FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MICHAEL SKLAR; MARLA SKLAR, 

Petitioners-Appellants, No. 06-72961

v. Tax Ct. No.  395-01 COMMISSIONER OF INTERNAL

REVENUE, OPINION

Respondent-Appellee. 

Appeal from a Decision of the United States Tax Court

Argued and Submitted

February 4, 2008—Pasadena, California

Filed December 12, 2008

Before: Harry Pregerson and Kim McLane Wardlaw,

Circuit Judges, and Ronald B. Leighton,* District Judge.

Opinion by Judge Wardlaw

*The Honorable Ronald B. Leighton, United States District Judge for

the Western District of Washington, sitting by designation. 

16341
COUNSEL

Jeffrey I. Zuckerman (argued), Curtis, Mallet-Prevost, Colt &

Mosle, LLP, Washington, D.C., for the petitioners-appellants.

Ellen Page DelSole (argued), Eileen J. O’Connor, and Kenneth L. Greene, Department of Justice, Washington, D.C., for

the respondent-appellee. 

OPINION

WARDLAW, Circuit Judge: 

Michael and Marla Sklar (“the Sklars”) appeal from a decision of the Tax Court affirming the disallowance of deduc16344 SKLAR v. CIR
tions they claimed for tuition and fees paid to their children’s

Orthodox Jewish day schools. See Sklar v. Comm’r, 125 T.C.

281 (2005). We have jurisdiction pursuant to 28 U.S.C.

§ 7482(a)(1), and we affirm. 

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Taxpayers

The Sklars are Orthodox Jews who in 1995 had five schoolaged children. Rather than send their children to public school

to meet California State educational requirements, the Sklars

enrolled each of their children in one of two Orthodox Jewish

day schools, Emek Hebrew Academy (“Emek”) and Yeshiva

Rav Isacsohn Torath Emeth Academy (“Yeshiva Rav”). They

did so “because of their sincerely and deeply held religious

belief that as Jews they have a religious obligation to provide

their children with an Orthodox Jewish education in an Orthodox Jewish environment.” In 1995, the Sklars paid a total of

$27,283 to Emek and Yeshiva Rav which included $24,093

for tuition, $1300 for registration fees, $1715 for other mandatory fees, and $175 for an after school Mishna program at

Emek.1 During 1995, Emek and Yeshiva Rav each were

exempt from federal income tax under I.R.C. § 501(c)(3),

which provides tax exempt status for certain institutions “organized and operated exclusively for religious, charitable, . . .

or educational purposes,” among others. Both schools also

qualified as organizations described in I.R.C. § 170(b)(1)(A),

which allows donors to deduct charitable donations to qualifying institutions. 

Both schools provided daily exposure to Jewish heritage

and values. Their goals included educating their students in

Jewish heritage and values, as well as the tenets of the Jewish

faith. To this end, time was allocated in the school day for

prayers and religious studies, students were required to adhere

1Mishna is the study of Jewish oral law. 

SKLAR v. CIR 16345
to Orthodox Jewish dress codes, and boys and girls attended

classes separately. 

A child’s day at each school included specified hours

devoted to courses in religious studies and specified hours

devoted to secular studies. The length of time that each student participated in secular classes, as opposed to religious

studies, and the length of the total school day varied with the

gender and grade level of the particular student. 

Quality secular education that fulfilled the mandatory education requirements of the State of California also was a goal

of both schools. Emek sought to provide a thorough and wellbalanced curriculum in both religious and secular studies so

that every student could succeed “in the most rigorous

yeshiva [(Jewish)] high schools and other institutions of

higher learning.” Yeshiva Rav sought to prepare its students

for matriculation to yeshiva high schools and to attend a college or seminary. 

During the school years in issue, the Sklars paid tuition and

mandatory fees to Emek and Yeshiva Rav for their children’s

education. To ensure payment, the Sklars, like other parents,

were required to contract with each school to pay, and to give

to each school postdated checks covering, the tuition for the

upcoming school year. Both schools provided tuition discounts to families based on financial need, if documented by

detailed financial information submitted to the schools’ scholarship committees, but the Sklars did not seek or receive such

assistance. Although an Orthodox Rabbinic ruling precluded

either school from expelling students from the Jewish studies

program during the school year, nonpayment of tuition could

result in expulsion from secular studies and the schools’

refusal to allow the children to register for classes in the subsequent school year. 

16346 SKLAR v. CIR
B. The Prior Litigation

In 1993, the Sklars learned of a confidential closing agreement2

 the Internal Revenue Service (“IRS”) had executed with

the Church of Scientology that purportedly allowed deductions for certain religious educational services such as auditing and training. The Sklars subsequently amended their tax

returns for 1991 and 1992, and filed a return for 1993, including new deductions for a portion of the tuition they had paid

to their children’s schools. See Sklar, 125 T.C. at 288. The

IRS allowed these deductions, apparently under the impression that the Sklars were Scientologists. See id. The Sklars

claimed similar deductions in 1994, but these were disallowed. Id. at 288-89. The IRS Notice of Deficiency explained

that because the costs were for personal tuition expenses, they

were not deductible. The Sklars pursued an unsuccessful petition for redetermination before the Tax Court regarding their

1994 deductions, which subsequently came before us. Judge

Reinhardt, writing for our Court in an opinion joined by Judge

Pregerson, upheld the Tax Court’s denial of the deduction.

See Sklar v. Comm’r (Sklar I), 282 F.3d 610 (9th Cir. 2002),

amending and superseding Sklar v. Comm’r, 279 F.3d 697

(9th Cir. 2002). 

