment despite the schools' assertion that
Section 170, as interpreted by the Court, "preferr(ed) religions whose
tenets do not require racial discrimination over those which believe
racial intermixing is forbidden" (461 U.S. at 604 n.30).  The court
explained that when the government policy is founded on a " 'neutral,
secular basis,'" there is no Establishment Clause violation merely
because that secular basis draws distinctions among religions (ibid.,
quoting Gillette v. United States, 401 U.S. 437, 452 (1971)).

   These principles foreclose petitioners' contention.  Section 170
operates on a neutral, secular basis.  It applies the same criteria to
all tax-exempt organizations, including all religious ones -- namely,
that payments made to them will be deductible if they are
contributions, but not if they are part of a quid pro quo arrangement
in exchange for specific benefits.  The fact that the Church of
Scientology chooses to raise its funds by means of such a quid pro
arrangement, even if the choice is a matter of religious doctrine,
does not convert the neutral statute into one that creates a
denominational preference.  As the Court has stated on several
occasions, a statute does not violate the Establishment Clause merely
because it "happens to coincide or harmonize with the tenets of some
or all religions" (McGowan v. Maryland, 366 U.S. 420, 442 (1961)).
See also Bob Jones University v. United States, 461 U.S. at 604 n.30;
Harris v. McRae, 448 U.S. 297, 319-320 (1980).

   Applying these principles, the courts of appeals have uniformly
held that Section 170 does not create a denominational preference.
The First Circuit below stated that "the 'contribution of gift'
requirement is a secular criterion encouraging gifts to all religious
and nonreligious charitzble organizations and communicating no
government preference for any particular charitable organization"
(87-963 Pet. App. 10a).  Similarly, the Ninth Circuit below found that
"(t)he rules for charitable deduction are neutral in design and
purpose" (Pet. App. 18a).  See also Miller, 829 F.2d at 505.  The
denial of petitioners' claimed deductions was grounded on that neutral
statutory requirement, and it raises no inference of any
unconstitutional discrimination among religions.  /18/

   B.  Petitioners state that disallowance of their deductions "places
a heavy burden on the central practice of Scientology" (Pet. Br. 47
(footnote omitted)).  To the extent this statement is intended to
raise an argument that denial of the claimed deductions violates the
Free Exercise Clause, that argument was correctly rejected by the
courts of appeals below.  Petitioners' argument appears to be that the
Church of Scientology's religious tenet of the "Doctrine of Exchange"
requires it to offer its services on a quid pro quo basis;  thus,
under Section 170, Scientologists are required to choose between
forgoing a tax deduction or abandoning this tenet of their faith.  To
the extent this is a burden on the practice of petitioners' faith,
there can be little doubt under the decisions of this Court that it is
not an unconstitutional burden.

   In United States v. Lee, 455 U.S. 252 (1982), this Court sustained
the imposition of social security taxes upon members of the Old Order
Amish whose faith forbids paying such taxes or receiving social
security benefits.  The Court held that the burden placed upon the
free exercise of the taxpayers' beliefs was outweighed by the "broad
public interest in maintaining a sound tax system" (id. at 260).  The
Court emphasized that the diverse and cosmopolitan nature of our
society makes it difficult to accommodate all religious beliefs in the
tax laws (id. at 259-260).  Petitioners' Free Exercise Clause claim is
considerably weaker than that of the taxpayer in Lee.  Unlike the
situation in that case, the neutral application of the tax laws here
does not force petitioners to violate any tenet of their religion, it
requires them only to forgo a tax deduction.  While that may be some
burden on the exercise of their religion, it is clearly outweighted by
the strong policies in favor of even-handed administration of the tax
laws that counsel against requiring the Internal Revenue Code to
confer a special exception upon the Church because of its Doctrine of
Exchange.  Compare Bob Jones University v. United States, 461 U.S. at
603-604 (burden of denying tax exemption to racially discriminatory
schools outweighed by government interest in eradicating
discrimination from education).  As the Ninth Circuit below stated,
"the soundness of the tax system depends on government's ability to
apply the tax law in a uniform and evehanded fashion, and the
exemption of one presages the exemption of a great many others" (Pet.
App. 17a).  Thus, the courts of appeals have correctly held that the
First Amendment does not require that the IRS allow a tax deduction
for a payment that is part of a quid pro quo arrangement.  See id. at
15a-17a;  87-963 Pet. App. 23a-24a;  Miller, 829 F.2d at 506.

