Graham v. Comm'r of Internal Revenue , Docket Nos. 5837-76

CourtUnited States Tax Court
Writing for the CourtSTERRETT
Citation83 T.C. No. 30,83 T.C. 575
PartiesKATHERINE JEAN GRAHAM, ET AL.,1 PetitionersvCOMMISSIONER OF INTERNAL REVENUE, Respondent
Decision Date15 October 1984
Docket NumberDocket Nos. 5837-76,374-80.,9384-79

83 T.C. 575
83 T.C. No. 30

KATHERINE JEAN GRAHAM, ET AL.,1 PetitionersvCOMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 5837-76

9384-79

374-80.

United States Tax Court

Filed October 15, 1984.


HELD, the payments made by petitioners to the various Churches of Scientology were not charitable contributions within the meaning of section 170(c). The remittances were made with the expectation of receiving a benefit, and such benefit was received. Thus, the transfers were reality a quid pro quo. HELD FURTHER, denial of the claimed deductions did not violate any of petitioners' constitutional rights.

[83 T.C. 575]

ROBERT N. HARRIS, CHRISTOPHER COBB, and JOHN E. TAUSSIG, for the petitioners.

JAMES M. KAMMAN and CHARLES RUMPH for the respondent.

STERRETT, JUDGE:

In these consolidated cases, respondent determined deficiencies in petitioners' Federal income taxes as follows:

+------------------------------------------------------------------------------+
                ¦Docket ¦ ¦TYE ¦ ¦Date of ¦
                +--------+-----------------------+------------+------------+-------------------¦
                ¦No. ¦Petitioner ¦Dec. 31— ¦Deficiency ¦deficiency notice ¦
                +--------+-----------------------+------------+------------+-------------------¦
                ¦ ¦ ¦ ¦ ¦ ¦
                +--------+-----------------------+------------+------------+-------------------¦
                ¦5837-76 ¦Katherine Jean ¦1972 ¦$316.24 ¦Apr. 7, 1976 ¦
                ¦ ¦Graham2 ¦ ¦ ¦ ¦
                +--------+-----------------------+------------+------------+-------------------¦
                ¦9384-79 ¦Richard M. Hermann ¦1975 ¦803.00 ¦Apr. 4, 1979 ¦
                +--------+-----------------------+------------+------------+-------------------¦
                ¦374-80 ¦David Forbes Maynard ¦1977 ¦643.00 ¦Nov. 14, 1979 ¦
                +------------------------------------------------------------------------------+
                

[83 T.C. 576]

The issues before the Court are: (1) whether payments made by petitioners to the various Churches of Scientology 3 were deductible charitable contributions, and (2) whether denial of the claimed deductions would violate petitioners' constitutional rights.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulations of fact, together with the exhibits attached thereto, are incorporated herein by this reference. The parties specifically stipulated to the entire record in Church of Scientology of California v. Commissioner, 83 T.C.__(1984). All relevant findings of fact and court rulings from that case will be incorporated into this opinion. Since neither party argued to the contrary, it will be assumed that the Church of Scientology continued to operate at all relevant times in the same manner as it did in Church of Scientology of California v. Commissioner, supra.

For purposes of this litigation only, respondent did not contest petitioners' contentions that: (1) Scientology was at all relevant times a religion; (2) each Scientology organization to which petitioners paid money was at all relevant times a church within the meaning of section 170(b)(1)(A)(i),4 and (3) Scientology was at all relevant times a corporation described in section 170(c)(2) and exempt from general taxation under section 501(a) as an organization described in section 501(c)(3).

