Case Name: Foundation of Human Understanding, Petitioner v. Commissioner of Internal Revenue, Respondent
Court: United States Tax Court
Jurisdiction: United States
Decision Date: 1987-05-19
Citations: 88 T.C. 1341
Docket Number: Docket No. 10431-83X
Parties: Foundation of Human Understanding, Petitioner v. Commissioner of Internal Revenue, Respondent
Judges: Sterrett, Simpson, Nims, Shields, Clapp, and Parr, JJ., agree with the majority opinion on the jurisdictional issue.
Reporter: Reports of the Tax Court of the United States
Volume: 88
Pages: 1341–1384

Head Matter:
Foundation of Human Understanding, Petitioner v. Commissioner of Internal Revenue, Respondent
Docket No. 10431-83X.
Filed May 19, 1987.
Joel R. Bryan, for the petitioner.
Joan R. Domike, for the respondent.

Opinion:
OPINION
GOFFE, Judge:
In 1965, the Internal Revenue Service issued a ruling letter which recognized that petitioner is exempt from Federal income tax as an organization de scribed in section 501(c)(3). The Commissioner subsequently recognized petitioner as a nonprivate foundation because petitioner satisfied the requirements of a publicly supported organization described in sections 509(a)(1) and 170(b)(l)(A)(vi). Petitioner later requested a ruling to modify its exemption so that it would be recognized as a nonprivate foundation under section 509(a)(1) because it is a "church" within the meaning of section 170(b)(l)(A)(i). The Commissioner determined that petitioner is not a church, but this determination did not affect petitioner's exemption as a nonprivate foundation under sections 509(a)(1) and 170(b)(l)(A)(vi). Petitioner has challenged the determination of the Commissioner by invoking the jurisdiction of this Court for declaratory judgment pursuant to section 7428. The issue for decision is whether petitioner is a "church" within the meaning of section 170(b)(l)(A)(i).
This proceeding was submitted fully stipulated under Rule 122. Pursuant to Rule 217, the parties filed the administrative record along with a joint original and a supplemental stipulation as to its contents.
The Foundation of Human Understanding (petitioner) was established in 1961 by Roy Masters as the organizational vehicle whereby his doctrine concerning meditation, salvation, emotional self-control, and man's relation to God could be spread to the world. Roy Masters has summarized his beliefs, which are based upon Judeo-Christian principles, as follows: "man is a fallen being, and hence is subject to his emotions. Through meditation and faith in Christ, it is possible for man to gain control of his emotions, to become self-disciplined, and hence a disciple of Christ." In this regard, Roy Masters has developed a particular form of meditation that is used by his followers.
On January 15, 1963, Roy Masters, Ann Masters, his wife, and Patrick C. Shields executed articles of association whereby petitioner became a nonprofit, unincorporated association organized for religious purposes under the laws of California. On May 27, 1963, petitioner was incorporated under the nonprofit corporation law of California. The original directors were Roy Masters, Ann Masters, and John Brill. The articles of incorporation stated that the purposes for which petitioner was formed were "the promulgation of the religious, charitable, scientific, literary and educational aspects of mind over matter and spiritual health known as psychocatalysis."
On March 31, 1964, petitioner filed Form 1023, Exemption Application, requesting recognition of exemption from Federal income tax under section 501(c)(3). On December 20, 1965, the Commissioner recognized petitioner's exemption in a determination letter that characterized petitioner's purposes as religious and educational.
On August 17, 1970, petitioner filed with the IRS Form 4653, Notification Concerning Foundation Status, on which petitioner gave notice that it was not a private foundation. An organization filing Form 4653 is required to indicate the basis for its nonprivate foundation status. Petitioner indicated that it was a nonprivate foundation because it was a church under sections 509(a)(1) and 170(b)(l)(A)(i), and "An organization that normally receives no more than 1/3 of its support from gross investment income and more than 1/3 of its support from contributions, membership fees, and gross receipts from activities related to its exempt functions . Section 509(a)(2)." Despite the fact that petitioner indicated that it was a nonprivate foundation as a church under sections 509(a)(1) and 170(b)(l)(A)(i) and as an organization described in section 509(a)(2), IRS personnel noted on Form 4653 that petitioner was "An organization that normally receives a substantial part of its support from a Governmental unit or from the general public. Section 170(b)(l)(A)(vi)." Subsequently, by a letter dated October 20, 1970, the IRS informed petitioner that "Based on the information you recently submitted, we have classified you as an organization that is not a private foundation as defined in section 509(a) of the Internal Revenue Code." The letter did not inform petitioner that its nonprivate foundation status was based upon a determination that petitioner was a publicly supported organization under sections 509(a)(1) and 170(b)(l)(A)(vi), instead of a church under sections 509(a)(1) and 170(b)(l)(A)(i).
