COMMISSIONER OF INTERNAL REVENUE, PETITIONER V. MICHAEL F. FOLEY
AND NANCY S. FOLEY

   No. 88-102

   In The Supreme Court Of The United States

   October Term 1988

   The Solicitor General, on behalf of the Commissioner of Internal
Revenue, petitions for a writ of certiorari to review the judgment of
the United States Court of Appeals for the Second Circuit in this
case.

   Petition For A Writ Of Certiorari To The United States Court Of
Appeals For The Second Circuit

            TABLE OF CONTENTS
   Question presented
   Opinions below
   Jurisdiction
   Statute involved

                            OPINIONS BELOW

   The opinion of the court of appeals (App., infra, 1a-11a) is
reported at 844 F.2d 94.  The decision of the Tax Court (App., infra,
12a) is unreported.

                             JURISDICTION

   The judgment of the court of appeals was entered on April 19, 1988.
 The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

                           STATUTE INVOLVED

   Section 170 of the Internal Revenue Code (26 U.S.C.) is set forth
in pertinent part in a statutory appendix (App., infra, 24a-25a).

   1. Respondents paid $5,881.83 to a branch of the Church of
Scientology in 1976 and claimed that payment as a charitable deduction
on their joint federal income tax return under Section 170 of the
Internal Revenue Code, /1/ which permits a deduction for a
"contribution or gift" to certain eligible donees (see I.R.C. Section
170(c)).  On audit, the Commissioner disallowed that deduction and
determined a tax deficiency of $975.92.  Respondents filed a petition
in the Tax Court for review of the Commissioner's determination.
There was no trial in the Tax Court, however, nor any other
evidentiary submission.  Instead,the parties entered into a
stipulation to be bound by "any relevant findings of fact or
conclusions of law" (excluding those relating to "subjective intent")
to be made by the Tax Court in three consolidated "test cases" that
were to be tried.  The stipulation further provided that the record in
the test cases, "to the extent relevant," would be deemed part of the
record in this case for the purpose of appeal.  App., infra, 2a.  /2/
After the Tax Court decided the "test cases" in favor of the
Commissioner (Graham v. Commissioner, 83 T.C. 575 (1984), aff'd, 822
F.2d 844 (9th Cir. 1987), cert. granted, No. 87-1616 (May 23, 1988),
reprinted at App., infra, 13a-23a), the court entered a decision and
order in the instant case "on the authority of Graham," finding a
deficiency of $975.92 (App., infra, 12a).

   2. In the Graham case, the Tax Court entered findings of fact
pertaining to the general operation of the Church of Scientology.
Like respondents, the taxpayers in Graham had made payments to a
branch of the Church of Scientology /3/ and had sought to deduct them
on their income tax returns as charitable contributions (App., infra,
17a-18a).  These payments were made in exchange for "auditing" and
"training" services provided by the Church.  Scientologists believe
that "auditing" helps an individual to achieve a higher level of
"spiritual competence." Auditing is administered in a one-to-one
session by a trained Scientologist who asks the auditee questions and
measures his skin responses during the answers by means of an
electronic device.  "Training" courses study the doctrines of
Scientology and are believed to yield further spiritual benefits.  See
id. at 15a.

   The Church charges a "fixed donation" for training and auditing,
which is almost never waived.  /4/ The Church "operates in a
commercial manner" in providing these services (App., infra, 17a).  It
promotes its services through lectures and radio and newpaper
advertising.  It gives a standard discount for payments made well in
advance of the services to be rendered, and it issues refunds of those
payments if the services ultimately are not received.  Id. at 15a-17a.

   After making those factual findings, the Tax Court in Graham ruled
that the payments in question were not contributions, but rather were
non-deductible payments made to purchase services (App., infra,
18a-19a).  The court explained that the payments "were not voluntary
transfers without consideration, but were made with the expectation of
receiving a commensurate benefit in return" (id. at 20a).  The court
continued (ibid.):  "(W)here contributions are made with the
expectation of receiving a benefit, and such benefit is received, the
transfer is not a charitable contribution, but rather a quid pro quo."

   3. In the present case, a divided panel of the court of appeals
reversed the Tax Court's decision in the Commissioner's favor that had
been entered on the authority of Graham (App., infra, 1a-11a).
Quoting United States v. American Bar Endowment, 447 U.S. 105, 116
(1986), the majority acknowledged that "'(a) payment of money
generally cannot constitute a charitable contribution if the
contributor expects a substantial benefit in return'" (App., infra, 4a
(emphasis in original)).  But the majority held that respondents'
payments to the Church qualify as deductible donations, reasoning that
such payments "constitute the transfer of money without adequate
consideration in the economic sense because of the nature of what is
received, and the quo of religious experience can never be considered
the equivalent of the quid of a money payment" (id. at 7a).  Judge
Newman dissented, stating that Section 170 grants no special
preference to payments made for participation in religious practices
(App., infra, 8a-11a).

                          QUESTION PRESENTED

   Whether a payment to the Church of Scientology for auditing or
training sessions is deductible from taxable income as a "contribution
or gift" under Section 170 of the Internal Revenue Code.

                     REASONS FOR GRANTING PETITION

   The question presented in this case is identical to that presented
in the consolidated cases of Hernandez v. Commissioner, cert. granted,
No. 87-963 (Apr. 18, 1988), and Graham v. Commissioner, cert. granted,
No. 87-1616 (May 23, 1988), where the taxpayers, like respondents, are
seeking to take a charitable deduction for payments made to the Church
of Scientology.  Hernandez is another of the cases that was decided in
the Tax Court on the basis of a stipulation to adopt the findings of
fact in the Graham case (see note 2, supra).  Accordingly, it would be
appropriate for the Court to hold this case pending the disposition of
Hernandez and Graham.

                              CONCLUSION

   The petition for a writ of certiorari should be disposed of as
appropriate in light of this Court's decision in Hernandez v.
Commissioner, No. 87-963, and Graham v. Commissioner, No. 87-1616.

   Respectfully submitted.

   CHARLES FRIED

      Solicitor General

   JULY 1988

   /1/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code of 1954 (26 U.S.C.), as amended (the Code or
I.R.C.).

   /2/ The government entered into the same stipulation with numerous
other taxpayers who had filed petitions in the Tax Court challenging
the denial of a charitable deduction for payments to the Church of
Scientology.

   /3/ The Church of Scientology consists both of a central branch,
the "mother" Church of Scientology of California, and of numerous
branches that are separate entities for tax purposes.

   /4/ Indeed, the Church's official policy letter states that
"(p)rice cuts are forbidden under any guise" and "PROCESSING MAY NEVER
BE GIVEN AWAY BY AN ORG." (App., infra, 15a-16a n.6).  Free services
are awarded only to fully contracted staff, on the condition that the
staff member fulfill the terms of his contract (ibid.).

   Appendix