Document: 490 U.S. 680 109 S.Ct. 2136 104 L.Ed.2d 766 Robert L. HERNANDEZ, Petitioner,v.COMMISSIONER OF INTERNAL REVENUE. Katherine Jean GRAHAM, et al., Petitioners, v. COMMISSIONER Nos. 87-963, 87-1616. Argued Nov. 28, 1988. Decided June 5, 1989. Rehearings Denied Aug. 11, See 492 933, 110 16. Syllabus The Church of Scientology (Church) provides "auditing" sessions designed to increase members' spiritual awareness and training courses at which participants study the tenets faith seek attain qualifications necessary conduct auditing sessions. Pursuant a central tenet known as "doctrine exchange," has set forth schedules mandatory fixed prices for vary according session's length level sophistication are paid branch churches. Under § 170 Internal Revenue Code 1954, petitioners each sought deduct such payments on their federal income tax returns "charitable contribution," is defined "contribution or gift" eligible donees. After respondent Commissioner (Commissioner IRS) disallowed these deductions ground that were not contributions," review in Tax Court. That court upheld Commissioner's decisions rejected petitioners' constitutional challenges based Establishment Free Exercise Clauses First Amendment. Courts Appeals affirmed separate appeals. Held: Payments made Church's churches services deductible charitable contributions under 170. Pp689-703. (a) Petitioners' "contribution[s] gift[s]" within meaning legislative history limitation reveals Congress intended differentiate between unrequited qualified recipients, deductible, recipients with some expectation quid pro quo terms goods services, deductible. To ascertain whether given payment was an expectation, external features transaction question must be examined. Here, strongly suggest exchange money sessions, since established church; calibrated particular lengths levels; returned refund if went unperformed; distributed "account cards" monitoring prepaid, but as-yet-unclaimed, services; categorically barred provision free argument analysis inappropriate when church either generates purely religious benefits guarantees access service unpersuasive, since, by its terms, makes no special preference offers indication this omission oversight. Moreover, deductibility proposal would expand contribution deduction far beyond what provided include numerous forms otherwise not, might be, Furthermore, raise problems entanglement state, IRS reviewing courts forced "religious" from "secular" ones. Pp. 689-694. (b) Disallowance does violate Clause. creates unconstitutional denominational disproportionately harsh status those religions funds imposing costs participation certain practices unpersuasive. Section passes muster, it facially among sects applies all entities, satisfies requisite three-pronged inquiry First, section neutral both design purpose, there being allegation born animus religion general particular. Second, primary effect—encouraging gifts including limited organizations—does advance religion, involves direct governmental action endorsing practice. Its secular effect rendered merely because happens harmonize soliciting unilateral donations. Third, threatens excessive state. Although institution's regularity waived, other pertinent information about transaction, routine regulatory interaction involve type inquiries into doctrine, delegation state power, detailed close administrative contact nonentanglement command. Nor application require Government place monetary value benefits. claim contrary raises need valuation, they have alleged only fully exempt analysis—not portion exceeds acquired service. In any event, purchase ineluctably create problems, eschewed benefit-focused valuation cases where economic good elusive, instead employed method inquires cost (if any) donee providing This that, matter, bear resemblance kind surveillance poses intolerable risk entanglement. 695-698. (c) doubtful allege, disallowance imposes substantial burden practice deterring adherents engaging interfering observance doctrine exchange, United States Lee, 455 252, 260, 102 1051, 1056-1057, 71 127, establishes even justified broad public interest maintaining sound system, myriad exceptions flowing wide variety beliefs. case taxes, rather than Social Security taxes considered iLee, consequence. Also consequence fact already contains exemptions, guiding principle uniformly applicable all, except explicitly otherwise. Id., 261, S.Ct., 1057. Indeed, Government's avoiding exemption more powerful here sense claimed stemmed specific doctrinal obligation pay whereas entitled incrementally larger interferes activities. 