On May 15, 1972, the purpose clause of the articles of incorporation of petitioner was amended to indicate that petitioner was a church. Counsel for petitioner mailed the amendment to the articles of incorporation to the District Director of Internal Revenue. Thereupon, counsel for petitioner notified petitioner that "The Foundation is now a church."
As a result of the advice of counsel, petitioner believed that all steps necessary to change the nature of its exemption to that of a church had been completed. Accordingly, petitioner did not file information returns for the years 1973 through 1978. Ultimately, representatives of the IRS informed petitioner that it was not recognized as a church and that a formal application for such recognition would be necessary. Consequently, in 1979 petitioner prepared and filed Forms 990, Return of Organization Exempt from Income Tax, for the years 1973 through 1978 and requested a ruling that it was a church.
Although no formal application for a ruling that it qualified as a church for Federal tax purposes appears in the record, the record clearly demonstrates that petitioner's request for church status was placed under consideration by the District Director. On August 14, 1979, petitioner complied with the request of the District Director for additional information upon which to base a determination of exempt status.
On September 12, 1979, petitioner again amended its articles of incorporation to include a charitable dedication provision and to amend its purposes and powers to read as follows:
(a) Purposes of the corporation:
The sole purpose for which this church is formed is the promulgation of the religious, charitable, scientific, and literary and educational aspects of the theological concepts upon which this church was founded and is organized and operated exclusively for religious purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code of 1954.
(b) Powers of the corporation:
The general power of this church is to engage in any activity which is in furtherance of the above-stated specific purpose.
Petitioner's application was subsequently referred to the Exempt Organizations Division of the IRS National Office. On January 14, 1980, Roy Masters participated in a meeting in Washington, D.C., with IRS representatives regarding petitioner's exemption application. On March 13, 1980, the Commissioner issued an adverse determination letter denying petitioner's application to have its exemption classification modified to that of a church under sections 509(a)(1) and 170(b)(l)(A)(i).
On February 10, 1981, petitioner commenced an action in U.S. District Court for the Central District of California seeking declaratory relief from the adverse determination of the Commissioner. By agreement with the Assistant U.S. Attorney, the Department of Justice, and the Office of the Chief Counsel of the IRS, petitioner agreed to dismiss the District Court suit without prejudice and requested a rehearing on its church status with the Exempt Organizations Division of the IRS National Office. On November 12, 1982, the Commissioner issued an adverse determination letter pursuant to the rehearing in which the Commissioner again refused to modify the nonprivate foundation status from that of a publicly supported organization described in sections 509(a)(1) and 170(b)(l)(A)(vi) to that of a church described in sections 509(a)(1) and 170(b)(l)(A)(i). Following a protest filed by petitioner, the Commissioner issued a final adverse determination letter on February 23, 1983.
At about the time petitioner was formed, Roy Masters, using his own resources, began purchasing radio air time to present a program entitled "A Moment of Truth" during which he preached concerning his doctrine. Masters also began conducting discussion and teaching groups to educate people about his doctrine and meditation technique. After petitioner was incorporated, it continued to purchase radio air time to broadcast the pre-recorded "A Moment of Truth" on various radio stations. Petitioner also began purchasing radio air time for a live show in Los Angeles hosted by Roy Masters using a call-in format whereby listeners telephone Masters with their questions, concerns, and problems, and he responds with counseling in keeping with his doctrine and teachings. At one point these radio shows, including taped replays of the live call-in show, were broadcast 5 or 6 days a week over more than a dozen stations from New England to Hawaii. The programs are also broadcast every night on Satellite Radio Network by local cable television in many communities throughout the country. The estimated listening audience for these programs is approximately 2 million with a regular following of 30,000.
Petitioner has published several books and pamphlets written by Roy Masters. The following is a list of the books written by Roy Masters and published by petitioner, with the respective year of publication:
Year Title
1964.Secret of Life and Death
1970.Sex, Sin and Salvation (Solution)
1975 .How to Control Your Emotions
1977 .No One Has to Die
1978.How Your Mind Can Keep You Well
1979.Life Itself is Hypnosis! THE SATAN PRINCIPLE-Self Defense Lessons to Help You Cope with Everyday Pressure
Petitioner published the following pamphlets:
What You Should Know About Being Upset
A Guide to True Peace: The Meditations of Three Ancient Mystics, or
The Excellency of Inward and Spiritual Prayer — Part 1
A Guide to True Peace: The Meditations of Three Ancient Mystics, or
The Excellency of Inward and Spiritual Prayer — Part 2
How to Meditate Correctly
Stress and Suffering
Understanding Meditation
Petitioner also distributed the following tapes:
The Power of Words
Man & Woman Relationship Part II
Man & Woman Relationship Part III
Pride the Cause of Death
Man - Woman Relations
"1683"
These tapes are, for the most part, recordings of petitioner's call-in radio show.
