Private School Tuition and Tax Deductions

[ohio jones]

And if audited, the chances that this particular claimed deduction will be put under the microscope are slimmer still.

And it's not likely to be a retired university quality microscope, at that.

[mike]

Page 4 of IRS publication 1771 on disclosure of charitable donations defines what they mean by "intangible religious benefits" and the IRS specifically exclude education

Read the rest of the sentence. “Leading to a recognized degree.”

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.

Whereas something like Sunday school or vacation Bible school would not be.

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.

OK, that's interesting.

[mike]

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.

No, you're wrong, and that's why I started this discussion.

I'm in a position where I could save a couple of thousand dollars a year by running my tuition payments through the church's offerings. I've asked our deacon about the practice and he admitted it is a "gray area." I've asked my accountant about it, and he said it would be illegal because you can't receive goods or services in exchange for tax-deductible donations.

[Judas Maccabeus]

And if audited, the chances that this particular claimed deduction will be put under the microscope are slimmer still.

And it's not likely to be a retired university quality microscope, at that.

Hey, those are a deal. Optics do not wear out.

[Neto]

RE: HS diplomas:
My wife wanted to complete HS, but her congregation and her dad said no. Back then there were no Christian schools in the area to choose from, so she later completed a HS degree through a correspondence school. Then she went to a non-accredited Bible school for a couple of years, and many of those "credits" were accepted at Malone College, where she completed a BA in Psychology. No one really cared about that HS diploma, and Malone College was more concerned about what she knew than about the fact that her previous higher education was not accredited. She also, like me, went on to study at a university (in her case, actually two different ones), where she took Graduate level courses, for credit. I am not against public High Schools - I'm actually in favor of Christian kids attending there, instead of private Christian schools. But my reasons are not primarily to do with the quality of education, but with the lost opportunity for young Christians to have a direct influence on young unbelievers. That is a pivotal age, and it ends up being a crucial missed window for transformation to come into many young lives.

In my own case, by the time I got to my Senior year in HS, I only needed a few more credits to graduate. I already knew what I wanted to do (missionary), and I chose courses that seemed to me to be the most beneficial for my future. I had considered stopping in the public HS after the first semester of my Senior year, and going on to a nearby Junior College, to get a head start on my college degree. I talked with some of my teachers, and they convinced me to stay in HS. I would say that the additional education I received was of some value in my later college level course work, but the main thing (to me) was the opportunities I would have missed to quietly "speak into the lives" of my fellow students. There were some very meaningful conversations in that last year, some that I do believe eventually changed the course of some of those kids, not economically or education wise, but their spiritual destinies. I think that we do a disservice to our children if we judge them to be incapable of living out their Christian lives in the public school environment. Again, as I said before, this decision MUST be taken with lots of prayer, close attention, and consideration of the individual personality of each child.

[Soloist]

In my experience, Mennonite schools tend to be very good education with only homeschooling potentially being better.
As for the tax stuff, not my area of experience, we tend to give and do our utmost for it to be private from any other church member thus we receive no tax recipes or any paperwork. I have misgivings about claiming church funding or such for tax credit and I use the basic credit as Josh suggested so I wouldn’t need it anyway. I don’t judge others who do different, I just don’t want to be making money off of my giving nor have the government fund our church. Again I realize others see this differently.

[ken_sylvania]

Even if schooling were considered to be a quid pro quo benefit, our church would have no possible way to include the required notice on the donation receipt. The deacon wouldn't have any way to know which of the donor numbers are associated with individuals whose children are in school.

They don't have to. Since it is a non-profit, all they need to do is calculate the cost of running the school, divide by the number of students enrolled, and voila, that is the value of the benefit provided. If there are parents who are making itemized deductions to the church who have their children enrolled in the school then that would be an appropriate amount to exclude from their claimed tax deductible contribution. If parents aren't doing that then the chances are exceedingly slim that they will ever be audited (about 0.38% chance). And if audited, the chances that this particular claimed deduction will be put under the microscope are slimmer still.

If a benefit is being provided in exchange for a donation, the nonprofit is required to state the fair market value of the benefit provided on the receipt for the donation.

The IRS is very clear that the fair market value is what must be used, not the actual cost of the benefit.

You are right, however, that the chances of this particular deduction being disallowed are very slim. The main reason for that is that it's a totally legitimate and legal deduction.

[ken_sylvania]

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.

No, you're wrong, and that's why I started this discussion.

I'm in a position where I could save a couple of thousand dollars a year by running my tuition payments through the church's offerings. I've asked our deacon about the practice and he admitted it is a "gray area." I've asked my accountant about it, and he said it would be illegal because you can't receive goods or services in exchange for tax-deductible donations.

If there is an understanding between you and the school that you will give a certain amount per child, either directly to the school or else into the church offering earmarked for the school, then I would agree it would not be acceptable to deduct the payments. For church offerings to be tax deductible there cannot be an expectation or understanding that these donations are "replacement tuition."

[ken_sylvania]

Read the rest of the sentence. “Leading to a recognized degree.”

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.

Whereas something like Sunday school or vacation Bible school would not be.

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.

OK, that's interesting.

In that 9th Circuit case, it was a situation where the taxpayer was paying the tuition directly to the school, and then claiming part of it was a donation. It would be like if you were to try to deduct a portion of the tuition you pay directly to the school - which is not allowable.

[mike]

If there is an understanding between you and the school that you will give a certain amount per child, either directly to the school or else into the church offering earmarked for the school, then I would agree it would not be acceptable to deduct the payments. For church offerings to be tax deductible there cannot be an expectation or understanding that these donations are "replacement tuition."

One could say it is a flexible arrangement. It is a suggested tuition, and it's an amount that is given to the group of patrons at the beginning of the year. But the understanding is that it should be your goal to pay the stated amount. Many of course benefit from the EITC credits and end up paying only a few months of full tuition until the EITC funds come in, after which they pay a reduced amount or perhaps nothing for the rest of the year. All of this is good.

This whole discussion really doesn't apply to the average patron family because, as was mentioned, the federal standard deduction is so high these days that most people probably don't have to itemize. Where it applies is to higher income patrons who benefit from routing their tuition through the church in order to reduce their tax liability. I have no idea how many patrons this represents. I just see the school's financial statements that show a minimal amount of funding coming from tuition payments, and a much larger amount coming from the church's offerings. For all I know, most of that money could be coming from a few businessmen who really are giving above and beyond the tuition amount as charity, or from people who aren't even patrons, and a lot of the other patrons are paying nowhere near the suggested amount.