698-700. (d) assertion disallowing conflicts IRS' longstanding permitting taxpayers institutions connection absence evidence nature structure transactions. facts, Court cannot appraise accurately revenue rulings allowing correctly applied discern contain unifying embrace session payments. 700-703. 819 F.2d 1212 (CA1 1987) 822 844 (CA9 1987), affirmed. MARSHALL, J., delivered opinion Court, REHNQUIST, C.J., WHITE, BLACKMUN, STEVENS, JJ., joined. O'CONNOR, filed dissenting opinion, SCALIA, joined, post, p. 704. BRENNAN KENNEDY, took part consideration decision cases. Michael J. Graetz, New Haven, Conn., petitioners. Thomas W. Merrill, Washington, D.C., respondent. Justice MARSHALL 1 1954 (Code), 26 U.S.C. 170, permits taxpayer gross amount contribution." defines term donees, entities organized operated exclusively purposes.1 We granted certiorari determine may order receive "training." hold 2 * founded 1950's Ron Hubbard. It propagated today "mother church" California around world. mother instructs laity, trains ordains ministers, new congregations. Branch churches, "franchises" "missions," provide local level, supervision Church. Commissioner, 823 1310, 1313 cert. denied, 486 1015, 108 1752, 100 214 (1988). 3 Scientologists believe immortal exists every person. A person becomes aware dimension through process "auditing."2 Auditing one-to-one encounter participant (known "preclear") official "auditor"). An electronic device, E-meter, helps auditor identify preclear's areas difficulty measuring skin responses during answer session. conducted one one, content individually tailored. preclear gains progressing sequential levels auditing, short blocks time "intensives." 83 T.C. 575, 577 (1984), aff'd, 1987). 4 also members Participants serve auditors. Training courses, like levels. taught result courses. T.C., 577. 5 charges "fixed donation," "price" gain These schedules, sophistication. 1972, example, rates ranged $625 121/2-hour intensive, shortest available, $4,250 100-hour longest available. Specialized types required higher donations: "Integrity Processing" intensive $750; "Expanded Dianetics" $950. system receives something he back. 577-578. so doing, Scientologist maintains "inflow" "outflow" avoids decline. 1212, 1222 6 proceeds generated source income. promotes newspaper, magazine, radio advertisements, lectures, personality tests, leaflets. encourages, indeed rewards 5% discount, F.2d, 847. often refunds unused portions prepaid fees, less charge. 7 Petitioners consolidated They Respondent head Service (IRS), deductions, finding chari able 170.3 8 determinations trial three No. 87-1616: Graham, Richard M. Hermann, David Forbes Maynard. petitioner Hernandez, agreed bound findings Graham trial, reserving his right appeal. Before stipulated organizations tax-deductible relevant sections Code. stipulation isolated sole statutory issue constitute 170.4 9 held 3-day bench others testified submitted documentary exhibits describing Based record, decision. 575 (1984). observed first contribution" synonymous word "gift," law had "as voluntary transfer property owner another without therefor." 580, quoting DeJong 36 896, 899 (1961) (emphasis original), 309 373 1962). then determined received payments, namely, "the benefit various Scientology." 580. taxpayers' 10 Circuit Hernandez's case, Ninth Maynard's ordinary should apply return commensurate benefit, opposed financial benefit." 1217 original). found "no distinguish Hernandez medical, educational, scientific, literary, could likewise nondeductible organization." Ibid. impracticable put purchased, noting itself "established advertised prices" misstated 1218. 11 claims failed. Because created face, shown Clause violation. 1218-1221. As challenge, denying did prevent paying thereby observing Scientology's exchange. granting compromise integrity fairness system. 1221-1225. 12 "measurable, . donation" 848. reached focusing features" transactions, analytic technique "serves expedient intrusive motives payor." Whether irrelevant, "[i]t received, controls." 849. 