Petitioner publishes a magazine, "The Iconoclast," with 5,200 subscribers and an estimated readership of 15,000. Each issue features writings described as follows:
[Iconoclast writings] focus on the role that illusions, false religious images, misplaced beliefs and disintegrating institutions play in our personal and inter-personal problems. Once our illusions have been destroyed, the path to true religion is revealed.
More particularly, each issue contains an article by Masters, plus features that keep readers informed of petitioner's activities, as well as materials and services offered by petitioner.
Petitioner owns and operates a building in Los Angeles, which at one time housed its headquarters. The building displays the name "Foundation of Human Understanding" along with the following quote: "Where there is no insight, the people perish." The building contains facilities to record Roy Masters' radio programs and to duplicate tapes. The building also contains a meeting hall for followers of petitioner to congregate, as well as office space.
Petitioner conducts "services" at its Los Angeles building 3 or 4 times a week. These services, which are open to the public, are conducted by one of the ministers of petitioner. The conducting minister is permitted to structure the service as he chooses, ranging from highly Scriptural exhortations to practical suggestions on overcoming sin, weakness, and depression. Afterwards, followers in the congregation are allowed to and regularly do share their recent experiences concerning the Scriptures, meditation, and God. Although ministers may discuss the meditation technique prescribed by Roy Masters, meditation is performed by petitioner's followers in solitude. Ministers have performed weddings; however, the beliefs of petitioner eschew other rites such as baptism and holy communion. Although petitioner does not require its followers to disavow membership in other churches or religious organizations, many of its followers look upon petitioner as their only church.
In October 1977, petitioner opened a school for children. Although general education is provided, classwork includes religious instruction based upon the beliefs of petitioner. Petitioner also operates one or more thrift stores where donated articles are sold.
In 1979, petitioner applied for authority to transact business in the State of Oregon. In the same year, petitioner purchased 373 acres of land near Selma, Oregon, and constructed basic living quarters and facilities for milling wood, ranching, farming, teaching, and conducting seminars and meetings. This property, called the Tall Timber Ranch, is operated by petitioner as a retreat and meeting facility. Although the number of people who have lived or worked at the Tall Timber Ranch has varied, approximately 50 persons were present in August 1981.
In 1982, petitioner purchased a church building, which formerly belonged to a Seventh Day Adventist congregation, in Grants Pass, Oregon. Petitioner relocated its headquarters to Grants Pass while retaining its building in Los Angeles. Petitioner encouraged its followers to relocate to Oregon and some did so. In Oregon, followers of petitioner attend services in the Grants Pass church, take part in activities at the Tall Timber Ranch, and are able to associate with other followers on a daily basis. Attendance at services at both Grants Pass and Los Angeles ranges from 50 to 350 people.
In 1981, petitioner had nine ordained ministers who were employed full time. The ministers included Roy Masters, his wife, Ann Masters, and his children, David Masters, Dianne Masters, and Michael Masters. In addition, there were five ministers in training. The ministerial training process is a 3-year apprenticeship under the personal tutelage of Roy Masters.
Petitioner paid the following compensation to its officers, directors, and trustees during the years 1975 through 1980:
Roy Masters Year Salary Parsonage Robert McQuain Arl3 Salary Parsonage Salary 1 Haun Ann Masters Parsonage Salary
1975 $24,103 $9,900 $11,482 $6,600 $8,635 $3,950 $326
1976 30,350 10,650 12,036 4.650 4,680
1977 34,450 11,650 15,450 5.650 3,000
1978 39,000 13,000 19,500 6.500 13,000
1979 36,000 12,000 7,500 2.500 13,800
1980 36,000 12,000 13,800
Petitioner also paid the following compensation, presumably including salaries to ministers, along with parsonage allowances in the following amounts for the years 1975 through 1980:
Year Amount
1975 $26,100
1976 33,459
1977 62,562
1978 89,099
1979 104,145
1980 150,815
The following table shows the total receipts reported by petitioner for the years 1971 through 1980, the amounts of contributions received, proceeds from the sede of its religious publications, and school tuition:
Year Total receipts Contributions Sales of religious School publications tuition
1971 $160,169 $119,410 $38,842
1972 217,979 147.600 63,500
1973 284,123 182,607 95,009
1974 352,546 244,727 104,739
1975 506,698 315,735 171,281'
1976 678,564 366,125 290,423
1977 739,167 482,722 221,458
1978 896,376 638,838 218,355 $11,611
1979 1,064,014 668.600 297,962 41,424
1980 1,217,101 856,672 285,079 126,205
The figures given for receipts from sales of religious publications for the years 1979 and 1980 include receipts from the thrift stores operated by petitioner. For the years 1975 through 1978, thrift store receipts averaged more than $16,000.
