Determination 200502044: Religious group denied exemption as a church

Plain-English summary

A religious organization applied for recognition of tax exemption as a church. It held Sunday services and Bible study, but the IRS found that it lacked a regular congregation, formal minister training, membership requirements, and several other church characteristics. The IRS also raised concerns about the small self-perpetuating board and an undocumented rehabilitation payment. The group said it did not seek exemption under the alternative public charity category mentioned in the letter, so the IRS could not conclude that it was exempt under section 501(c)(3). The letter says contributions were not deductible and gives the group 30 days to protest.

Ruling snapshot

• Question: Did the organization qualify for section 501(c)(3) exemption as a church?
• Outcome: Denied as a church, subject to the right to protest within 30 days.
• Key authorities: IRC §§ 501(c)(3), 170; Chapman v. Commissioner; American Guidance Foundation, Inc. v. United States.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Number: 200502044
Release Date: 1/14/05
SE:T:EO:RA:T:2

Date: 06/28/04
Contact Person:

Identification Number:

Contact Number:

UIL: 501.03-00
Employer Identification Number: ***

Dear ------------:

We have considered your application for recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code as a church described in section 501(c)(3).
Based on the information submitted, we have concluded that you do not qualify for exemption as a church. The basis for our conclusion is set forth below.

FACTS

You were incorporated on December ***, under the Nonprofit Religious Corporation Law of your state. Your Articles provide that you are organized to “preach and teach the word of god.”

You have applied for recognition of exempt status as a church. You conduct religious services on Sunday mornings --------------------------------. You state that between ------------- people generally attend. Many of these are described as -------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
people. In addition, a group of ------ people regularly attend Bible study on Friday evenings.
You publicize your activities and attract new members by “word of mouth” and flyers that you attach to the free Bibles you distribute at the worship services. At this time, you do not perform

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life cycle rituals such as baptisms or weddings. You do not expect anyone to sever ties with any other church or ministry. You hope to acquire a building in the future. Donations from attendees constitute your entire income.

Your Board of Directors consists of three directors: your Pastor and two unrelated persons. Your revised bylaws, adopted on November **, grant all authority to the Board, which is self-perpetuating, and specify that you have no members. The bylaws state that directors may not be compensated by the organization for rendering services in any capacity.

Your pastor volunteered at a ------------------------, under the guidance of a Pastor and completed ------------------------------------------. He did not receive formal training or ordination, --- --------------------------------------------. You say that he was “ordained” by the pastor on an unspecified date, but there was no course of study. They agreed that he had the Biblical “marks of a pastor.” You submitted “certificates of ordination” dated ----------------------- from “**.” You stated that the request for the ordination certificates was the only contact that you had with ***.

You paid over $------- for an unidentified person or persons to attend a drug rehabilitation program. You did not describe a program or factors that were considered in deciding to award the grant. This is the only activity other than weekly bible study and worship services that you described.

The agent in the field suggested twice that you consider applying for exempt status as a religious organization rather than a church, until you have an established congregation. You stated in a letter, that it is not your intention to qualify for exemption as a public charity described in section 509(a)(a) and 170(b)(1A)(vi) of the Code.

LAW

Section 501(c)(3) of the Code exempts from taxation any corporation organized and operated exclusively for religious purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

In Chapman v. Commissioner, 48 T.C. 358 (1967), the court determined by examining the legislative history of section 170 o f the Code, that Congress intended “church” to be a more limited concept than “religious organization,” more in the sense of a “denomination” or “sect.” In that case the court found that the evangelical organization was not a church because the members maintained affiliations with other churches, the organization was interdenominational, and it did not ordain ministers. The fact that it conducted religious services was not conclusive.

American Guidance Foundation, Inc. v. United States, 490 F. Supp. 304 (1980) set out the basic principles distinguishing a church from other religious organizations that the Service

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and the courts have used for over 30 years. The principles are often referred to as the 14 points and include: 1) a distinct legal existence; 2) a recognized creed and form of worship; 3) a definite ecclesiastical government; 4) a formal code of doctrine; 5) a distinct religious history; 6) a membership not associated with any other church; 7) an organization of ordained ministers; 8) ordained ministers selected after completing prescribed studies; 9) a literature of its own; 10) established places of worship; 11) regular congregations; 12) regular religious services; 13) Sunday schools for religious instruction of the young; and 14) schools for the preparation of its ministers. The court in American Guidance Foundation held that the core requirement for a church is a “body of believers or communicants that assembles regularly in order to worship.”