13 arguments. "neutral design" reflects intent "to visit disability religion." 853. "have Church, [would] money, [did] rise appellants' ability exercise beliefs." 851. still make donations church, "not choice abandoning losing government both." Finally, noted compelling maintenance uniform system" counseled against exemption. 852-853. 14 certiorari, 485 1005, 1467, 99 697 (1988); 1022, 1994, 226 (1988), resolve conflict concerning validity payments.5 now affirm. II 15 For over 70 years, been allowed charitable, religious, eleemosynary institutions. B. Bittker, Federal Taxation Income, Estates Gifts ¶ 35.1.1 (1981) (tracing deduction) present provision, enacted 1954; requires claiming satisfy number conditions.6 however, narrowed condition: 16 limitation, though sparse, services. Only former deemed House Senate Reports bill, define "gifts" "made gift." S.Rep. 1622, 83d Cong., 2d Sess., 196 (1954); H.R.Rep. 1337, A44 (1954), U.S.Code Cong. & Admin.News pp. 4017, 4180, 4831. Using hospitals gift characterization "a individual hospital binding medical treatment individual's employees. hospital." supra, added); H.Rep. added), 4831.7 17 ascertaining quo," 196; A44, 4831, customarily examined question. advantage obviating imprecise motivations taxpayers. lower generally embraced structural analysis. See, e.g., Singer Co. States, Ct.Cl. 90, 449 413, 422-423 (1971) (applying approach collecting cases), cited American Bar Endowment, 477 105, 117, 106 2426, 2433, 91 89 (1986); see 35.1.3 (collecting cases). focused partial premiums organization insurance coverage; contended unusually high effort along insurance. failed demonstrate, minimum, existence comparable policies policy purchased. we stressed "[t]he sine qua non m ney adequate consideration." 118, 2434 added part).8 18 light understanding readily apparent do qualify gift[s]." found, quintessential exchange: identifiable price sophistication; persons who monitor yet claimed; free.9 Each inherently reciprocal 19 argue transactions conceded expected amounts 850. nature. Along same lines, participate automatically 20 accept several reasons. finds support language could, consistent Clause, automatic service, thus declined make. Instead, specified (or eleemosynary) purposes 170(c). gaining Foley 94, 98 (CA2 1988) (Newman, dissenting), pending, 88-102. offer Congress' failure enact 21 provided. Numerous donees plausibly categorized securing regard tuition parochial schools generating service; long Foley, 98, citing Winters 468 778 1972); id., 781 (noting refusal legislation school payments). Taxpayers similar church-sponsored counseling care church-affiliated Given Amendment, can reject valid beliefs sincerely held, irreligious, Ballard, 322 78, 64 882, 88 L.Ed. 1148 (1944), resulting likely size. loath supportive congressional intent. Cf. 259-261, 127 (1982). 22 If framed payor, inexorably force judiciary differentiating pass judgment constitutionality hypothetical inquiries, note "pervasive monitoring" subtle overt presence matter" danger guards. Aguilar Felton, 473 402, 105 3232, 3238, 87 290 (1985); Widmar Vincent, 454 263, 272, n. 269, 275-276, 440 ("[T]he University greater 'entanglement' attempting enforce exclusion 'religious worship' speech' " opening forum well nonreligious speakers); cf. Review Bd. Indiana Employment Div., 450 707, 716, 101 1425, 1431, 67 624 (1981). 23 Accordingly, conclude expression.10 III 24 turn 25 requested violates two respects. said practices. allegedly entangle "supervision practices" "valuation services." Brief 44. Our Larson Valente, 456 228, 1673, 72 33 (1982), supplies nalytic framework evaluating contentions. teaches exists, initial differentiates religions. facial proceed customary derived Lemon Kurtzman, 403 602, 2105, 29 745 (1971).11 27 Thus analyzed, easily muster. line draws statutorily sects. Unlike Minnesota statute Larson, exempted registration reporting requirements half members, "explicit deliberate distinctions different organizations," U.S., 246-247, 23, 1684-1685, applying entities. 28 comports test. 254-255, 1688-1689 (history restriction hostility "Moonies" "get people running airports"). purpose. 170—encouraging organizations—is neither nor inhibit religion. "[d]irect practice." Wallace Jaffree, 472 38, 69, 2479, 2497, 86 (1985) (O'CONNOR, concurring judgment). orientation requirement impose disparate groups rely sales commodities means fund-raising, relative primarily But having "happens coincide religions." McGowan Maryland, 366 420, 442, 81 1101, 1113-1114, 393 (1961); Bob Jones 461 574, 604, 30, 103 2017, 2035, 76 157 (1983). 