During the years 1971 through 1980, contributions constituted 65.8 percent of petitioner's total receipts with the remainder derived from the sales of religious publications, school tuition, thrift store sales, interest, capital gains, and royalties. The record does not reveal what percentage of the total contributions was made by followers who attended services of petitioner in Los Angeles and Grants Pass. The record also does not reveal whether tuition income for the years 1979 and 1980 in the amounts of $41,424 and $126,205, respectively, was derived solely from operating the school for children or whether those figures also include receipts from seminars and weekend retreats conducted by petitioner.
The percentage that petitioner's broadcasting expenditures bore to total expenditures for exempt purposes for the years 1975 through 1980 was as follows:
Year Percent
1975 . 46
1976 . 45
1977 . 48
1978 . 45
1979 . 48
1980 . 49
In the adverse determination letter issued on November 12, 1982, the Commissioner denied the request of petitioner to be classified as a church as follows:
In determining whether a particular organization can be considered to be a "church" within the meaning of section 170(b)(l)(A)(i) the following criteria are taken into consideration: (1) a distinct legal existence; (2) a recognized creed and form of worship; (3) a definite and distinct ecclesiastical government; (4) a formal code of doctrine or discipline; (5) a distinct religious history; (6) a membership not associated with any church or denomination; (7) a complete organization of ordained ministers ministering to their congregations; (8) ordained ministers selected after completing prescribed courses of study; (9) a literature of its own; (10) established places of worship; (11) regular congregations; (12) regular religious services; (13) Sunday schools for the religious instruction of the young; and (14) schools for the preparation of its ministers. These criteria are not exclusive and are not mechanically applied, but, rather, serve as a list of some of the characteristics that may be used in determining whether an organization is a church any other facts and circumstances which may bear upon an organization's claim that it is entitled to church status must also be taken into consideration.
The final adverse determination letter dated February 23, 1983, holds:
The primary purpose and function of your organization are to evangelize and promulgate your teachings and doctrines through a religious broadcasting service and a religious publications operation. While you are a religious and educational organization, you are not described in section 170(b)(l)(A)(i) because you are not a church as that term is commonly understood.
Petitioner has invoked our declaratory judgment jurisdiction under section 7428 to review the determination of the Commissioner that, for purposes of determining whether it is a private foundation under section 509(a)(1), petitioner does not qualify as a church within the meaning of section 170(b)(l)(A)(i). Careful consideration of whether this Court has jurisdiction in this case is merited.
In 1965, petitioner received an exemption from Federal income taxes as an organization described in section 501(c)(3). Following the enactment of the Tax Reform Act of 1969, Pub. L. 91-172, 83 Stat. 536, which required exempt organizations to give notice if they considered themselves to be other than a private foundation, petitioner filed Form 4653 to notify the Commissioner that it was a nonprivate foundation. The reasons claimed for nonprivate foundation status were that petitioner was a church under sections 509(a)(1) and 170(b)(l)(A)(i) and that petitioner was an organization described in section 509(a)(2). Shortly thereafter, the Commissioner notified petitioner that it was considered to be a nonprivate foundation, but he did not indicate the basis upon which nonprivate foundation status had been granted. Subsequently, petitioner twice amended its articles of incorporation to clarify its contention that it was a church, and it filed these amendments with the Commissioner.
Petitioner, believing itself to be recognized as a church, ceased filing annual information returns. See sec. 6033(a)(2)(A)(i). Petitioner did not learn that it was not recognized by the IRS as a church until after 1978. Beginning in 1979 petitioner sought a ruling that its nonprivate foundation status was based upon a determination that it was a church within the meaning of section 170(b)(l)(A)(i). Ultimately, the Commissioner, on February 23, 1983, issued a final adverse determination letter denying petitioner's request for church status under sections 509(a)(1) and 170(b)(l)(A)(i).
Issue 1. Jurisdiction
Section 7428 authorizes review by this Court and other courts in an actual controversy involving a determination (or the failure to make a determination) by the Commissioner with respect to the initial classification or continuing classification of an organization as (1) an organization described in section 501(c)(3) or 170(c)(2), (2) a private foundation as defined in section 509(a), or a private operating foundation as defined in section 4942(j)(3). Sec. 7428(a). Therefore, we need to decide whether there exists an "actual controversy" with respect to the ruling by the Commissioner that petitioner does not qualify as a nonprivate foundation classified as a church under sections 509(a)(1) and 170(b)(l)(A)(i).