ANALYSIS

Of the 14 characteristics set out in American Guidance Foundation, supra to describe a church, you have only a distinct legal existence and regular religious services. You conduct weekly Bible study and weekly Sunday services. About -- people regularly attend the Bible study. Many of the --------------------------------------------------------------------------------------------------- -----------------------. Transients who do not, probably cannot, attend regularly cannot be described as a regular congregation. Further, you do not have any requirements for membership. Your only method of attracting new members is to pass out flyers at the services. At this time, the small number of people cannot be described as a body of believers who assemble regularly in order to worship.

Your pastor has had no formal training, and his ordination did not follow a prescribed course of study, nor was it conducted according to the rules of an organization of ordained ministers. ----------------------------------------------------------, the training a nd organization of the ministers are factors that the Service considers in applications for exempt status as a church.

Your organization has no ecclesiastical government, no code or doctrine or literature, and no instruction for children. Your self-perpetuating Board of Directors is extremely limited: the pastor and two other people. You do not conduct rituals such as baptisms, weddings or funerals at this time.

You are similar to the organization that was the subject of Chapman v. Commissioner, supra because your purpose is evangelical and nondenominational, you do not require attendees to sever ties with other churches, and except for the small group that studies Bible together, you do not have a “body of believers” who assemble regularly in order to worship.

In addition to the finding of the Service that your organization does not qualify as a church, the nature of your governance raises some problems. You do not have any members. Your limited board is composed of your Pastor and two other people and is self-perpetuating. You have spent a very large percentage of your revenue to provide rehabilitation services for unidentified individuals without any written policy or procedure. You have not established that

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you will operate exclusively for charitable purposes and not for the benefit of any private individuals.

You have applied for exemption under section 501(c)(3) of the Code as a church within the meaning of section 170(b)(a)(A)(i). While you satisfy some of the criteria that the Service uses to determine whether an organization is a church, you do not meet the minimum requirements of a church as discussed in American Guidance Foundation, Inc. supra. Therefore, you do not qualify as a church under section 170(b)(a)(A)(i). You stated that it is not your intention to qualify for exemption as a public charity as described in sections 509(a)(1) and 170(b)(1)(A)(vi). Accordingly, we are unable to conclude that you are exempt under section 501(c)(3).

You must file federal income tax returns. Contributions to you are not deductible under section 170 of the Code.

You have the right to protest this ruling if you believe it is incorrect. To protest, you should submit a statement of your views to this office, with a full explanation of your reasoning. This statement, signed by one of your officers, must be submitted within 30 days from the date of this letter. You also have a right to a conference in this office after your statement is submitted. You must request the conference, if you want one, when you file your protest statement. If you are to be represented by someone who is not one of your officers, that person will need to file a proper power of attorney and otherwise qualify under our Conference and Practices Requirements.

If you do not protest this ruling in a timely manner, it will be considered by the Internal Revenue Service as a failure to exhaust available administrative remedies. Section 7428(b)(2) of the Code provides, in part, that a declaratory judgment or decree under this section shall not be issued in any proceeding unless the Tax Court, the United States Court of Federal Claims, or the District Court of the United States for the District of Columbia determines that the organization involved has exhausted administrative remedies available to it within the Internal Revenue Service.

If we do not hear from you within 30 days, this ruling will become final and a copy will be forwarded to the Ohio Tax Exempt and Government Entities (TE/GE) office. Thereafter, any questions about your federal income tax status should be directed to that office, either by calling 877-829-5500 (a toll free number) or sending correspondence to: Internal Revenue Service, TE/GE Customer Service, P.O. Box 2508, Cincinnati, OH 45201. The appropriate State Officials will be notified of this action in accordance with section 6104(c) of the Code.

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When sending additional letters to us with respect to this case, you will expedite their receipt by faxing to 202-------* or by using the following address:

If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.

Sincerely,

Joseph Chasin, Manager
Exempt Organizations
Technical Group 2