Sklar

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Taxpayers

The Sklars are Orthodox Jews who in 1995 had five school- aged children. Rather than send their children to public school to meet California State educational requirements, the Sklars enrolled each of their children in one of two Orthodox Jewish day schools, Emek Hebrew Academy (“Emek”) and Yeshiva Rav Isacsohn Torath Emeth Academy (“Yeshiva Rav”). They did so “because of their sincerely and deeply held religious belief that as Jews they have a religious obligation to provide their children with an Orthodox Jewish education in an Ortho- dox Jewish environment.” In 1995, the Sklars paid a total of $27,283 to Emek and Yeshiva Rav which included $24,093 for tuition, $1300 for registration fees, $1715 for other man- datory fees, and $175 for an after school Mishna program at Emek.1 During 1995, Emek and Yeshiva Rav each were exempt from federal income tax under I.R.C. § 501(c)(3), which provides tax exempt status for certain institutions “or- ganized and operated exclusively for religious, charitable, . . . or educational purposes,” among others. Both schools also qualified as organizations described in I.R.C. §…