30 sure, institution commodities, transaction. Presbyterian Mary Elizabeth Blue Hull Memorial 440, 451, 601, 606, 658 (1969), power body, Larkin Grendel's Den, Inc., 59 116, 505, 74 297 "detailed contact" bodies, Aguilar, 414, 3239, Tony Susan Alamo Foundation Secretary Labor, 471 290, 305-306, 1953, 1963, 85 278 (stating "does activity fire inspections building zoning regulations" recordkeeping Fair Labor Standards Act) (citation omitted). observed, 694, interpretation requiring "fraught sort Constitution forbids." Lemon, 620, 2115. 31 (describing "dual character" payments) (citing, inter alia, Rev.Rul. 68-432, 1968-2 Cum.Bull. 104, 105); 10, supra. forcing benefit. elusive—where, sold marketplace—the valuation. alternative Oppewal 1000, 1002 1972) (cost "religiously-oriented" education); (same); 1962) (same). method, while disclose IRS, "bear previously pose Foundation, 305, 1963; 621-622, 2115-2116 (school-aid authorizing inspection records impermissible "intimate continuing relationship state" State expenditures secular").12 B 32 contend "plac[ing] heavy 47. precise unclear, appears operate ways. deter interfere mandates equality adherent's "inflow." asks placed observation belief and, so, justifies burden. Hobbie Unemployment Comm'n Fla., 480 136, 141-142, 107 1046, 1049-1050, 94 190 (1987); 717-719, 1431-1433; Wisconsin Yoder, 406 205, 220-221, 92 1526, 1535-1536, (1972). judicial ken centrality faith, litigants' interpretations creeds. Thomas, 1431. do, doubts imposed Scientologists' one. Neither receipt forbidden generally, proscribe specifically. 257, 1055. Any therefore derives solely denial, available fee; indeed, denial seem pale comparison overall adherent. Likewise, unclear why violated adherent equalize many wishes. 850-853 (questioning substantiality Scientologists); 1222-1225 decide our Lee "broad system," "myriad Amish taxpayer's commanded obligations, function denominations challenge "in manner belief." crafted exemptions consequence, "must otherwise." 1057 added). respect, Lee; stems contention knows limitation. accordingly merit. IV 34 turn, finally, odds ith Through appellate stages litigation, essentially selective prosecution. Circuits summarily claim, intentional discrimination claim. 853 (no showing target enforcement enforcement"); 1223 "discriminatory intent" proved). 35 arguments shifted emphasis. closely related claims. accorded disparately compared synagogues services: Recognition cure inconsistency. Congress, modifying impliedly acquiesced faiths; indistinguishable fall Commission demurred oral fact, synagogues, Tr. Oral Arg. 30-31, periodic stated position clearly. 1971 ruling, effect, states: "Pew rents, fund assessments, dues methods making limitations out Code." 70-47, 1970-1 49 (superseding A.R.M. 2, 150 (1919)). assume allows "specified attendance High Holy Day tithes, torah readings memorial plaques." 96. 37 development impossible us unjustifiably determining is, noted, secures involved structured determination heard testimony proof transactions; factual upon conclusion nondeductibility, consonant 38 Perhaps theory inconsistency emerged appeal, endeavor adduce sources faiths' rulings, agency's conclusions apparently never reviewed facts simply way (other wholly illegitimate relying personal experiences observations) respect know, truly obligatory encouraged "mandatory" made. 39 standard wrong faiths, others. appropriately classified partially payments." With involving centrally congregations, proper point reference congregation, whole. record determinations. Absent consistency argument.13 40 acquiescence fails Even assumes ruling "[p]ew dues," 49, articulates deductibility, identifies discrete Having before discerning possible principle, let alone V 41 reasons herein, judgments hereby 42 Affirmed. 43 KENNEDY 44 whom SCALIA joins, dissenting. 45 acquiesces (IRS) manufacture singular exception 70-year deducted contributions. constitutionally select will past I respectfully dissent. 