In this case, petitioner received nonprivate foundation status, but upon a less advantageous basis than desired. Looking solely to the statute, it is unclear whether there exists an actual controversy when an organization receives nonprivate foundation status under a classification different from the classification requested. It may be argued that when the Commissioner recognizes an organization as a nonprivate foundation under section 509(a), there is no actual controversy under section 7428, and this Court has no jurisdiction to review the classification which the Commissioner used to grant nonprivate foundation status. The legislative history of section 7428 fails to disclose whether our jurisdiction is limited to deciding simply whether the Commissioner correctly granted or rejected an organization's request for nonprivate foundation status, or whether we may properly hear a case challenging a ruling that grants nonprivate foundation status, albeit on a less desirable classification. See H. Rept. 94-658 (1975), 1976-3 C.B. (Vol. 2) 701, 976; S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 624. Nevertheless, the cases decided under section 7428 indicate that our jurisdiction is broad enough in some instances to examine and decide the classification upon which status as a nonprivate foundation is granted. Junaluska Assembly Housing, Inc. v. Commissioner, 86 T.C. 1114 (1986); Friends of the Society of Servants of God v. Commissioner, 75 T.C. 209 (1980); see CREATE (Christian, Research, Education, Action, Technical Enterprise), Inc. v. Commissioner, 634 F.2d 803 (5th Cir. 1981), affg. an unreported order of this Court (hereinafter referred to as CREATE).
In Friends of the Society of Servants of God v. Commissioner, supra (hereinafter referred to as Friends), we were confronted with the question of whether this Court has jurisdiction to review a ruling that an organization failed to qualify as a nonprivate foundation under section 509(a)(1) as a section 170(b)(l)(A)(i) church, even though the Commissioner ruled that it could still expect to qualify as a nonprivate foundation under section 509(a)(1) by being classified as a publicly supported organization under section 170(b)(l)(A)(vi). Although we disagreed with the argument of the organization that section 7428 "grants jurisdiction in all cases where the parties disagree about some aspect of a private ruling on an organization's private foundation or tax-exempt status," we concluded there was an "actual controversy" to support jurisdiction under section 7428 because the Commissioner's ruling was adverse in important respects. 75 T.C. at 215-216.
The Commissioner's ruling in Friends was found to be adverse because he determined that the organization was entitled only to an advance ruling even though a definite ruling had been requested. 75 T.C. at 216-217, 219. We also found the private foundation ruling-to be adverse because, by basing nonprivate foundation status on a determination that the organization was a publicly supported organization defined in section 170(b)(l)(A)(vi), it imposed terms and conditions on the organization that would not be imposed upon a church. 75 T.C. at 217, 219. For example, a publicly supported organization under section 170(b)(l)(A)(vi) must meet certain public support standards that churches need not meet. Sec. 1.170(a)-9(e), Income Tax Regs. Finally, we found that the record did not support the determination of the Commissioner that the organization was a publicly supported organization under section 170(b)(l)(A)(vi). 75 T.C. at 217-219.
In CREATE, the Court of Appeals affirmed the decision of this Court dismissing the petition for lack of jurisdiction. CREATE, Inc., a non-profit corporation, applied for recognition as a tax-exempt organization described in section 501(c)(3) and for a ruling that it was not a private foundation. The Commissioner issued a ruling which recognized that CREATE was exempt from Federal income tax as a 501(c)(3) organization. The Commissioner also made an advance ruling that CREATE, Inc., could reasonably expect to be classified as a nonprivate foundation under section 509(a)(1) as a pubbcly supported organization described in section 170(b)(l)(A)(vi). At the end of the advance ruling period, the Commissioner again ruled that CREATE, Inc., was not a private foundation. However, nonprivate foundation status was granted to CREATE, Inc., as a public charity under section 509(a)(3), rather than under sections 509(a)(1) and 170(b)(l)(A)(vi). The change in the classification for nonprivate foundation status was caused by the determination of the Commissioner that contributions received from a trade association were subject to the rule providing that to the extent the contributions exceeded 2 percent of the total support received by CREATE, Inc., they could not be counted toward the 33V3-percent public support requirement imposed by sections 509(a)(1) and 170(b)(l)(A)(vi). Sec. 1.170A-9(e)(6), Income Tax Regs. Despite the disadvantageous treatment of the contributions from one of its major contributors, CREATE, Inc., was able to demonstrate that it still satisfied the public support requirement, at that time, through the contributions of others. Later, the Commissioner conceded that CREATE, Inc., qualified as a nonprivate foundation under sections 509(a)(1) and 170(b)(l)(A)(vi), as well as section 509(a)(3). Although CREATE, Inc., obtained nonprivate foundation status upon the classifications it had requested, it was concerned that future support from the sources considered to be public might fall below the SSVs percent level unless contributions from the trade association were counted in full. As a result, CREATE, Inc., filed a petition in this Court for declaratory judgment under section 7428 that contributions from the trade association were not subject to the 2-percent rule of section 1.170A-9(e)(6), Income Tax Regs. We dismissed the petition for lack of jurisdiction.