In Sklar I, the Sklars made virtually identical arguments to

those they assert here, based predominantly on their theories

that a portion of their tuition payments are tax deductible

because they received in exchange only intangible religious

benefits and the Scientology Closing Agreement is an uncon2Under § 7121 of the Internal Revenue Code, the IRS is authorized to

execute “closing agreements.” A closing agreement is “an agreement in

writing with any person relating to the liability of such person (or of the

person or estate for whom he acts) in respect of any internal revenue tax

for any taxable period.” I.R.C. § 7121(a); see also 26 C.F.R. § 301.7121-

1. Such closing agreements are intended to be “final and conclusive, and,

except upon a showing of fraud or malfeasance, or misrepresentation of

a material fact,” shall not be reopened or annulled. I.R.C. § 7121(b). 

SKLAR v. CIR 16347
stitutional establishment of religion from which they should

also benefit. 

The Sklar I panel soundly rejected the Sklars’ argument

that certain 1993 amendments to the Tax Code rendered their

tuition payments deductible as payments to exclusively religious organizations for which the Sklars received only intangible religious benefits. 282 F.3d at 612-14. Specifically, the

panel noted that the amendments addressed “clearly procedural provisions” and that the deduction the Sklars alleged

would be “of doubtful constitutional validity.” Id. at 613. 

Next, the Sklar I panel held that the IRS was compelled to

disclose the contents of its Closing Agreement with the

Church of Scientology, at least to the extent it fell under

I.R.C. § 6104(a)(1)(A), see 282 F.3d at 614-18, and that such

disclosure was necessary as a practical matter because the

agreement affects “not just one taxpayer or a discrete group

of taxpayers, but a broad and indeterminate class of taxpayers

with a large and constantly changing membership.” Id. at 617.

Further, the panel held “where a closing agreement sets out a

new policy and contains rules of general applicability to a

class of taxpayers, disclosure of at least the relevant part of

that agreement is required in the interest of public policy.” Id.

In Sklar I, the panel therefore rejected 

the argument that the closing agreement made with

the Church of Scientology, or at least the portion

establishing rules or policies that are applicable to

Scientology members generally, is not subject to

public disclosure. The IRS is simply not free to

enter into closing agreements with religious or other

tax-exempt organizations governing the deductions

that will be available to their members and to keep

such provisions secret from the courts, the Congress,

and the public. 

Id. at 618. The Sklar I panel nevertheless opined, without

resolving the issue, that the Tax Court’s ruling that the Clos16348 SKLAR v. CIR
ing Agreement was irrelevant to the deductibility of the

Sklars’ tuition payments was “in all likelihood correct.” Id. It

continued: 

The Tax Court concluded that the Sklars were not

similarly situated to the members of the Church of

Scientology who benefitted from the closing agreement. While we have no doubt that certain taxpayers

who belong to religions other than the Church of

Scientology would be similarly situated to such

members, we think it unlikely that the Sklars are.

Religious education for elementary or secondary

school children does not appear to be similar to the

“auditing” and “training” conducted by the Church

of Scientology.

Id. at 618 n.13; see also Hernandez v. Comm’r, 490 U.S. 680,

684-85 (1989) (describing “auditing” and “training”). 

The Sklar I panel then turned to the Sklars’ Establishment

Clause and administrative consistency arguments. Although it

was not required to decide those issues because the Sklars had

“failed to show that their tuition payments constitute a partially deductible ‘dual payment’ under the Tax Code,” Sklar

I, 282 F.3d at 620, the panel noted that had it been required

to do so, it would have first concluded that the IRS policy

constitutes an unconstitutional denominational preference

under Larson v. Valente, 456 U.S. 228 (1982).3See Sklar I,

3Larson v. Valente established an analytical framework to assess the

constitutionality of statutes granting denominational preferences. 456 U.S.

228, 245-52 (1982). To survive an Establishment Clause challenge under

Larson, a statute which grants a denominational preference must be justified by a “compelling governmental interest” to which it is “closely fitted.” Id. at 247-48, 252; see also id. at 246 (“[T]his Court has adhered to

the principle, clearly manifested in the history and logic of the Establishment Clause, that no State can pass laws which aid one religion or that

prefer one religion over another.” (internal citation and quotation marks

omitted)). 

SKLAR v. CIR 16349
282 F.3d at 618-19. The panel reasoned that the denominational preference embodied in the Closing Agreement was

unconstitutional because it “cannot be justified by a compelling governmental interest.” Id. However, the panel indicated

it would not be willing to extend that preference to other religious organizations for three reasons: First, an extension of

the preference would amount to state sponsorship of all religions, which the panel doubted “Congress or any agency of

the government would intend.” Id. at 619-20. Second, an

extension of the preference would be “of questionable constitutional validity under Lemon,”

4

 because administering the

policy “could require excessive government entanglement

with religion.”

5

Id. at 620. Third, the requested policy violated

appeared to violate I.R.C. § 170. Id. 

The panel also indicated it would reject the Sklars’ administrative consistency claim because it “seriously doubted” that

the Sklars were similarly situated to the Scientologists.6 The

4

In Lemon v. Kurtz, 403 U.S. 602 (1971), the Supreme Court established

a three-prong test to determine whether the state has violated the Establishment Clause: “First, the statute must have a secular legislative purpose;

second, its principal or primary effect must be one that neither advances

nor inhibits religion; finally, the statute must not foster an excessive government entanglement with religion.” Id. at 612-13 (1971) (internal citations and quotation marks omitted). 

