Hernandez v. Commissioner of Internal Revenue

RESPONDENT: Commissioner of Internal Revenue
LOCATION: Sable Communications of California

DOCKET NO.: 87-963
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the First Circuit

CITATION: 490 US 680 (1989)
ARGUED: Nov 28, 1988
DECIDED: Jun 05, 1989

Michael J. Graetz - on behalf of the Petitioners
Thomas W. Merrill - on behalf of the Respondents

Facts of the case


Media for Hernandez v. Commissioner of Internal Revenue

Audio Transcription for Oral Argument - November 28, 1988 in Hernandez v. Commissioner of Internal Revenue

William H. Rehnquist:

We'll near argument next in No. 87-963, Robert Hernandez v. the Commissioner of Internal Revenue, and 87-1616, Graham v. Commissioner of Internal Revenue.

Mr. Graetz, you may proceed whenever you are ready.

Michael J. Graetz:

Chief Justice Rehnquist, may it please the Court:

Although I appear here today on behalf of taxpayers in these cases, my position is quite unusual.

My purpose is to convince you to endorse the interpretation of Section 170 of the Internal Revenue Code first announced by the IRS in 1919 and, with the exception of this litigation, maintained consistently by the IRS since that time, at least through September 22nd of this year, when IRS Assistant Commissioner Brower restated what he described as the cumulative IRS position in these terms.

And I quote,

"Religious observances generally are not regarded as yielding private benefits when attending the observances. "

"The primary beneficiaries are viewed as being the general public and members of the faith. "

"Thus, payments for saying masses, pew rents, tithes, and other payments involving fixed donations for similar religious services are fully deductible contributions. "

This case, Your honor, involves fixed donations for religious services.

And under the position of the IRS for the last 70 years, the payments should be fully deductible contributions.

Antonin Scalia:

He did say "generally" in that quote that you read, didn't he, in that first sentence?

Michael J. Graetz:

He did say generally, Your Honor.

But in the case of making distinctions among religions for disallowing deductions by the participants and members of that faith to participate in religious observances, I think that the IRS and this Court should await guidance from Congress about what it means to distinguish among religions on these grounds.

Sandra Day O'Connor:

Well, Mr. Graetz, what flexibility does the IRS have to change its view in its regulations from time to time?

And doesn't it do so in other instances?

And has this Court ever taken the view that it can't change its mind?

Michael J. Graetz:

Justice O'Connor, this Court has in numerous opinions expressed that in the tax law there is a need for clarity, particularity, predictability, and special deference to the IRS.

There are only two cases in the last decade that this Court has endorsed a change in administrative position by the IRS.

The first is the Bob Jones University case, and in that instance the majority of the Court found considerable evidence in the legislature that the change in IRS position was one that Congress intended the IRS to make.

The other instance was a case involving interest-free loans under the Gift Tax, and the treatment of interest-free loans under the Gift Tax.

And there you had a dramatic change in economic circumstances... it's the Dicksan case, Your Honor.

You had a dramatic change in economic circumstances that made Gift Tax avoidance possible through the use of interest-free loans where no such avoidance had been possible in prior years until the change in circumstances.

Those are the only two instances that I'm aware of in the last decade that this Court has endorsed such a position.

Here the IRS has not expressed a change in position through regulation, it has not withdrawn rulings to the contrary, it has not announced a general principle for churches and synagogues, and their members to follow.

It in fact doesn't seem to have changed its administrative position, if, if Commissioner Brower is stating the position correctly.

Sandra Day O'Connor:

Well, Mr. Graetz, even if we accent your approach to the deductibility for auditing, what about training?

And why isn't that like tuition and non-deductible?

Michael J. Graetz:

Well, Your Honor, I... let me, let me respond in two ways.

One is, I think that the case law and the precedents clearly distinguish tuition at religious schools, which involve a secular--