On appeal, the Court of Appeals considered whether there existed a justiciable "actual controversy" because of the ruling by the Commissioner as to the treatment of the contributions from the trade association. The Court of Appeals held that because the treatment of the contributions from the trade association had no present effect on the nonprivate foundation status of CREATE, Inc., and because CREATE, Inc., had received nonprivate foundation status on the classifications requested (sections 509(a)(1) through 170(b)(l)(a)(vi) and 509(a)(3)), this court properly dismissed for lack of jurisdiction under section 7428. 634 F.2d at 812. See also Urantia Foundation v. Commissioner, 684 F.2d 521, 525 (7th Cir. 1982), affg. 77 T.C. 507 (1981). Although the Court of Appeals in CREATE generally agreed that receipt of a presently favorable ruling as to foundation status precludes review of the basis for the ruling, the court, citing Friends, acknowledged a crucial exception:
The Tax Court opinion in Friends of the Society of Servants of God specifically states that §7428(a), which speaks in terms of an "actual controversy," cannot apply unless the taxpayer has received an adverse ruling. But it makes clear that the receipt of a favorable ruling on a nonprivate status that is a different and less advantageous status that [sic] the one which is the subject of the ruling request will not defeat §7428 jurisdiction. [634 F.2d at 813.]
We believe our opinion in Friends, cited with approval in CREATE, is controlling as to our jurisdiction in the instant case. In the instant case, as in Friends, granting nonprivate foundation status as a publicly supported organization under sections 509(a)(1) and 170(b)(l)(A)(vi) imposes requirements upon petitioner that it would not be required to meet if it were classified as a church. Accordingly, the final adverse determination as to church status was sufficiently adverse to create an "actual controversy" for purposes of our declaratory judgment jurisdiction under section 7428. Friends of the Society of Servants of God v. Commissioner, supra; see CREATE, Inc. v. Commissioner, supra at 812-813.
Issue 2. Status as Church
The focus of our inquiry in declaratory judgment actions under section 7428 is whether the administrative determination of the Commissioner is correct. For this purpose, we assume that all facts contained in the administrative record are true. Rule 217. The role of this Court in declaratory judgment actions is "to resolve disputes as to the legal issues raised by the [Commissioner's] denial of an exemption ruling on the basis of uninvestigated statements of facts submitted by the taxpayer in its ruling request and related papers." Houston Lawyer Referral Service v. Commissioner, 69 T.C. 570, 573 (1978). The burden of proof is on petitioner. Hancock Academy of Savannah, Inc. v. Commissioner, 69 T.C. 488, 492 (1977).
The term "church" is not defined in the Internal Revenue Code. Nor are the regulations promulgated under section 170 helpful in deciding what is a church. They simply restate the statutory language of section 170(b)(l)(A)(i). Sec. 1.170A-9(a), Income Tax Regs. It seems clear, however, that Congress intended that the word "church" have a more restrictive definition than the term "religious organization." American Guidance Foundation v. United States, 490 F. Supp. 304, 306 (D. D.C. 1980), affd. without opinion (D.C. Cir., July 10, 1981); Church of the Visible Intelligence that Governs the Universe v. United States, 4 Cl. Ct. 55 (1983).
In the absence of guidance by Congress and a meaningful regulatory definition, it has been suggested that the term "church" is to be interpreted in light of the generally accepted meaning and usage of the word. De La Salle Institute v. United States, 195 F. Supp. 891, 903 (N.D. Cal. 1961). However, given the plurality of religious beliefs in this country, the validity of this approach is not without doubt. See American Guidance Foundation, Inc. v. United States, supra at 306. We can only approach this question with care for all of us are burdened with the baggage of our own unique beliefs and perspectives. We must recognize that one person's prophet is another's pariah. Consequently, we must also assiduously avoid expanding our inquiry into the merits of petitioner's beliefs or risk running afoul of First Amendment religious protections. Parker v. Commissioner, 365 F.2d 792, 795 (8th Cir. 1966), affg. in part, revg. in part, and remanding a Memorandum Opinion of this Court, cert. denied 385 U.S. 1026 (1967); Unitary Mission Church of Long Island v. Commissioner, 74 T.C. 507, 514 (1980), affd. without published opinion 647 F.2d 163 (2d Cir. 1981).
Although every church may be a religious organization, not every religious organization is a church. Chapman v. Commissioner, 48 T.C. 358, 363 (1967). To classify a religious organization as a church under the Internal Revenue Code, we should look to its religious purposes and, particularly, the means by which its religious purposes are accomplished. See Chapman v. Commissioner, supra at 367 (Tannenwald, J., concurring). "The means by which an avowedly religious purpose is accomplished separates a 'church' from other forms of religious enterprise. At a minimum, a church includes a body of believers or communicants that assembles regularly in order to worship.'' American Guidance Foundation, Inc v. United States, supra at 306 (citation omitted); see Church of Eternal Life and Liberty, Inc. v. Commissioner, 86 T.C. 916, 924 (1986); Chapman v. Commissioner, supra at 367 (Tannenwald, J., concurring). When bringing people together for worship is only an incidental part of the activities of a religious organization, those limited activities are insufficient to label the entire organization a church. De La Salle Institute v. United States, supra at 901; see Chapman v. Commissioner, supra at 364.
