Private School Tuition and Tax Deductions

[Josh]

Of course it is perfectly legitimate to run a church school.

What is shady is to donate $5000 to your church. Then deduct that entire $5000 from your taxes when part of your donation is paying for your children’s education.

I don't see how that's shady at all. You could also donate $0 to your church, and still send them to church school. Contributions at my church are anonymised so nobody even knows who's contributing, other than the treasurer who tracks checks to issue end of year statements. And many people slip anonymous cash in the offering slot.

Few people deduct anymore too. (With large families, and an intact 2-parent marriage, the standard deduction is plenty.) Charitable contributions really only are relevant anymore for very wealthy families or for people who have a business that is set up to be able to contribute to charities.

In any case, all of us pay plenty of taxes to fund our local public schools which none of us get much benefit or use from (although thankfully Ohio will allow us to collect $7500 per student to pay for private Mennonite schools starting next year).

[Neto]

A somewhat common scenario in CA circles is where somebody will "donate" the tuition for a needy family specifically and then ask for a tax deductible receipt. This is not acceptable/legal. If it were we could all pay each others tuition (I pay yours you pay mine) and have it be tax deductible. Specific gifts to individuals can be given, however, they are not deductible. Same is true in church offerings incidentally.

The scenario you describe is remarkably similar to the way "faith missions" (such as WBT, under whom we served) operate. The "fine line" is that when you send in donations to the mission agency, you may REQUEST that the monies go to a certain project or missionary couple or team (NOT on the check - on a separate paper), but you may not SPECIFY that it go to them. If it is specified, or designated, that is a personal gift, and falls under separate tax law. The mission agency respects the request of the donor, and the funds flow through as though they had been designated. But the mission agency has the full legal right to divert the funds, should they choose to do so. The difference is that the donor has completely released control over the funds.

EDIT TO ADD: I did the book work for our mission fund for 12 years, and it sometimes happened that a parent would make a donation to the fund to assist in their own child's expenses for a mission or youth out-reach effort. It bothered me, but I always did as they had pretty much specified, with a clear designation for their own child.

I usually don't quote myself, but when I do.....

Anyway, WBT approaches this question as I explained above. An on-line search says that current membership is 3,117 members. (I think it was around 5,000 during our time in service.) Some of those are couples, but there are also many single members. WBT states that the normal annual support is currently around $50K. If ALL of the members were married couples (no singles), the annual donations to WBT would be around 75 million. I don't think that an organization of that size can be "flying under the radar" of the IRS. I think it's clear that a designated gift is different than one for which a request is made, in the eyes of the IRS. Even parents helping support their grown children's ministry expenses are not "receiving any benefit from their donation" according to the intent of the IRS. I just cannot believe they would let that kind of figure go if it was a violation of the law. Or else they are, on the whole, nicer people than I thought.

[Josh]

elementary and secondary school degrees are recognized degrees. Whether or not you even give them a formal name and have a formal graduation.

If one of the graduates of a Mennonite church school applies to college, nursing school, or trade school they most certainly expect their degree to be recognized. Or even if the student transfers to a different private school or public school. They would expect their transcript and coursework to be recognized.

What on earth are you talking about? When my wife decided to go to community college, she took the equivalent in California of a GED. Diplomas or transcripts generally aren't granted from more conservative schools. You just know that you attended there until 8th grade, and that is all. A degree is certainly not granted.

This actually came up in a case before the 9th Circuit when a Jewish family wanted to deduct contributions that funded a religious Yeshiva school and they made a calculation that 55% of the student's time was occupied with religious teaching and 45% was occupied with other ordinary education. So they tried to deduct 55% of the cost saying it was for "intangible religious benefits" and the court said "nope". If there is any non-religious content then it is non-deductible.

Which is irrelevant to the discussion since no Amish or Mennonites try to tax-deduct their school tuition.

The fact remains that charitable contributions to schools (including the local public schools, other private schools, and yes, the Mennonite schools) are tax-deductible and always have been.

[Josh]

And again, none of this restricts donations to a church of any kind. The restriction is on claiming an itemized tax deduction for a donation that you make to a religious organization that provided you or your immediate family with any sort of substantial benefits.

Church provides myself and my family immense, substantial benefits.

Of course, they are freely available to any who wish to join. But if none of us donated, it would provide a lot less benefits to us (we wouldn't have our building, it wouldn't be heated, etc.).