5

In Hernandez v. Commissioner, 490 U.S. 680 (1989), the Supreme

Court rejected the claim that payments made to the Church of Scientology

for purely religious education and training were deductible as gifts or contributions under I.R.C. § 170. Id. at 692-94. Among other reasons it gave

for its decision, the Court explained that “the deduction petitioners seek

might raise problems of entanglement between church and state.” Id. at

694; see also infra Part II.B (discussing § 170 and Hernandez). 

6

Judge Silverman, concurring, concluded that the question of whether

the Sklars were “similarly situated” to the Scientologists had “no bearing

on whether the tax code permits the Sklars to deduct the costs of their children’s religious education as a charitable contribution.” Sklar I, 282 F.3d

at 622. Rather, he concluded that the Sklars were absolutely barred from

taking the deduction by the Internal Revenue Code and Supreme Court

precedent. See id. at 622-23. 

16350 SKLAR v. CIR
panel further stated that even if the Sklars were similarly situated, “because the treatment they seek is of questionable statutory and constitutional validity under § 170 of the IRC,

under Lemon, and under Hernandez, we would not hold that

the unlawful policy set forth in the closing agreement must be

extended to all religious organizations.” Id. at 620. 

Finally, relying on United States v. American Bar Endowment, 477 U.S. 105 (1986), the Sklar I panel rejected the argument that the Sklars’ tuition payments were deductible as a

“dual payment” or “quid pro quo payment,” a payment made

in part as consideration for goods and services and in part for

charitable purposes. In American Bar Endowment, the

Supreme Court held that the taxpayer must satisfy a two-part

test to be entitled to the § 170 deduction for a quid pro quo

payment: 

First, the payment is deductible only if and to the

extent it exceeds the market value of the benefit

received. Second, the excess payment must be made

with the intention of making a gift.

477 U.S. at 117 (internal citation and quotation marks omitted). The Sklar I panel held that the Sklars failed to introduce

evidence demonstrating both “that any dual tuition payments

they may have made exceeded the market value of the secular

education their children received,” 282 F.3d at 621, or “that

they intended to make a gift by contributing such ‘excess payment.’ ” Id. The panel also suggested that for the purpose of

demonstrating the first part of the American Bar Endowment

test, the “market value” for the tuition payments would be the

cost of a comparable secular education offered by private

schools, evidence the Sklars had failed to introduce, perhaps,

because of the “practical realities of the high cost of education.” Id. 

C. The Current Litigation

On their 1995 tax return, the Sklars claimed $15,000 in

deductions for purported charitable contributions that comSKLAR v. CIR 16351
prised a portion of their five children’s tuition at Emek and

Yeshiva Rav. The deduction was based on their estimate that

55% of the tuition payments were for purely religious education, an estimate supported by letters submitted two years

later (in 1997) that were drafted by each of the schools at the

Sklars’ request. Sklar, 125 T.C. at 288-89. 

The IRS disallowed the $15,000 deduction. The IRS also

determined the Sklars had “failed to meet the substantiation

requirements of Internal Revenue Code Section 170(f)(8) with

respect to the disallowed $15,000.00 of claimed charitable

contributions.” The Sklars petitioned the Tax Court for a redetermination of deficiency, asserting that (1) the tuition and fee

payments to exclusively religious schools are deductible

under a dual payment analysis to the extent the payments

exceeded the value of the secular education their children

received (a question left somewhat open in Sklar I); (2) Sections 170(f)(8) and 6115 of the Internal Revenue Code, as

enacted in 1993, authorized the deduction of tuition payments

for religious education made to exclusively religious schools

(an issue all but foreclosed by Sklar I); and (3) that the 1993

Closing Agreement between the Commissioner and the

Church of Scientology constitutionally and administratively

requires the IRS to allow other taxpayers to take the same

charitable deductions for tuition payments to their religious

schools (a question the panel discussed at length but declined

to decide in Sklar I). Before the Tax Court, the Sklars and the

IRS stipulated that in 1993 the IRS had executed a confidential closing agreement with the Church of Scientology, settling several outstanding issues between the IRS and the

Church of Scientology. See id. at 298. Under this agreement,

members of the Church of Scientology were authorized to

deduct as charitable contributions at least 80% of the fees for

qualified religious services provided by the Church of Scientology. See id. at 298-99. 

The Tax Court again rejected the Sklars’ arguments, holding that the tuition and fee payments to the Jewish Day

16352 SKLAR v. CIR
Schools were not deductible under any of the Sklars’ theories.7

First, the Tax Court rejected the Sklars’ effort to prove that

the tuition and fee payments so exceeded the market value of

the secular education their children received that they took on

a “dual character,” i.e. that the payments had the character of

both a purchase of education and a charitable contribution. Id.

at 291-94; see also American Bar Endowment, 477 U.S. at

117. It found that the Sklars’ expert report regarding tuition

at various Los Angeles area schools demonstrated only that 

(1) Some schools charge more tuition than Emek and

Yeshiva Rav Isacsohn, and some charge less; and (2)

the amount of tuition petitioners paid is unremarkable and is not excessive for the substantial benefit

they received in exchange; i.e., an education for their

children. 