In its efforts to identify organizations that qualify for church status the IRS has developed 14 criteria. These criteria, which were first announced in a speech by a former Commissioner, were applied by the Commissioner in the instant case. The criteria are as follows:
(1) a distinct legal existence;
(2) a recognized creed and form of worship;
(3) a definite and distinct ecclesiastical government;
(4) a formal code of doctrine and discipline;
(5) a distinct religious history;
(6) a membership not associated with any other church or denomination;
(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.
[See Internal Revenue Manual 7(10)69, Exempt Organizations Examination Guidelines Handbook 321.3(3) (Apr. 5, 1982).]
In addition to the 14 criteria enumerated above, the IRS will consider "Any other facts and circumstances which may bear upon the organization's claim for church status." Internal Revenue Manual 7(10)69, Exempt Organizations Examination Guidelines Handbook 321.3(3) (Apr. 5, 1982).
Although this Court has not adopted these 14 criteria in deciding whether an organization is a church, other courts have expressly adopted them or at least given them the appearance of judicial imprimatur. See Lutheran Social Service of Minn. v. United States, 758 F.2d 1283, 1286-1287 (8th Cir. 1985), revg. and remanding 583 F. Supp. 1298 (D. Minn. 1984); Williams Home, Inc. v. United States, 540 F. Supp. 310, 317 (W.D. Va. 1982); American Guidance Foundation v. United States, supra; Church of the Visible Intelligence that Governs the Universe v. United States, supra. It is recognized that few traditional churches could meet all of the criteria. None of the criteria are considered controlling, but one court has said—
While some of these are relatively minor, others, e.g., the existence of an established congregation served by an organized ministry, the provision of regular religious services and religious education for the young, and the dissemination of a doctrinal code, are of central importance. [American Guidance Foundation, Inc. v. United States, supra at 306.]
Although the criteria developed by the IRS Eire helpful in deciding what is essentially a fact question, whether petitioner is a church, we do not adopt them as a test.
Petitioner, a nonprofit corporation incorporated under the laws of California, certainly has a distinct legal existence. Although based on Judeo-Christian principles, the emphasis on emotional self-control through a specific type of meditation as the key to salvation sets petitioner apart from other recognized religions. Petitioner provides regular religious services for established congregations that are served by an organized ministry. Worship takes the form of regular meetings of regular congregations at established places of worship, petitioner's Los Angeles headquarters and the Grant Pass, Oregon, church building. These services are open to the public. Cf. American Guidance Foundation, Inc. v. United States, supra at 307 (husband, wife, and minor child do not constitute a church). These services were regularly conducted by the ministry for congregations consisting of 50 to 350 persons. Such activity is far from incidental. Cf. De La Salle Institute v. United States, supra. Although petitioner does not require its followers to reject membership in other churches, many followers consider petitioner to be their only church. Although the regular services have no set structure or liturgy, they are conducted by petitioner's ordained ministers. Ministers ordained by petitioner must serve a 3-year apprenticeship under the personal tutelage of Roy Masters. Petitioner does not maintain separate physical facilities for the preparation of its ministers. Although petitioner does not separately provide for the religious instruction of the young, such as through Sunday School classes, its school includes religious instruction as part of the general education curriculum.
Petitioner clearly has a distinct, if relatively short, religious history. Petitioner first existed as an unincorporated association formed in 1961 as the vehicle to spread the beliefs of Roy Masters, its founder. The record is unclear as to when and how Roy Masters formulated his beliefs or had them revealed to him. Nonetheless, petitioner had existed, at the time the Commissioner made his final adverse determination, for more than 20 years as an association and a corporation..
Petitioner lacks a definite ecclesiastical government. The record does not reveal how religious or doctrinal decisions are made. However as founder, Roy Masters is clearly the leader of petitioner. He is also president of petitioner under civil corporate law. Furthermore, his ample writings illustrate fully the beliefs and doctrine of petitioner. Nonetheless, petitioner lacks a formal code of doctrine and discipline.
Petitioner does not possess all of the criteria. It does, however, possess most of the criteria to some degree. Moreover, most of the factors considered to be of central importance are satisfied. It possesses associational aspects that are much more than incidental. Despite the involvement of several members of Roy Master's family, petitioner is more than a one family church. Cf. American Guidance Foundation, Inc. v. United States, supra at 307. Furthermore, petitioner is not a sham organization created solely for tax purposes. See, e.g., Davis v. Commissioner, 81 T.C. 806 (1983), affd. without published opinion 767 F.2d 931 (9th Cir. 1985) (Universal Life, Church case). Based upon all the facts and circumstances,. ,we conclude that petitioner is a church within the meaning of section 170(b)(l)(A)(i).