46 air artificiality them due dual litigation strategy (Church). notes, ante, 686-687, 4, successfully argued tax-exempt 1970 1972 diverted profits founder others, conspired impede collection almost activities commercial 381 1310 today, decided contest ents branches According Deputy Solicitor General, challenged themselves expedite matters. 26-29. Neher 852 848, 850-851 (CA6 1988). cases, stipulations which, my view, necessarily questions presented 47 stipulations, relegated single sentence 686, times religion; "church" 170(b)(1)(A)(i); "corporation" 170(c)(2) taxation 501(a). App. &Par; 52-53; 576 General recognizes, follows operates 'charitable purposes' puts "public above private interest." 30. Neher, 855. establish individuals "market reap moneymaking venture." Staples 821 1324, 1328 (CA8 87-1382. ignored stipulations. concluded, perhaps previous Scientology, "Scientology [auditing training]. articulated goals money." 578. duplicated error here, referring occasions attempt negate 13-14, 25, 48 emphasized knowledge secular, commercial, value. Thus, bears religious-school up market secularly useful education received. 1000 Here denies basis quo, worth. cites instances done before, why. When value, allowable computed subtracting total physical charity sale purchases $1,000 painting whose demonstrably $50, true seat dinner food worth $50. identical calculation meal, intangible entertainment, noncontributory context. Hence, ticket concert, going rate concerts performers, cont ibution zero announced go charity. performers contribution, audience show. 50 impossible, compute "contribution" intangible, (or, matter tangible) bought donative contexts "market" evaluated always includes Suppose, traditionally solicits Veterans Day, gives donor imitation poppy bearing name, flat rule gets donation least $10. One say poppies $10, assuredly everyone "bought" $10 contribution. Similarly, buys $100 prayer breakfast receiving body soul—it whatever occurred "going rate" breakfasts (with equivalent bodily food) $100. latter true, 51 Confronted difficulty, necessity irrational taxpayers, Amendment imposes, practicable options distinctively quids quo: disregard all. Over years chosen course. 52 1917. War Act 1917, ch. 63, 1201(2), Stat. 330. mere later, (1919), gave blessing contributions: 53 "[T]he distinction pew dues, basket collections hardly warranted act. act reads 'contributions' 'gifts.' felt come terms. 54 "In substance believed contributing although form vary. Is involuntarily distinguished envelope regarded 'dues'? From technical angle, rents differentiated, so-called 'personal accommodation' afford conjectural. real contribute hire accommodation. contributors sometimes accommodation informally." reaffirmed 1970, assessments contributions." 49. notwithstanding "form" Mass stipends infra, 709, 78-366, 1978-2 241. 55 "official interpretation[s] [the laws] [IRS]," Rev. Proc. 78-24, 503, 504, flatly contradict General's "is recognizing deductible." Assistant recently explained "question guidance package" tax-exe pt "[i]n contrast observances yielding donor, viewed incidental attending observances. beneficiaries faith. saying masses, Official Explains Examination-Education Program Charitable Contributions Tax-Exempt Organizations, BNA Daily Report Executives, Special 186, J-1, J-3 (Sept. 26, package authoritative 703, 13, indications reflect adherence 56 There doubt treated allow deduct, 690-691, "inherently reciprocal," 2145, here. Christians seats worship Encyclopedic Dictionary Religion 2760 (1979). Jewish Days predicated admission reserved ticket. Feldman, H. Fruhauf, Schoen, Temple Management Manual, Religious honors publicly reading Scripture purchased auctioned periodically Jews Morocco Syria. Dobrinsky, Treasury Sephardic Laws Customs 164, 175-177 (1986). Mormons tithe sufficient condition obtaining "temple recommend," i.e., admitted temple. Book Mormon, Nephi 24:7-12 (1921); Reorganized Jesus Christ Latter-day Saints, Doctrine Covenants 106:1b (1978); Corporation Presiding Bishop Saints Amos, 483 327, 330, 2862, 2865, 97 273 (1987). stipend—a Catholic priest, obliged fruits intention donor—has overtones theologians, pact priest pays stipend bilateral contract ut facias. agrees give party return." Encyclopedia, Stipend, 715 (1967). finer example hard formulate. 57 situation affirmatively reevaluated analyze standard. abandoned Scientologists. 1978, ruled cite much try reconcile—its 78-189, 1978-1 68 (equating schools). 