125 T.C. at 293-94. The Tax Court concluded that the Sklars

failed to demonstrate that any part of their tuition payments

was intended as a charitable contribution and that the wellestablished law precluding deduction of tuition payments to

schools providing both secular and religious education controlled. Second, the Tax Court held that the 1993 amendments

to the Code “did not change what is deductible under section

170.” Id. at 296-97. In keeping with our reasoning in Sklar I,

the Tax Court concluded that neither § 170(f)(8), nor § 6115,

as amended in 1993, nor the accompanying legislative history

suggested that Congress intended to make a substantive

change to the Code or to overrule the “long line of cases” precluding deductibility of tuition payments to religious schools.

Id. at 296. Third, the Tax Court held that the Closing Agreement between the IRS and the Church of Scientology is irrelevant to the question of whether the Sklars are entitled to the

§ 170 deductions. Id. at 299. Finally, the Tax Court concluded

7The Tax Court also ruled that the Sklars were not liable for an

accuracy-related penalty the IRS had imposed under I.R.C. § 6662, an

issue not before us on this appeal. 

SKLAR v. CIR 16353
that the Sklars’ separate payments for Mishna classes, which

were held apart from other classes at Emek, should not be

treated any differently than the tuition and fee payments. The

Sklars timely appeal.

II. DISCUSSION

A. Standard of Review

“We review the Tax Court’s conclusions of law and its construction of the tax code de novo, and no deference is owed

that court on its application of the law.” Sklar I, 282 F.3d at

612. We review the Tax Court’s factual determinations for

clear error and its evidentiary rulings for abuse of discretion.

See Sparkman v. Comm’r, 509 F.3d 1149, 1155-56 (9th Cir.

2007).

B. The Sklars’ 1995 Tuition Payments Are Not Deductible

as Charitable Contributions Under the Internal 

Revenue Code

[1] Section 170 of the Internal Revenue Code allows taxpayers to deduct “any charitable contribution,” defined as “a

contribution or gift to or for the use of” certain eligible entities enumerated in § 170(c), including those exclusively organized for religious purposes and educational purposes. I.R.C.

§ 170(a)(1), (c). “[T]o ensure that the payor’s primary purpose is to assist the charity and not to secure some benefit,”

we require such contributions to be “made for detached and

disinterested motives.” Graham v. Comm’r, 822 F.2d 844,

848 (9th Cir. 1987). Therefore, “quid pro quo” payments,

where the taxpayer receives a benefit in exchange for the payment, are generally not deductible as charitable contributions.

See Hernandez v. Comm’r, 490 U.S. 680, 689-91 (1989). In

keeping with this framework, tuition payments to parochial

schools, which are made with the expectation of a substantial

benefit, or quid pro quo, “have long been held not to be charitable contributions under § 170.” Id. at 693; see also DeJong

16354 SKLAR v. CIR
v. Comm’r, 309 F.2d 373, 376 (9th Cir. 1962) (“The law is

well settled that tuition paid for the education of the children

of a taxpayer is a family expense, not a charitable contribution

to the educating institution.”). 

[2] In Hernandez, the Supreme Court considered “whether

taxpayers may deduct as charitable contributions payments

made to branch churches of the Church of Scientology”

8

 in

return for services known as “auditing” and “training.” 490

U.S. at 684. Both are considered forms of religious education.

“Auditing” involves a form of spiritual counseling whereby a

person gains spiritual awareness in one-on-one sessions with

an auditor. By participating in “training,” a person studies the

tenets of Scientology, gains spiritually, and may seek to

become an auditor. Members of the Church of Scientology

sought to deduct payments for auditing and training as charitable contributions for religious services. The Court held that

such payments for religious educational services “do not qualify as ‘contribution[s] or gift[s].’ ” Id. at 691. Rather, “[t]hese

payments were part of a quintessential quid pro quo

exchange: in return for their money, petitioners received an

identifiable benefit, namely, auditing and training sessions.”

Id. The Court reasoned “ ‘[t]he sine qua non of a charitable

contribution is a transfer of money or property without adequate consideration.’ ” Id. (quoting American Bar

Endowment, 477 U.S. at 118). 

[3] The Court further rejected the taxpayers’ argument that

a quid pro quo analysis was not even appropriate, because the

8

In Hernandez, the Commissioner had stipulated before the Tax Court

that “the branch churches of Scientology are religious organizations entitled to receive tax-deductible charitable contributions under the relevant

sections of the Code.” 490 U.S. at 686. This stipulation isolated the statutory issue of “whether payments for auditing or training sessions constitute

‘contribution[s] or gift[s]’ under § 170.” Id. Similarly, the parties to the

current litigation stipulated before the Tax Court “that an agreement dated

October 1, 1993, between the Commissioner and the Church of Scientology settled several longstanding issues.” 125 T.C. at 298. 

SKLAR v. CIR 16355
payments for auditing and training services resulted in receipt

of a purely religious benefit. Id. at 692-93. The Court first

found no support in the language of § 170, which makes “no

special preference for payments made in the expectation of

gaining religious benefits or access to a religious service.” Id.

at 693. Second, the Court reasoned that accepting the taxpayers’ “deductibility proposal would expand the charitable contribution deduction far beyond what Congress has provided.”

Id. at 693. For example, “some taxpayers might regard their

tuition payments to parochial schools as generating a religious

benefit or as securing access to a religious service,” which

would be incorrect because “such payments . . . have long

been held not to be charitable contributions under § 170.” Id.