Ken, I think we all know that buying stuff at the church coffee shop isn't tax deductible, but just in case, why don't you cut and paste the tax code a few more times?

[Ken]

I have largely come down on one side of this discussion, but I can see the other side as well. Take as an example, the East Holmes County school district. The local school system here is very well supported, not only by the high property tax rates, but lots of people who really support the school, and financially, too. Then consider how many of the potential students are not attending the public school, because of the many, many students (Amish and otherwise) who are attending private schools, at additional cost to their parents. Then add in those who stop formal schooling after 8th grade. In that sense, let the parents who pay twice have an extra deduction. The public school still claims that they do not have enough funds to do all they would like to do. Just think how it would be if all of the private school students were attending the public schools, and none were quitting at the 8th grade level. (And yes, I know that the funds for schools are not collected from only parents, and technically not from renters, at least not directly. It would be interesting to know how many families with children attending school in this school district are actually renters. I would venture to guess that the rate of renting parents to home owner parents in this section of Holmes County is very low. I know that it is much lower than in the West Holmes school district.)

From my point of view, public schools provide real and direct benefits to the the entire community and society, not just those who have children in the schools. And are therefore, worth paying for even if you are childless or enroll your children in private schools.

The people your public schools are educating are many of the same people who in the future who are going to provide your medical care, fly your airplanes, build your cars, operate your power company and keep the lights on, enforce your laws, prosecute wrongdoers, etc. etc. etc.

Furthermore, society benefits in other ways from an educated populace: https://alabamapartnershipforchildren.o ... Crisis.pdf

• High school dropouts are three and one-half times more likely than high school graduates to be arrested, and more than eight times as likely to be incarcerated. Across the country, 68 percent of state prison inmates have not received a high school diploma.
• According to researchers, 10 percentage-point increases in graduation rates have historically been shown to reduce murder and assault rates by approximately 20 percent. Increasing graduation rates by 10 percentage points would prevent over 3,000 murders and nearly 175,000 aggravated assaults in America each year.

Furthermore, something like 75% of our prison population is functionally illiterate.

And even the most extravagantly posh and resource-rich schools in the country are massively cheaper than the cost of incarceration.

There are countries around the world that don't fund public education. Or do so only incredibly poorly. My wife's home country of Chile is an example. The difference between those countries and the United States is that they have far higher levels of inequality.

[Ken]

The fact remains that charitable contributions to schools (including the local public schools, other private schools, and yes, the Mennonite schools) are tax-deductible and always have been.

Of course they are. No one is arguing otherwise.

But if you are receiving a tangible benefit (directly or indirectly) in exchange for the contribution then it is no longer charitable. And playing games with how money is earmarked or not earmarked or how many different hands or accounts the money passes through doesn't change any of that.

[Josh]

From my point of view, public schools provide real and direct benefits to the the entire community and society, not just those who have children in the schools. And are therefore, worth paying for even if you are childless or enroll your children in private schools.

Yet if we aren't sending our children there, the school district is saving a lot of money since it doesn't have to spend anything on them. So why should we have to pay full freight? (Fortunately, my state now has a voucher system so that you can pay for private school tuition at any school of your choosing.)

The people your public schools are educating are many of the same people who in the future who are going to provide your medical care, fly your airplanes, build your cars, operate your power company and keep the lights on, enforce your laws, prosecute wrongdoers, etc. etc. etc.

That's fine. I never argued that they should stop paying for them. I'm just asking why I should, since I'm not imposing any costs by sending our children there. Anabaptists tend to have big families, so if they did send their kids to public school, they would be costing the school district a lot of money.

Furthermore, society benefits in other ways from an educated populace: https://alabamapartnershipforchildren.o ... Crisis.pdf

That's not a very good argument for public schools, which are currently churning out pupils who can't pass basic math and are often not literate.

• High school dropouts are three and one-half times more likely than high school graduates to be arrested, and more than eight times as likely to be incarcerated. Across the country, 68 percent of state prison inmates have not received a high school diploma.

Yet Amish and Mennonites are not 3.5X more likely than their English neighbours to end up arrested or in prison - in fact, Amish and Mennonites are rather under-represented in prison. Despite their 8th grade educations.