We acknowledge that petitioner reaches far more people with its message of emotional self control through its radio broadcasts, books, pamphlets, and magazine. Petitioner's radio broadcasts have the potential to reach 2 million people with a regular listening audience of 30,000. Petitioner's magazine, the Iconoclast, has a subscription circulation of 5,200. In contrast, approximately 2,000 followers relocated to Oregon at petitioner's behest, leaving approximately that many in Los Angeles. Attendance at services at the Los Angeles and Grants Pass, Oregon, locations, ranged from 50 to 350. In financial terms, petitioner's radio broadcast and publishing efforts constitute a large percentage of petitioner's total receipts and expenditures. Nevertheless, petitioner's substantial broadcasting and publishing activities do not overshadow the other indications that petitioner is a church. The call to evangelize or otherwise spread one's religious beliefs is, undeniably, an integral part of many faiths. The fact that in this case, the religious outreach was substantial both before and after petitioner began to possess many church-like characteristics does not change our conclusion. More importantly, despite the breadth of petitioner's broadcasting and publishing efforts, its as sociational aspects are much more than incidental. Cf. De La Salle Institute v. United States, supra. We hold that petitioner has sufficient associational aspects to be considered a church. American Guidance Foundation, Inc. v. United States, supra; see Church of Eternal Life and Liberty v. Commissioner, supra; Chapman v. Commissioner, supra.
We readily acknowledge that this case presents a close question. Our conclusion is based upon the particular facts of this case. At its inception petitioner was not a church, nor did it perceive itself as such. It was granted tax-exempt status as a religious and educational organization described in section 501(c)(3). But as more people heard and began to follow the teachings of Roy Masters, petitioner began to adopt church-like characteristics. The means by which petitioner accomplished its admittedly religious purposes have developed such that we conclude that petitioner is now a church. We hasten to emphasize that by its use of the term "church," Congress must have intended a more narrow classification than that embodied by a term such as "religious organization." Despite the lack of guidance from Congress, and in the absence of a more explicit regulatory definition of the term "church," we will continue our efforts to give a distinct meaning to this statutory classification.
Based upon the foregoing,
Decision will be entered for the petitioner.
Reviewed by the Court.
Sterrett, Simpson, Nims, Shields, Clapp, and Parr, JJ., agree with the majority opinion on the jurisdictional issue.
Nims, Parker, Whitaker, Kórner, Shields, Hamblen, Cohen, Clapp, Swift, Jacobs, Wright, and Parr, JJ., agree with the majority opinion on the substantive issue.
Wells, J., concurs in the result only on the substantive issue.
GERBER, J., did not participate in the consideration of this opinion.
A11 section references are to the Internal Revenue Code of 1954 as amended and in effect during the taxable years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Pursuant to Rule 217, we also granted petitioner's motion to admit certain documentary evidence not found in the administrative record.
The petition herein was timely filed and the parties agree that petitioner has exhausted its administrative remedies as a prerequisite to this cause of action. Secs. 7428(b)(2), 7428(b)(3).
Church status is also desirable because churches are exempted from filing annual information returns. Sec. 6033(a)(2)(A)(i). IRS examinations of churches are also severely restricted. Secs. 7605(c), 7611.
At one time the regulations under sec. 170 contained a cross-reference to the regulations under sec. 511, which define a church as follows:
(ii) The term "church" includes a religious order or a religious organization if such order or organization (a) is an integral part of a church, and (b) is engaged in carrying out the functions of a church, whether as a civil law corporation or otherwise. In determining whether a religious order or organization is an integral part of a church, consideration will be given to the degree to which it is connected with, and controlled by, such church. A religious order or organization shall be considered to be engaged in carrying out the functions of a church if its duties include the ministration of sacerdotal functions and the conduct of religious worship. [Sec. 1.511-2(a)(3)(ii), Income Tax Regs.]
The Tax Reform Act of 1969 made several changes in the tax treatment of exempt organizations including repeal of the exemption given to churches from the tax on unrelated business income under sec. 511. Pub. L. 91-172, 83 Stat. 536. Following enactment of the Tax Reform Act of 1969, the Treasury proposed regulations defining "church" for purposes of sec. 170 that closely resembled the definition found in sec. 1.511-2(a)(3)(ii), Income Tax Regs. Sec. 1.170A-9(a), Proposed Income Tax Regs., 36 Fed. Reg. 9298 (May 22, 1971). Because of objections from the public, the proposed regulation defining "church" under sec. 170 was never promulgated as final. Instead the current regulation merely provides that "An organization is described in sec. 170(b)(l)(A)(i) if it is a church or a convention or association of churches." Sec. 1.170A-9(a), Income Tax Regs. See Whelan, " 'Church' in the Internal Revenue Code: The Definitional Problems," 45 Fordham L. Rev. 885, 916-917 (1977).
See Remarks of IRS Commissioner Jerome Kurtz, PLI Seventh Biennial Conference on Tax Planning (Jan. 9, 1978), reprinted in Fed. Taxes (P-H) par. 54,820 (1978).