   C.  Petitioners also argue (Br. 43-46) that the inquiry into
whether a payment to a religious organization is a contribution or a
quid pro quo necessarily creates unconstitutional entanglement with
the religion.  Petitioners' objection apparently rests in large part
on the view that the IRS must determine the economic value of
religious benefits in order to determine whether they are provided as
a quid pro quo for a payment.  That is incorrect (see pages 33-37,
supra).  The quid pro quo determination is made on the basis of an
inquiry into the circumstances surrounding the payment to assess
whether it is a genuine contribution or equivalent to a purchase of a
commensurate return benefit.  While that inquiry may entail some
administrative contact with the religious entity, it does not
impermissibly entangle the state in matters of religious dogma.
Indeed, as the First Circuit below noted (87-963 Pet. App. 14a), the
test proposed by petitioners poses a much greater risk of
entanglement, since the IRS would be put in the position of
determining which benefits are "strictly religious" (Staples, 821 F.2d
at 1327) and which are secular.  See also Miller, 829 F.2d at 506.

   Moreover, this is not a case where the government has undertaken a
program to aid a religious institution, which is the typical sort of
case that raises Establishment Clause concerns about entanglement.
Compare, e.g., Lemon v. Kurtzman, 403 U.S. 602 (1971).  Rather, the
limited administrative contact here is necessary for the law
enforcement purpose of assuring evenhanded administration of the tax
system;  just like enforcement of building codes and zoning
regulations, this type of administrative contact does not ordinarily
raise First Amendment concerns.  See Tony & Susan Alamo Foundation v.
Secretary of Labor, 471 U.S. 290, 305-306 (1985).  In essence, the
quid pro quo inquiry does not differ whether the recipient of the
payments is a religious organization or one of the other types of
charitable organizations specified in Section 170(c)(2) of the Code --
regardless of whether the particular benefits received in exchange for
the payments are religious in nature.  Accordingly, that quid pro quo
inquiry does not necessitate any unconstitutional entanglement with
religion.

                              CONCLUSION

   The judgments of the courts of appeals should be affirmed.

   Respectfully submitted.

                                      CHARLES FRIED

                                      Solicitor General

                                      WILLIAM S. ROSE, JR.

                                      Assistant Attorney General

                                      LAWRENCE G. WALLACE

                                      Deputy Solicitor General

                                      ALAN I. HOROWITZ

                                      Assistant to the Solicitor
                                      General

                                      ROBERT S. POMERANCE

                                      DAVID M. MOORE

                                      Attorneys

   SEPTEMBER 1988

                               FOOTNOTES

   /1/ Unless otherwise indicated, "Pet. App." refers to the appendix
to the petition in No. 87-1616.

   /2/ For example, in 1972 the charge for the shortest available
auditing intensive was $625 for 12 1/2 hours.  The charge for a
100-hour intensive was $4,250.  See Pet. App. 39a;  J.A. 97.

   /3/ The policy letter further states that free services can be
awarded only to fully contracted staff, and then only by means of a
legal note that makes the staff member liable to the Church for at
least $5,000 if the contract is broken (Pet. App. 39a n.6;  Church of
Scientology v. Commissioner, 83 T.C. at 416).

   /4/ "C.A. App." refers to the court of appeals appendix filed in
the Hernandez case.

   /5/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code of 1954 (26 U.S.C.), as amended (the Code or
I.R.C.).

   /6/ A "charitable contribution" that may be deducted on one's
income tax return is defined in the statute as "a contribution or
gift" to or for the use of certain eligible donees, which include
qualifying entities "organized and operated exclusively for religious,
charitable, scientific, literary, or educational purposes * * * "
(Section 170(c)(2)(B)).

   /7/ The government entered into similar stipulations with numerous
other taxpayers who had filed petitions in the Tax Court challenging
the denial of charitable deductions for payments to the Church of
Scientology.

   /8/ These stipulations allowed the charitable deduction cases to go
forward without awaiting the final outcome of the litigation over the
validity of the "mother" Church's tax exemption.  After a lengthy
trial, the Tax Court held in that case that the Church failed to
qualify as a tax-exempt organization for the years 1970-1972 because
it diverted its profits to its founder and other persons, violated
public policy by conspiring to impede the collection of its taxes, and
conducted virtually all of its activities for a commercial purpose.
See Church of Scientology v. Commissioner, 83 T.C. at 415-423,
473-480.  The Ninth Circuit affirmed on the ground that the Church had
diverted its profits for the inurement of private persons.  It did not
address the other grounds relied upon by the Tax Court, and it did not
disturb any of the Tax Court's findings of fact.  823 F.2d 1310
(1987).