[*]According to researchers, 10 percentage-point increases in graduation rates have historically been shown to reduce murder and assault rates by approximately 20 percent. Increasing graduation rates by 10 percentage points would prevent over 3,000 murders and nearly 175,000 aggravated assaults in America each year.[/list]

Yet this statistic doesn't hold with this particular demographic group. Is there some epidemic of Amish and Mennonite people going around committing murders that attending public high school would solve?

[Josh]

The fact remains that charitable contributions to schools (including the local public schools, other private schools, and yes, the Mennonite schools) are tax-deductible and always have been.

Of course they are. No one is arguing otherwise.

But if you are receiving a tangible benefit (directly or indirectly) in exchange for the contribution then it is no longer charitable. And playing games with how money is earmarked or not earmarked or how many different hands or accounts the money passes through doesn't change any of that.

I don't think you understand how things work.

The church school encourages its members' children to go to the church school. Tuition is either free or is at a low amount.

The church's members are encouraged to support the school via charitable donations (and otherwise).

No "games are played". If you decide to donate lots of money to your church, and then your church does things like distribute aid to needy people (which might include you someday), operate a school, and so on, well, it turns out to be very tax advantaged. Or do you think society would be better off if fewer charitable contributions were made?

[RZehr]

elementary and secondary school degrees are recognized degrees. Whether or not you even give them a formal name and have a formal graduation.

If one of the graduates of a Mennonite church school applies to college, nursing school, or trade school they most certainly expect their degree to be recognized. Or even if the student transfers to a different private school or public school. They would expect their transcript and coursework to be recognized.

We don’t hire certified teachers, don’t have recognized diplomas. If we need that, the family has to figure it out and accomplish that on their own, not through the school. And so getting a GED is easier.

This actually came up in a case before the 9th Circuit when a Jewish family wanted to deduct contributions that funded a religious Yeshiva school and they made a calculation that 55% of the student's time was occupied with religious teaching and 45% was occupied with other ordinary education. So they tried to deduct 55% of the cost saying it was for "intangible religious benefits" and the court said "nope". If there is any non-religious content then it is non-deductible.

Our schools are religious schools. And just as the IRS has determined that it is okay to “benefit” from the electricity at the church to warm up food for a potluck that you eat, and that electricity is paid for with donations from the potluck attendees - so is the school.
Again, critically, the donations here are not made to the school, nor earmarked for the school, nor is anyone turned away from attending due to money. This is what it hinges on. It does not hinge on whether anyone at the church is allowed to benefit from the programs of the church. That is absurd, and the IRS agrees. It is a multifaceted issue, how the money is given and directed, etc., it is not simply: “Did you benefit in any way?” from an organization where you gave money?
If it was the way you are portraying it, no donation to a church would be able to be used to pay for the building or the utilities either. The school is an extension of the church, a glorified Sunday school if you will. It is not its own legal entity.

[Ken]

The fact remains that charitable contributions to schools (including the local public schools, other private schools, and yes, the Mennonite schools) are tax-deductible and always have been.

Of course they are. No one is arguing otherwise.

But if you are receiving a tangible benefit (directly or indirectly) in exchange for the contribution then it is no longer charitable. And playing games with how money is earmarked or not earmarked or how many different hands or accounts the money passes through doesn't change any of that.

I don't think you understand how things work.

The church school encourages its members' children to go to the church school. Tuition is either free or is at a low amount.

The church's members are encouraged to support the school via charitable donations (and otherwise).

No "games are played". If you decide to donate lots of money to your church, and then your church does things like distribute aid to needy people (which might include you someday), operate a school, and so on, well, it turns out to be very tax advantaged. Or do you think society would be better off if fewer charitable contributions were made?

I've been paying quarterly for my children's education since 2016 and it is likely that I'll continue to do until at least 2028. It would be nice if all those tens of thousands of dollars were tax deductible. Unfortunately they aren't, even though the institutions themselves are are non profit organizations to which I can make tax-deductible contributions. I know this because they seem to call me at least monthly asking for donations.

People in my position have invented a bazillion different schemes to figure out how to make the cost of their children's education tax deductible. Including funneling the money through churches. People have even invented their own churches in schemes to make educational costs tax deductible. They are not. The IRS is very clear about that. And no amount of taking the money and putting it into a blender is going to change that.

Does that mean people don't do it anyway? And get away with it? Of course not. People concoct bazillions of schemes to evade taxes. And most get away with it if they fly under the radar since tax compliance is 99.6% voluntary and on your honor. Only 0.38% of returns ever get audited or 3.8 out of every 1000.