58 Nevertheless, attempts reconcile organization. distinction, adu brated early 1919 recognizes generate donor. remain "incidental" indicate actually "personal accommodation" respondent's view "unusual demonstrate accommodation.' 41. Specifically, asserts rigid price" indicates "reflect[s] discernible reason faiths described above. Christian obtains her rental fee, Jew entrance purchasing ticket, Mormon temple recommend, stipend, conferred "general faith," Report, J-3, perceived difference lies Scientologists, reminiscent Eastern religions, 78-83 (testimony Dr. Love), "immortal being" auditors, 684-685, serious problems. 69-70, judgment); Lynch Donnelly, 465 668, 687-689, 1355, 1366-1367, 79 604 (1984) (concurring opinion). legitimate congregational "would anyway," 43, undergoing hand congregation other. importance achieves legal dimensions. Orthodox Judaism, performed read men. Encyclopaedia Judaica, Minyan, setting, 10th man 11th? vein, congregants hear Mass? And conversely, absolute prerequisite regardless size congregation? 60 stance understatement taxable immune drawn unsteady hand." Allegheny County, 174, 176, 908, 910, 1209 (1944) (Jackson, J.). regulation religions," 1113, (1961), neutral, basis. 2034-2035, Rather, differential differences such, best characterized "put[ting] imprimatur [all but] Gillette 401 437, 450, 828, 836, 168 (1971). do. 61 downplay accepting invitation case-specific 702 ("The 'contribution gift' others"). 41-42. practical think unprincipled prove helpful. confident enough brief "even inquiry," tithing arrangement. 43-44. At argument, mandatory, distinguishable "ordinary dues." 36-37. suggested malleable indefinite, panacea trusted secure rights arbitrary incursions Government. 62 On fundamental abjure responsibility address converting violation "administrative argument," inadequate record. ignore longstanding, clearly practice, cogent, explanation Scientology. pretended errors committed hidden gaze will, rectified time. 63 misapplied unconstitutionally refused deducted. Just discriminated Unification here—and here—discriminates reverse below. part: "(a) Allowance "(1) Rule "There shall (as subsection (c)) year. verified regulations prescribed Secretary. "(c) "For section, use of— "(2) corporation, trust, community chest, fund, foundation— "(A) possession thereof, State, District Columbia, States; "(B) educational purposes, foster national international amateur sports competition (but athletic facilities equipment), prevention cruelty children animals; "(C) net earnings inures shareholder individual; "(D) disqualified 501(c)(3) influence legislation, in, intervene (including publishing distributing statements), political campaign behalf candidate office. ." "processing," "counseling," "pastoral counseling." denied $7,338 assessed deficiency $2,245 1981. 1215 Of 87-1616, $1,682 $316.24 1972; Hermann $3,922 $803 1975; Maynard $5,000 carryover $2,385 1976) $643 1977. 575-579. avoid pendency affirmed, basing individuals. bases Court's (1987), Compare Christiansen 843 418 (CA10 1988), (holding deductible), 87-2023; Miller 829 500 (CA4 (same), 87-1449, 848 deductible); 88-102; 1324 rested statutory, constitutional, grounds. recipient, 170(c), year, 170(a)(1), consist cash property, §§ 170(e)-(h) (1982 ed. Supp. V), exceeding percentage year (where permitted) subsequent years. 170(b), 170(d) V). explicating Code, 162(b), refers specifically 162(b) provides, part, trade business expense met maximum (measured income) 170(b) Endowment demonstrated premium program show expensive option 2434. referred directive stated: "Price cuts guise. "1. PROCESSING MAY NEVER BE GIVEN AWAY BY AN ORG. Processing too deliver. "9. ONLY FULLY CONTRACTED STAFF IS AWARDED FREE SERVICE, AND THIS DONE INVOICE LEGAL NOTE WHICH BECOMES DUE PAYABLE IF THE CONTRACT BROKEN." 577-578, 5. payments" extent exceeded 2433 (citing 67-246, 1967-2 104). occasion issue. 'First, purpose; second, principal advances inhibits Board Education Allen, 392 236, 243, 1923, 1926, 1060 (1968); "an Walz [v. Comm'n, 397 664, 674, 90 1409, 1414, (1970) ].' 612-613, 2111-2112, quoted 1687. possibility circumstances expenses necessitates inquiry, problem. unofficial issued Referring brochure states services" (cited Reply 6). justifications officials. included months after certiorari.

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