   /9/ In addition to the courts of appeals below, five other courts
of appeals have ruled to date on the deductibility of payments made to
the Church of Scientology akin to those made by petitioners.  Each of
these cases was decided on the basis of the same stipulation entered
into by petitioner Hernandez to adopt the record and findings in the
Graham case.  Three courts of appeals reversed the Tax Court and held
that the payments are deductible under Section 170.  Neher v.
Commissioner, No. 86-1275 (6th Cir. July 19, 1988);  Foley v.
Commissioner, 844 F.2d 94 (2d Cir. 1988), petition for cert. pending,
No. 88-102;  Staples v. Commissioner, 821 F.2d 1324 (8th Cir. 1987),
petition for cert. pending, No. 87-1382.  Two courts of appeals have
joined the courts below in affirming the Tax Court and holding that
the payments are not deductible.  Christiansen v. Commissioner, 843
F.2d 418 (10th Cir. 1988), petition for cert. pending, No. 87-2023;
Miller v. Commissioner, 829 F.2d 500 (4th Cir. 1987), petition for
cert. pending, No. 87-1449.  No court has found any constitution
infirmity in the Commissioner's determination to disallow the
deduction.

   /10/ The Church's Governing Policy of Finance was set forth in a
policy letter, dated March 9, 1972.  That letter listed several
aspects of the policy and emphasized four of those by printing them in
block letters.  The emphasized goals were:

   A.  MAKE MONEY

   J.  MAKE MONEY

   K.  MAKE MORE MONEY

   L.  MAKE OTHER PEOPLE PRODUCE SO AS TO MAKE MONEY

   See Church of Scientology v. Commisioner, 83 T.C. at 422;  Pet.
App. 40a.

   /11/ In fact, the enrollment contract that individuals were
required to sign in order to receive auditing and training services
stated that refunds would be available only for services not provided,
and therefore not in the event of dissatisfaction with services that
were provided, and even those refunds were subject to certain
conditions.  See J.A. 104-105, 133.

   /12/ The only apparent exception to this practice of never
providing auditing and training services for less than full price was
the availability of free services to fully contracted staff.  That
free service, however, was conditioned upon the staff member's
executing a legal note that would make him liable to the Church if he
broke his employment contract.  Pet. App. 39a n.6.  In that event, the
former staff member was termed a "freloader" and was obligated to pay
the Church the greater of the value of the free services received or
liquidated damages of $5,000.  Church of Scientology v. Commissioner,
83 T.C. at 416.

   /13/ As the Tax Court noted in Church of Scientology v.
Commissioner, 83 T.C. at 422-423, the Church's organizational material
was suffused with business terminology.  One of its policy letters
directed at the issue of Church solvency exhorted its branches to make
certain that the "Introductory Lecture * * * makes people want to buy
training and processing" and advised that the Department of Field
Training should be treated "as salesmen are handled by any other
business org." (id. at 423).

   /14/ There will, of course, be cases where the value of a benefit
may be ascertainable by evidence other than the transaction in
question -- for example, where the benefit is offered by someone other
than the organization to which the taxpayer made the payment.  The
existence of such an externally ascertainable value is not restricted
to the secular context;  items that have no purpose or "value" other
than for use in religious services are often sold in stores.
Reference to the value of a service that is ascertained by looking
outside the particular transaction can be relevant to the Section 170
inquiry.  When a taxpayer makes a payment to an organization and
receives a valuable benefit therefrom, it may sometimes be inferred
that there is a quid pro quo relationship between the two, even if, in
contrast to this case, the structure under which the benefit is
provided does not unequivocally demonstrate a quid pro quo
relationship.  For example, the courts have consistently disallowed
contributions claimed for payments made to religious schools to the
extent of the value received from the schools, even where the record
showed that students could still be admitted to school even in the
absence of a contribution.  The courts have reasoned that, even if the
contribution was not an explicit prerequisite to admission, "the
contributions were induced in substantial part by the benefits which
the parents anticipated from the enrollment of their children and
should be considered tuition payments" (Winters v. Commissioner, 468
F.2d 778, 781 (2d Cir. 1972)).  See also Oppewal v. Commissioner, 468
F.2d 1000, 1002 (1st Cir. 1972);  DeJong v. Commissioner, 309 F.2d 373
(9th Cir. 1962);  Rev. Rul. 83-104, 1983-2 C.B. 46.  This type of
externally ascertainable value can also be relevant when the structure
of the payment and benefit does demonstrate a quid pro quo
arrangement.  For example, when an individual purchases a ticket to
attend a benefit concert, the circumstances indicate that admission to
the concert is the quid pro quo for the payment and would suggest at
first blush that no part of the payment is a contribution.  Where
admission to the concert has some ascertainable market value, however,
the taxpayer can demonstrate that the portion of his payment in excess
of that value should be deductible as a contribution.  See United
States v. American Bar Endowment, 477 U.S. at 117.  But reference to
the value of a benefit in these contexts does not suggest that a
charitable contribution deduction should be permitted when a payment
is clearly made in exchange for a specific benefit, just because the
value of the return benefit cannot be ascertained outside the context
of the particular transaction.

