Hernandez v. Commissioner of Internal Revenue, 490 U.S. 680 (1989)

Hernandez v. Commissioner of Internal Revenue is a leading Supreme Court decision on taxation and nonprofit organizations. The case is also important for the deep questions it raises about both the law’s treatment of unconventional religious movements and its broader conceptualization of religion itself.

Hernandez arose out of the Internal Revenue Service’s (IRS) rejection of charitable deductions claimed by members of the Church of Scientology for payments they made to branch churches for fundamental practices of the church known as ‘‘auditing’’ and ‘‘training.’’ The Scientologists contended that the fees, although fixed in amount and required to obtain those services, were similar to other sorts of religious payments whose deductibility the IRS had long allowed, including pew rents, tithes, and mass stipends. The Supreme Court, however, upheld the IRS’s determination.

The Court’s statutory analysis centered on section 170(c) of the Internal Revenue Code, which allows a deduction for a ‘‘contribution or gift’’ made to a charitable organization. The Court held that, to qualify as contributions or gifts, payments cannot be made as part of a quid pro quo in expectation of a good or service. The fees for ‘‘auditing’’ and ‘‘training’’ were part of a ‘‘quintessential quid pro quo’’ and were not deductible. Moreover, the Court rejected the Scientologists’ submission that this analysis is inappropriate to payments made for purely religious benefits.

The Court also rejected several constitutional challenges to the statutory scheme and its administration. It held that the deductibility provision did not violate the Establishment Clause under either the ‘‘facial preference’’ test of Larson v. Valente (1982) or the general three-prong Lemon test. It also found no violation of the right to free exercise. Finally, the justices sidestepped the case’s most sensitive issue by concluding that the factual record before them was insufficiently developed to assess the claim of discriminatory application based on the deductibility of pew rents and the like.

Hernandez did not end the Scientologists’ efforts to vindicate their position, as subsequent litigation focused on the discrimination argument that the Supreme Court had bypassed. In 1993, the IRS entered into a surprise settlement allowing the deductions.

Hernandez is important for reasons beyond its holding. It represents one chapter in a worldwide story of efforts to delegitimate Scientology, which detractors have variously accused of being a cult, a scam, or just not a genuine religion, but which has also attracted influential adherents and principled defenders.

More profoundly, Hernandez exposed some of the complexities in the law’s understanding of religion. Nonprofits law has always included classed churches as ‘‘charities.’’ In some respects, though, they more closely resemble ‘‘mutual benefit’’ organizations such as social clubs, and thus payments by believers to their churches—whether part of a formal quid pro quo or not—often look more like club dues than gifts. Nevertheless, as the Court implicitly recognized in Walz v. Tax Commission (1970), in upholding churches’ property tax exemptions, the law’s assignment of charitable status to all churches rests less on a simple empirical claim than on an intricate and unique set of considerations, including both a respect for religious autonomy and—as ultimately reflected in the IRS settlement with the Church of Scientology—a healthy reluctance to ascribe undue legal significance to the considerable differences among churches in their practices and modes of organization.

PERRY DANE

References and Further Reading

• Aprill, Ellen P., Churches, Politics, and the Charitable Contribution Deduction, 42 Boston College Law Review (2001): 843.
• Brown, Michael, Should Germany Stop Worrying and Love the Octopus? Freedom of Religion and the Church of Scientology in Germany and the United States, Indiana International and Comparative Law Review 9 (1998): 155.
• Dane, Perry, The Public, the Private, and the Sacred: Variations on a Theme of Nomos and Narrative, Cardozo Studies in Law and Literature 8 (1996): 15.
• Samansky, Allan J., Deductibility of Contributions to Religious Institutions, Virginia Tax Review 24 (2004): 65.

Cases and Statutes Cited

• Larson v. Valente, 456 U.S. 228 (1982)
• Walz v. Tax Commission, 397 U.S. 664, 673 (1970)

See also Church of Scientology and Religious Liberty; Establishment Clause Doctrine: Supreme Court Jurisprudence; Establishment of Religion and Free Exercise Clauses; Free Exercise Clause Doctrine: Supreme Court Jurisprudence; Lemon Test; Walz v. Tax Commission of City of New York, 397 U.S. 664, 673 (1970)