A court of appeals has recently concluded that the Tax Court correctly found that a married couple could not deduct the tuition and fees they paid to a Orthodox Jewish schools as a charitable contribution. The couple did not have a charitable intent when paying their children's tuition. They also received a substantial benefit - education for their children - in exchange for the payments.
While other courts have denied tuition at religious schools when the issue involved "making in charitable contribution in lieu of tuition," the issue in the latest case carried a new twist: that the part of the education that involved religious instruction was only an intangible benefit that could not have a cash value.
Background
The couple argued that although 45 percent of the tuition they paid to their children's school was for secular education, which they conceded was nondeductible, 55 percent of the tuition should be regarded as a deductible charitable contribution because, in exchange for the payment, they received only an intangible religious benefit. The couple asserted that their claimed deduction was allowed under Code Sec. 170, which permits taxpayers to deduct, as a charitable contribution, a "contribution or gift" to certain tax-exempt organizations. However, the Supreme Court has repeatedly held that a payment for which one receives consideration generally does not constitute a "contribution or gift" for purposes of Code Sec. 170
No deduction
The court determined that the taxpayers failed to satisfy the requirements for deducting part of their alleged "dual payment" because they failed to show that the total payments they made for both the secular and religious private education exceeded the market value of other secular private school education available to their children. As such, the payments were a quid pro quo transaction even if part of the benefit that was received was religious in nature.
Moreover, the couple never intended to make a gift of the tuition payments. The tuition was paid by the taxpayers, according to the court, because the schools inculcated their children with their religion's lifestyle, heritage and values. The established rule continues that tuition paid to religious schools for religious education is not deductible as a charitable contribution.