   /15/ The court of appeals in Staples stated that "(s)piritual gain
to an individual cannot be valued by any measure known in the secular
realm" (821 F.2d at 1327), but that is not an objection to the
decisions below because it is not "spiritual gain" to which the courts
have attached a value.  The quid pro quo for the payments here was the
auditing and training courses provided by the Church in exchange, not
the "spiritual gain" that may have accrued to petitioners as a result
of receiving the auditing and training.  These services have an
ascertainable value to those who purchase them, reflected by the
purchase price, in the same way that a concert ticket does.  The price
of the concert ticket reflects the value to the purchaser of the quid
pro quo -- admission to the concert;  the price does not value the
ultimate benefit to the purchaser, i.e., his enjoyment of the concert.
 That ultimate benefit will vary from individual to individual and it
cannot reasonably be valued, but that does not alter the fact that the
payment for the concert ticket is part of a quid pro quo arrangement
for admission to the concert.  Similarly here, the quid pro quo
inquiry focuses on what the individual is willing to pay in exchange
for the advertised services;  that inquiry does not entail any
valuation of "spiritual gain."

   /16/ The court of appeals in Staples suggested that the
stipulations of fact here could not be reconciled with a holding that
petitioners made payments in exchange for the benefit of auditing and
training.  The court stated that the stipulations "foreclose any
reliance on the Church of Scientology's fixed donations as
representing the value of its essentially religious practices" because
the stipulations show that "the fixed donations are not market prices
set to reap the profits of a commercial moneymaking venture," but
rather a "bona fide church('s) * * * mechanism for raising funds from
its members" (821 F.2d at 1327-1328).  See also id. at 1325;  Neher,
slip op. 5, 16.  It is clear that the court of appeals in Staples
erroneously "exaggerated" the effect of the government's stipulations
(see Miller, 829 F.2d at 504).  The government stipulated that it
would not contest in these cases that the Church of Scientology was a
tax-exempt church (see Pet. App. 31a-32a).  That stipulation removed
what might otherwise have been raised as an independent ground for
disallowing the deductions -- the argument that the recipients of
petitioners' payments were not eligible donees under Section
170(c)(2), an issue that was at the time being litigated for the
"mother" Church in Church of Scientology v. Commissioner, supra.  But
that stipulation does not foreclose the courts from finding that the
Church's programs at issue, even if they were religious, were provided
on a quid pro quo basis for specified prices -- a fact that is clearly
established by the record -- and therefore that the payments made by
petitioners were not "contributions," but rather were made for the
purpose of receiving auditing and training in exchange.  A stipulation
that a university is a tax-exempt institution under Section 501(c)(3)
does not mean that tuition payments are deductible from gross income
under Section 170.

   /17/ See also Oppewal v. Commissioner, 468 F.2d 1000 (1st Cir.
1972);  DeJong v. Commissioner, 309 F.2d 373 (9th Cir. 1962);  Haak v.
United States, 451 F. Supp. 1087 (W. D. Mich. 1978);  McLaughlin v.
Commissioner, 51 T.C. 233 (1968).

   /18/ Petitioners rely almost exclusively on Larson v. Valente, 456
U.S. 228 (1982), but that case is clearly inapposite.  Larson
recognized the vitality of the principles discussed above, notably the
principle that neutral, secular criteria are not unconstitutional
simply because they affect different religions in different ways.  See
id. at 246-247 n.23.  The Court found those principles inapplicable in
Larson only because that case did not involve "a facially neutral
statute, the provisions of which happen to have a 'disparate impact'
upon different religious organizations." Instead, Larson involved a
statute that made "explicit and deliberate distinctions between
different religious organizations." Ibid.  Because the present cases
do involve a facially neutral statute that makes no attempt to
distinguish among religions, Larson plainly has no application here.
See Pet. App. 18a;  87-963 Pet. App. 10a;  Miller, 829 F.2d at 505.

   APPENDIX