Finally, the Court noted that “the deduction petitioners seek

might raise problems of entanglement between church and

state” because it would “inexorably force the IRS and reviewing courts to differentiate ‘religious’ benefits from ‘secular’

ones.” Id. at 694. While declining to pass on the constitutionality of such hypothetical inquiries, the Court noted that

“ ‘pervasive monitoring’ for ‘the subtle or overt presence of

religious matter’ is a central danger against which we have

held the Establishment Clause guards.” Id. (quoting Aguilar

v. Felton, 473 U.S. 402, 413 (1985)). Thus, the Hernandez

decision clearly forecloses the Sklars’ argument that there is

an exception in the Code for payments for which one receives

purely religious benefits. 

1. The 1993 Amendments to the Tax Code Did Not

Overrule Hernandez

To circumvent Hernandez’s clear holding, the Sklars resurrect their Sklar I argument that the 1993 amendments to IRS

§§ 170(f)(8) and 6115 overruled the Court’s holding in Hernandez that only gifts or contributions may be deducted under

§ 170. According to the Sklars, the 1993 amendments provide

for the deduction of tuition payments for which they receive

only intangible religious benefits. We agree with the Tax

16356 SKLAR v. CIR
Court that the Sklar’s interpretation of the 1993 amendments

is misguided. 

[4] Amended § 170(f)(8) requires the taxpayer to “substantiate[ ] the contribution by a contemporaneous written

acknowledgment of the contribution by the donee organization.” I.R.C. § 170(f)(8)(A). This acknowledgment must

include an estimate of the value of any goods or services the

donor received in exchange, “or, if such goods or services

consist solely of intangible religious benefits, a statement to

that effect.” I.R.C. § 170(f)(8)(B)(iii). The amendment also

defines an “intangible religious benefit” as one “which is provided by an organization organized exclusively for religious

purposes and which generally is not sold in a commercial

transaction outside the donative context.” Id. As the Tax

Court correctly held, Sklar, 125 T.C. at 296-97, and as we

have previously suggested, Sklar I, 282 F.3d at 613, this

amendment creates an exception only to the new substantiation requirement created by § 170(f)(8)(A).9

 Nothing in the

amendment’s language suggests that Congress intended to

expand the types of payments that are deductible contributions. As the Sklar I panel explained: 

9Although the Sklars rely on the new substantiation requirement as support for their deduction of tuition payments, they did not fully comply

with the requirement themselves. Section 170(f)(8)(C) requires that substantiation be provided by the earlier of (1) the date on which the return

is filed or (2) the due date for filing the return. However, the Sklars did

not submit the required supporting documentation until November 1997.

The IRS argues that this untimely substantiation should serve as an absolute bar to the Sklars’ claimed deductions. However, some of the Sklars’

deductions, such as payments for Mishna classes, were not subject to the

substantiation requirement because they fell below the $250 threshold

described in section 170(f)(8). “Separate contributions of less than $250

are not subject to the requirements of section 170(f)(8), regardless of

whether [they sum up to] $250 or more.” 26 C.F.R. § 1.170A-13(f)(1) (as

amended in 1996). Because we conclude that no part of the Sklars’ payments were deductible, we need not reach the issue. 

SKLAR v. CIR 16357
Given the clear holding of Hernandez and the

absence of any direct evidence of Congressional

intent to overrule the Supreme Court on this issue,

we would be extremely reluctant to read an additional and significant substantive deduction into the

statute based on what are clearly procedural provisions regarding the documentation of tax return

information, particularly where the deduction would

be of doubtful constitutional validity. 

Id.

[5] The second pertinent 1993 amendment requires donee

organizations to disclose limitations on the deductibility of

certain quid pro quo payments to the donors of such payments. See I.R.C. § 6115. Amended § 6115(a) requires any

organization that “receives a quid pro quo contribution in

excess of $75” to provide the donor with a written statement

declaring that the deductible portion of the contribution cannot include “the value of the goods or services provided by

the organization,” along with “a good faith estimate of the

value of such goods or services.” However, § 6115(b)

explains: 

For purposes of this section, the term “quid pro quo

contribution” means a payment made partly as a contribution and partly in consideration for goods or services provided to the payor by the donee

organization. A quid pro quo contribution does not

include any payment made to an organization, organized exclusively for religious purposes, in return for

which the taxpayer receives solely an intangible religious benefit that generally is not sold in a commercial transaction outside the donative context. 

I.R.C. § 6115(b) (emphasis added). The Sklars read the

exemption from the disclosure requirement for organizations

organized exclusively for religious purposes which provide

16358 SKLAR v. CIR
solely an intangible religious benefit completely out of context. The Sklar I panel explained why the Sklars’ reading of

the exemption is unsupportable: 

[Section] 6115 requires that tax-exempt organizations inform taxpayer-donors that they will receive a

tax deduction only for the amount of their donation

above the value of any goods or services received in

return for the donation and requires donee organizations to give donors an estimate of this value,

exempting from this estimate requirement contributions for which solely intangible religious benefits

are received. 

282 F.3d at 613. 

Nor does the legislative history of these amendments even

mention Hernandez, and the House Report specifically states

that, although the new requirements apply only to quid pro

quo contributions for commercial benefits, “[n]o inference is

intended . . . [regarding] whether or not any contribution outside the scope of the bill’s substantiation or reporting requirements is deductible (in full or in part) under the present-law

requirements of section 170.” H.R. Rep. No. 103-111, at 786

n.170 (1993), reprinted in 1993 U.S.C.C.A.N. 378, 1017

n.170. Thus, the House Report confirms that Congress

intended to preserve the status quo ante, and hardly serves as

support for the Sklars’ argument.