Petitioners' residences at the time they filed their respective petitions in this case, and the places they filed their timely income tax returns for their respective years are as follows:

+-------------------------------------------------------------+
                ¦ ¦ ¦ ¦Appropriate ¦
                +------------+---------------+----------------+---------------¦
                ¦Petitioner ¦Residence ¦TYE Dec. 31— ¦office of IRS ¦
                +------------+---------------+----------------+---------------¦
                ¦ ¦ ¦ ¦ ¦
                +------------+---------------+----------------+---------------¦
                ¦Graham ¦Honolulu, HA ¦1972 ¦Honolulu, HA ¦
                +------------+---------------+----------------+---------------¦
                ¦Hermann ¦Los Angeles, CA¦1975 ¦Fresno, CA ¦
                +------------+---------------+----------------+---------------¦
                ¦Maynard ¦Rialto, CA ¦1977 ¦Fresno, CA ¦
                +-------------------------------------------------------------+
                

[83 T.C. 577]

Petitioners were at all relevant times Scientologists. Scientology 5 teaches that the individual is a spiritual being having a mind and a body. Part of the mind, called the ‘reactive mind‘ is unconscious. It is filled with mental images that are frequently the source of irrational behavior. Through the administration of a Scientology process known as ‘auditing,‘ an individual, called a ‘preclear,‘ is helped to erase his reactive mind and gain spiritual competence. Auditing is also referred to as ‘processing,‘ ‘counseling,‘ and ‘pastoral counseling.

Scientologists believe that they can attain benefits from auditing and training, but only in degrees or steps. These include levels called ‘Grades‘ and higher levels called ‘OT sections.‘ The various steps or degrees of accomplishment are set forth in a chart entitled ‘Classification Gradation and Awareness Chart of Levels and Certificates.

A trained Scientologist, known as an ‘auditor,‘ administers the auditing. He is aided by an electronic device called an ‘E-meter.‘ This device helps the auditor identify the preclear's areas of spiritual difficulty by measuring skin responses during a question and answer session. These auditing sessions are offered in fixed blocks of time called ‘Intensives.

One of the tenets of Scientology is that, anytime a person receives something, he must pay something back. This is called the doctrine of exchange. The Church of Scientology applies this doctrine by charging a ‘fixed donation‘ for training and auditing. With few exceptions, these services are never given for free.6 Thus, fixed donations are generally a prerequisite to

[83 T.C. 578]

a person receiving auditing and training. These fixed donation payments constitute the majority of the Church of Scientology's funds, and are used to pay the costs of church operations and activities.

The general rate of the fixed donations for auditing in 1972 was as follows:

+-------------------------------+
                ¦12 1/2-Hour intensive ¦$625 ¦
                +----------------------+--------¦
                ¦25-Hour intensive ¦1,250 ¦
                +----------------------+--------¦
                ¦50-Hour intensive ¦2,350 ¦
                +----------------------+--------¦
                ¦75-Hour intensive ¦3,350 ¦
                +----------------------+--------¦
                ¦100-Hour intensive ¦7 4,250¦
                +-------------------------------+
                
In addition, the Church of Scientology offered two specialized types of auditing for a higher fixed donation—
+---------------------------------------------------+
                ¦Integrity Processing¦$750 per 12 1/2-Hour intensive¦
                +--------------------+------------------------------¦
                ¦Expanded Dianetics ¦$950 per 12 1/2-Hour intensive¦
                +---------------------------------------------------+
                

Members of the Church of Scientology are encouraged to make advance payments for Scientology courses. If payment is made well in advance of the services to be rendered, a discount of 5 percent can be obtained by the member. When a parishioner makes an advance payment, the Church credits his account. Once the individual begins receiving a service, his account is debited. It is the Church of Scientology's policy to refund advance payments upon request at any time before services are received.8

The Church of Scientology operates in a commercial manner in providing these religious services. In fact, one of its articulated goals is to make money. This is expressed in HCO PL March 9, 1972, MS OEC 381, 384. It sets out the governing policy of the Church of Scientology's financial offices by exhorting these offices to ‘MAKE MONEY. * * * MAKE MONEY. * * * MAKE MORE MONEY. * * * MAKE OTHER PEOPLE PRODUCE SO AS TO MAKE MONEY.‘ The goal of making money permeates virtually all of the Church of

[83 T.C. 579]

Scientology's activities—its services, its pricing policies, its dissemination practices and its management decisions.

