Graham v. Comm'r of Internal Revenue
| Citation | 83 T.C. No. 30,83 T.C. 575 |
| Decision Date | 15 October 1984 |
| Docket Number | Docket Nos. 5837-76,374-80.,9384-79 |
| Parties | KATHERINE JEAN GRAHAM, ET AL.,1 PetitionersvCOMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
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. ROBERT N. HARRIS, CHRISTOPHER COBB, and JOHN E. TAUSSIG, for the petitioners.
JAMES M. KAMMAN and CHARLES RUMPH for the respondent.
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 ¦
+------------------------------------------------------------------------------+
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.
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 ¦
+-------------------------------------------------------------+
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 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:
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 The goal of making money permeates virtually all of the Church of 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 of Scientology, Hawaii and to the Scientology and Dianetic Center of Hawaii. Of this amount, approximately $400 went towards training, the balance went for auditing. These payments were for the Hubbard Qualified Scientologist course (HQS), Communications course and auditing. Some of the payments toward courses were for Graham's daughters, Karen and Laurel. When Graham made those payments she expected to receive, and did receive, the benefit of those services. On her 1972 income tax return, Graham deducted $1,682 as a charitable contribution.
In 1975 Hermann paid the Church of Scientology, American Saint Hill Organization (ASHO) $4,875. At the time Hermann made these transfers, he expected to receive Class 0 to 9 training. While Hermann did not take these courses, he did take other Scientology courses and has received auditing between 1974 and the present. On his 1975 income tax return, Hermann deducted $3,922 as a charitable contribution.
In 1977, Maynard paid the Church of Scientology, Mission of Riverside, $4,698.91 as advance payments for services. While Maynard did not receive any services in 1977, he made those remittances with the expectation of taking Interiorization processing, Expanded Dianetics and auditing. On his 1977 income tax return, Maynard claimed a $5,000 9 charitable contribution deduction.
In the respective notices of deficiency, respondent disallowed these claimed...
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