10

10In light of certain well-established deductible payments to religious

organizations in exchange for intangible religious benefits, such as pew

rents and church dues, see Hernandez, 490 U.S. at 701-02, it seems plausible that Congress contemplated these sorts of contributions in amending

§§ 170(f)(8) and 6115 in a manner that did not impose the arduous task

of valuing the intangible religious benefits, such as the ability to participate in religious celebrations, that donors receive in exchange for these

contributions. 

SKLAR v. CIR 16359
[6] To put to rest the Sklars’ statutory claim, we now hold

that neither the plain language of the 1993 amendments nor

the accompanying legislative history indicates any substantive

change to Hernandez’s holding that payment for religious

education to religious organizations is not deductible. We

agree with the observation of both the Tax Court and the

Sklar I panel that had Congress intended to overrule judicial

precedent and to provide charitable contributions for tuition

and fee payments to religious organizations that provide religious education, it would have expressed its intention more

clearly. See 282 F.3d at 613; 125 T.C. at 296-97. 

2. The Tuition Payments Were Not “Dual Payment”

Contributions 

[7] The Tax Court correctly concluded that no part of the

Sklar’s tuition payments is deductible under a “dual payment”

analysis. See Sklar, 125 T.C. at 290-94, 299-300. In American

Bar Endowment, the Supreme Court considered the question

of the extent to which payments to organizations that bear the

“dual character” of a purchase and a contribution are deductible under § 170. 477 U.S. at 116-18. IRS Revenue Ruling 67-

246 had set forth a two-part test for determining the extent to

which such payments are deductible: 

First, the payment is deductible only if and to the

extent it exceeds the market value of the benefit

received. Second, the excess payment must be

“made with the intention of making a gift.” 

Id. at 117 (quoting Rev. Rul. 67-246, 1967-2 Cum. Bull. 104,

105 (1967)). The Court held that Revenue Ruling 67-246

embodied the proper standard, reasoning: “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.” Id. at 118. 

16360 SKLAR v. CIR
In American Bar Endowment, taxpayer members of a charitable organization sought to deduct under § 170 refunds from

insurance policies negotiated and purchased on their behalf by

the charitable organization, which they donated to the organization. See id. at 106-09, 116-18. They claimed that the premiums paid for the insurance, part of which was subsequently

refunded due to the “experience rating” of the policies, were

dual payments. Id. The Supreme Court held that the taxpayer

members met neither prong of the two-part test for deductibility of dual payments. Stating that the “most logical test of the

value of the insurance [the benefit received in return for their

payment] is the cost of similar policies,” the Court held that

because three of the four taxpayers “failed to demonstrate that

they could have purchased similar policies for a lower cost,”

they failed to demonstrate that their payment exceeded the

market value of the benefit received. Id. at 118. Because the

fourth taxpayer, who did prove that there was a comparable

insurance program at a lower premium rate for which he was

eligible, failed to demonstrate that he knew about the available lower premium during the tax years at issue, the Court

held that he failed the second prong of the test—“that he

intentionally gave away more than he received.” Id.

[8] The Sklars again have failed to meet their burden of satisfying either prong of the two-part test for a dual payment,

and we seriously doubt that they could ever make the showing

that would support a “dual payment” deduction for tuition for

combined religious and secular education.11 In Sklar I, the

panel concluded that the Sklars failed to satisfy the requirements for partial deductibility of their tuition payments. Our

analysis has not changed, despite the Sklars’ effort to introduce evidence as to market value. 

11Indeed, the Tax Court expressed skepticism as to whether a dual payment analysis would ever be appropriate in this context. See 125 T.C. at

293 (“[M]ore fundamentally, the record speaks to whether a dual payments analysis applies in this case at all.”). 

SKLAR v. CIR 16361
[9] First, the Sklar I panel reasoned that the Sklars “failed

to show that they intended to make a gift by contributing any

such ‘excess payment.’ ” 282 F.3d at 621. In fact, the Sklars

have never even argued—not in Sklar I, not before the Tax

Court and not before us—that they intended to make a gift as

a portion of their tuition payment. Indeed, the record is to the

contrary. In their brief, the Sklars explain at length that they

pay the tuition and fees to send their children to Orthodox

Jewish schools because it is a religious imperative of Orthodox Judaism. They “sent their children to Yeshiva Rav Isacsohn and Emek in 1995 because of their sincerely and deeply

held religious belief that as Jews they have a religious obligation to provide their children with an Orthodox Jewish education in an Orthodox Jewish environment.” Because they paid

for religious education out of their own deeply held religious

views, and because the record demonstrates that throughout

the school day—during recess, lunch and secular, as well as

religious, classes—the schools inculcate their children with

their religion’s lifestyle, heritage, and values, the Sklars have

actually demonstrated the absence of the requisite charitable

intent. 

Second, the Sklar I panel reasoned that “the Sklars have not

shown that any dual tuition payments they may have made

exceeded the market value of the secular education their children received.” Id. The panel stated that the Sklars needed to

present evidence that their total payments exceeded “[t]he

market value [of] the cost of a comparable secular education

offered by private schools.” Id. Before the Tax Court, the

Sklars introduced expert testimony asserting that “Catholic

schools are the most reasonable comparison benchmarks for

the schools attended by the Sklar children.” Based on his estimation of tuition paid for Archdiocesan Catholic schools12 in

12The flaws in the expert report itself are too numerous to mention, but

we point out only one: the archdiocesan schools are subsidized in large

measure by the parishes in the Archdiocese in order to force down the

costs of education and to afford all Catholic children the opportunity to

attend Catholic schools. Thus, by choosing archdiocesan schools as the

basis for his comparative market value, the Sklars’ expert guaranteed that

the tuition and fees paid to the Sklars’ schools would greatly exceed the

tuition at the archdiocesan Catholic schools. 