The Church of Scientology promotes its services through free lectures, congresses, free personality tests and handouts. Advertisements are placed in newspapers, magazines and on the radio. These promotional activities are geared to be responsive to community concerns, which are determined from surveys.

In 1972 Graham made payments totaling $1,682 to the Church...

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21 practice notes
  • Hernandez v. C.I.R., No. 86-1276
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • June 1, 1987
    ...agreed to be bound, subject to the right of appeal, by the relevant factual and legal findings of the Tax Court in Graham v. Commissioner, 83 T.C. 575 (1984), appeals pending, Nos. 84-7794, 84-7798, 84-7799 (9th Cir. argued December 10, 1985), a set of three similar cases pending before the......
  • Hernandez v. Commissioner of Internal Revenue Graham v. Commissioner of Internal Revenue, Nos. 87-963
    • United States
    • United States Supreme Court
    • June 5, 1989
    ...awareness by progressing through sequential levels of auditing, provided in short blocks of time known as "intensives." 83 T.C. 575, 577 (1984), aff'd, 822 F.2d 844 (CA9 1987). The Church also offers members doctrinal courses known as "training." Participants in these se......
  • Graham v. C.I.R., Nos. 84-7794
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • July 17, 1987
    ...of the Commissioner of Internal Revenue that they were not entitled to deduct certain payments made to the Church of Scientology, 83 T.C. 575. Appellants contend that they were entitled to the deductions under I.R.C. Sec. 170 (1987), that denial of the deductions violates their rights under......
  • Neher v. C.I.R., No. 86-1275
    • United States
    • United States Courts of Appeals. United States Court of Appeals (6th Circuit)
    • July 19, 1988
    ...involving only three petitioners from the Ninth Circuit. This binding decision was rendered by the Tax Court in Graham v. Commissioner, 83 T.C. 575 (1984). The relevant parties also agreed that the record in Graham would be treated as part of the record in every petitioner's case for the pu......
  • Request a trial to view additional results
21 cases
  • Hernandez v. C.I.R., No. 86-1276
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • June 1, 1987
    ...agreed to be bound, subject to the right of appeal, by the relevant factual and legal findings of the Tax Court in Graham v. Commissioner, 83 T.C. 575 (1984), appeals pending, Nos. 84-7794, 84-7798, 84-7799 (9th Cir. argued December 10, 1985), a set of three similar cases pending before the......
  • Hernandez v. Commissioner of Internal Revenue Graham v. Commissioner of Internal Revenue, Nos. 87-963
    • United States
    • United States Supreme Court
    • June 5, 1989
    ...gains spiritual awareness by progressing through sequential levels of auditing, provided in short blocks of time known as "intensives." 83 T.C. 575, 577 (1984), aff'd, 822 F.2d 844 (CA9 1987). The Church also offers members doctrinal courses known as "training." Participants in these sessio......
  • Graham v. C.I.R., Nos. 84-7794
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • July 17, 1987
    ...of the Commissioner of Internal Revenue that they were not entitled to deduct certain payments made to the Church of Scientology, 83 T.C. 575. Appellants contend that they were entitled to the deductions under I.R.C. Sec. 170 (1987), that denial of the deductions violates their rights under......
  • Neher v. C.I.R., No. 86-1275
    • United States
    • United States Courts of Appeals. United States Court of Appeals (6th Circuit)
    • July 19, 1988
    ...involving only three petitioners from the Ninth Circuit. This binding decision was rendered by the Tax Court in Graham v. Commissioner, 83 T.C. 575 (1984). The relevant parties also agreed that the record in Graham would be treated as part of the record in every petitioner's case for the pu......
  • Request a trial to view additional results

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