16362 SKLAR v. CIR
Los Angeles County in 1995, the Sklars’ expert concluded

that the market value of the secular education the Sklars’ children received was between $1483 and $1724, such that in

1995 the Sklars made “excess payments” of almost $5000 per

child. The Sklars’ expert also included tuition data for other

Los Angeles schools in his report. The Tax Court correctly

concluded that the evidence in the record indicated: “(1)

Some schools charge more tuition than Emek and Yeshiva

Rav Isacsohn, and some charge less; and (2) the amount of

tuition petitioners paid is unremarkable and is not excessive

for the substantial benefit they received in exchange; i.e., an

education for their children.” 125 T.C. at 293-94. Before us,

the Sklars have failed to demonstrate—or even argue on

appeal—that the Tax Court’s factual findings as to the data set

forth in their expert’s report are clearly erroneous.

[10] Thus, the Tax Court did not err by concluding that the

Sklars failed to show that any part of their tuition fees was a

charitable deduction, subject to a dual payment analysis. We

conclude that under Hernandez and the Internal Revenue

Code, their tuition and fee payments must be treated like any

other quid pro quo transaction, even if some part of the benefit received was religious in nature. See 490 U.S. at 691-94.

We therefore agree with the Tax Court that the Sklars’ tuition

is not deductible, in whole or in part, under § 170.

C. The 1993 Closing Agreement Does Not Constitutionally

and Administratively Require the IRS To Allow Charitable Deductions for the Sklars’ Tuition Payments to

Religious Schools

The Sklars reassert their Sklar I argument that in light of

allegedly similar deductions allowed for members of the

Church of Scientology under a closing agreement with the

IRS, the disallowance of deductions for Orthodox Jewish religious education violates the Establishment Clause and principles of administrative consistency. They also argue that the

Tax Court abused its discretion in denying discovery about

SKLAR v. CIR 16363
the Closing Agreement, including compelling its production.13

Before the Tax Court, the Sklars and the Commissioner “stipulated that an agreement dated October 1, 1993, between the

Commissioner and the Church of Scientology settled several

longstanding issues.” 125 T.C. at 298. A letter the Sklars had

received from the IRS was also admitted. It established that

the Closing Agreement “allows individuals to claim, as charitable contributions, 80 percent of the cost of qualified religious services.” Id. The Sklars argued that because of the

Closing Agreement, the Commissioner is constitutionally and

administratively precluded from disallowing their deductions

for school tuition and fees, which they contend are “jurisprudentially indistinguishable” from the auditing and training

provided by the Church of Scientology. 

The Tax Court correctly dispatched that argument by citing

to Sklar I. See 125 T.C. at 299. There the panel stated that

“[w]e seriously doubt that the Sklars are similarly situated to

the persons who benefit from the Scientology closing agreement because the religious education of the Sklars’ children

does not appear to be similar to the ‘auditing’, ‘training’ or

other ‘qualified religious services’ conducted by the Church

of Scientology.” 282 F.3d at 620; see also id. at 618 n.13. We

also conclude that tuition and fee payments to schools that

provide secular and religious education as part of one curriculum are quite different from payments to organizations that

provide exclusively religious services. Because the Sklars are

situated differently than members of the Church of Scientology, the Tax Court did not abuse its discretion in determining that the Closing Agreement itself was not relevant, and

therefore not discoverable in the Sklars’ redetermination proceedings. 

13The Sklars made several efforts to obtain the Closing Agreement. The

IRS repeatedly objected and sought protective orders on grounds of relevance and in reliance on I.R.C. § 6103, which makes confidential certain

taxpayer “return information,” including closing agreements. The Tax

Court sustained the IRS’s objections, without disclosing its reasoning, and

the document was not admitted into evidence. 

16364 SKLAR v. CIR
[11] Nor did the Tax Court err in its conclusion that “the

agreement reached between the [IRS] and the Church of

Scientology does not affect the result in this case,” Sklar v.

Comm’r, 125 T.C. at 299, because “the analysis in [American

Bar Endowment] controls here.” Id. (internal citation omitted). The Sklar I panel previously assumed the contents of the

Closing Agreement, with reference to a Wall Street Journal

article that purported to reprint the agreement in full. See

Sklar I, 282 F.3d at 615; Scientologists and IRS Settle for

$12.5 Million, Wall St. J., Dec. 30, 1997, at A12; agreement

reprinted in Wall St. J. Interactive Edition (www.wsj.com).

The panel also held that the IRS must make the Closing

Agreement publicly available.14 282 F.3d at 614-18. The Sklar

I panel further presumed from the IRS’s failure to disclose

that the terms of the Closing Agreement were as set forth in

the Wall Street Journal article, and concluded that the Closing

Agreement constitutes an unconstitutional denominational

preference. Id. at 619. We cannot improve upon the original

panel majority’s elucidation of the principles at stake:

Applying [Larson v. Valente, 456 U.S. at 246-47,] to

the policy of the IRS towards the Church of Scientology, the initial inquiry must be whether the policy

facially discriminates amongst religions. Clearly it

does, as this tax deduction is available only to members of the Church of Scientology. 

14In Sklar I, we held that closing agreements “constitute, at least in part,

information required to be disclosed under § 6104,” 282 F.3d at 615 n.7,

and that “in appropriate circumstances, disclosure may be required under

§ 6104 or otherwise,” id. at 616. Section 6104 of the Code compels certain

501(c) and 501(d) organizations to disclose any documents submitted in

support of an application for exemption. However, § 6103 prohibits the

disclosure of closing agreements and other confidential “return information.” Id. Considering the interaction of the two sections, we held that

“§ 6103 does not categorically prohibit the disclosure of closing agreements,” but on the contrary “the disclosure prohibitions of § 6103 are subject to the mandatory disclosure requirements of § 6104.” Id. Our holding

in Sklar I is binding here, although we do not decide the extent to which

the Closing Agreement might be discoverable in an appropriate forum. 

SKLAR v. CIR 16365
The second Larson inquiry is whether or not the

facially discriminatory policy is justified by a compelling governmental interest. 456 U.S. at 246-47,

102 S. Ct. 1673. Although the IRS does not concede

that it is engaging in a denominational preference, it

asserts in its brief that the terms of the settlement

agreement cannot be used as a basis to find an Establishment Clause violation because “in order to settle

a case, both parties are required to make compromises with respect to points on which they believe

they are legally correct.” This is the only interest that

the IRS proffers for the alleged policy. Although it

appears to be true that the IRS has engaged in this

particular preference in the interest of settling a long

and litigious tax dispute with the Church of Scientology, and as compelling as this interest might otherwise be, it does not rise to the level that would pass

strict scrutiny. The benefits of settling a controversy

with one religious organization can hardly outweigh

the costs of engaging in a religious preference. Even

aside from the constitutional considerations, a contrary rule would create a procedure by which any

denomination seeking a denominational preference

could bypass Congressional law-making and IRS

rulemaking by engaging in voluminous tax litigation.

Such a procedure would likely encourage the proliferation of such litigation, not reduce it. Larson, 456

U.S. at 248, 102 S. Ct. 1673 (holding that even

assuming arguendo that the government has a compelling governmental interest for a denominational

preference, it must show that the rule is “closely fitted to further the interest that it assertedly serves”).

Because the facial preference for the Church of

Scientology embodied in the IRS’s policy regarding

its members cannot be justified by a compelling governmental interest, we would, if required to decide

the case on the ground urged by the Sklars, first

determine that the IRS policy constitutes an uncon16366 SKLAR v. CIR
stitutional denominational preference under Larson,

456 U.S. at 230, 102 S. Ct. 1673. 

282 F.3d at 618-19 (footnote omitted). However, the Sklar I

panel declined to follow the Sklars’ suggestion that they, too,

are entitled to an unconstitutional denominational preference

for three reasons:

First, we would be reluctant ever to presume that

Congress or any agency of the government would

intend that a general religious preference be adopted,

by extension or otherwise, as such preferences raise

the highly sensitive issue of state sponsorship of religion. In the absence of a clear expression of such

intent, we would be unlikely to consider extending a

policy favoring one religion where the effect of our

action would be to create a policy favoring all. Second, the Supreme Court has previously stated that a

policy such as the Sklars wish us to create would be

of questionable constitutional validity under Lemon,

because the administration of the policy could

require excessive government entanglement with

religion. Hernandez, 490 U.S. at 694, 109 S. Ct.

2136; see Lemon, 403 U.S. at 612-13, 91 S. Ct.

2105. Third, the policy the Sklars seek would appear

to violate section § 170. See Hernandez, 490 U.S. at

692-93, 109 S. Ct. 2136. 

Id. at 619-20. 

The Sklar I panel also rejected the Sklars’ administrative

inconsistency claim on two grounds:

First, in order to make an administrative inconsistency claim, a party must show that it is similarly situated to the group being treated differently by the

agency. United States v. Kaiser, 363 U.S. 299, 308

[(1960)]. We seriously doubt that the Sklars are simSKLAR v. CIR 16367
ilarly situated to the persons who benefit from the

Scientology closing agreement because the religious

education of the Sklars’ children does not appear to

be similar to the “auditing”, “training” or other

“qualified religious services” conducted by the

Church of Scientology. Second, even if they were so

situated, because the treatment they seek is of questionable statutory and constitutional validity under

§ 170 of the IRC, under Lemon, and under Hernandez, we would not hold that the unlawful policy

set forth in the closing agreement must be extended

to all religious organizations. 

Id. at 620 (citation omitted). 

[12] These principles are as correct today as they were six

years ago. We adopt the full force of the conclusions they dictate. To conclude otherwise would be tantamount to rewriting

the Tax Code, disregarding Supreme Court precedent, only to

reach a conclusion directly at odds with the Establishment

Clause—all in the name of the Establishment Clause. The

principle the Sklars advance does not stop with them and their

1995 taxes; its logic would extend to all members of religious

organizations who benefit from educational services that are

in whole or part religious in nature. The Tax Court correctly

held that neither the Establishment Clause nor principles of

administrative consistency allow the Sklars the deductions

they seek, and the Tax Court’s denial of discovery regarding

the Closing Agreement in proceedings involving the deductibility of the Sklars’ tuition and fees was not an abuse of discretion. 

CONCLUSION

The Tax Court correctly affirmed the IRS’s disallowance of

deductions the Sklars claimed for tuition and fees paid to their

children’s Orthodox Jewish day schools. The decision of the

Tax Court is AFFIRMED. 

16368 SKLAR v. CIR