Health-services ministry loses exemption for commercial activity and private inurement

Plain-English summary

The IRS revoked the section 501(c)(3) exemption of an organization that presented its health-services practice as a church ministry. The organization charged for services, received payments through insurance and payment plans, operated on hours similar to commercial practices, and advertised without identifying itself as a church or nonprofit. Former clients told the IRS that they paid for services, did not understand the payments as charitable donations, and were not required to attend religious services. The IRS also found private inurement because organizational funds paid personal mortgage and grooming expenses and supported interest-free transactions with the founder, her husband, and related businesses. These commercial and private-benefit activities prevented the organization from operating exclusively for exempt purposes, and its incidental religious practices did not qualify it as a church. The IRS revoked exemption effective January 1 of the redacted year and required Form 1120 filings for that and later periods.

Ruling snapshot

• Question: Did the health-services organization continue to qualify under section 501(c)(3), and did it qualify as a church under sections 170(b)(1)(A)(i) and 509(a)(1)?
• Outcome: Revocation, because the organization had a substantial commercial purpose, allowed private inurement, and did not qualify as a church.
• Key authorities: IRC §§ 170, 501(c)(3), 509(a)(1), and 7611; Treas. Reg. §§ 1.501(c)(3)-1(c), 1.501(c)(3)-1(d), 1.501(c)(3)-1(e), and 1.501(c)(3)-1(f); Better Business Bureau v. United States; Living Faith, Inc. v. Commissioner

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR. Obvious scan misreads were corrected; wording is otherwise verbatim, and redacted identifiers appear as the IRS released them.

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE EO Examinations
1100 Commerce Street MC 4920 DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES Date: February 22, 2019
DIVISION
Release Number: 201926014 Person to Contact:
Release Date: 6/28/2019 Identification Number:
. . Telephone Number:
UIL Code: 501.03-00 In Reply Refer to:

LAST DATE FOR FILING A PETITION
THE TAX COURT:

CERTIFIED MAIL —Return Receipt Requested

Dear

This is a final adverse determination regarding your exempt status under section 501(c)(3) of
the Internal Revenue Code (IRC). Our favorable determination letter to you dated August
13, 20XX, is hereby revoked and you are no longer exempt under section 501(a), as an
organization described in section 501(c)(3) of the IRC, effective January 1, 20XX.

Our adverse determination was made for the following reasons:

You are operated in a commercial manner and competing with other
commercial entities. Treas. Reg. section 1.501(c)(3)-1 provides that an
organization is not described in section 501(c)(3) of the Code if it operates a
trade or business that primarily furthers a nonexempt purpose.

You operated for the benefit of private interests of church members. Treas. Reg.
section 1.501(c)(3)-1(d)(ii) provides that an organization is not operated
exclusively for exempt purposes unless it serves a public rather than a private

interest.

Part of your earnings inured to the benefit of church members. Treas. Reg.
section 1.501(c)(3)-1(c)(2) provides that an organization is not operated
exclusively for one or more exempt purposes if its net earnings inure in whole or
in part to the benefit of individuals.

You are not a church within the meaning of I.R.C. sections 509(a)(1) and
170(b)(1)(A)(i).

We have enclosed a copy of our report of examination explaining why we
believe a revocation of your tax-exempt status under section 501(c)(3) of the
Internal Revenue Code is necessary. Section 7611(g) provides that any final
report of an agent of the Internal Revenue Service shall be treated as a final

adverse determination under section 7428(a)(1), and any church receiving such a
report shall be treated for purposes of sections 7428 and 7430 as having
exhausted any administrative remedies available to it. Accordingly, section
7611(g) precludes the administrative appeal of any final report issued to a

church.

Contributions to your organization are no longer deductible under section 170 of the Code.

You are required to file Federal income tax returns on Form 1120. These returns should be
filed with the appropriate Service Center for the year ending December 31, 20XX and for all

years thereafter.

Processing of income tax returns and assessment of any taxes due will not be delayed should
a petition for declaratory judgment be filed under section 7428 of the Internal Revenue

Code.

If you decide to contest this determination in court, you must initiate a suit for declaratory
judgment in the United States Tax Court, the United States Court of Federal Claims or the
District Court of the United States for the District of Columbia before the 91st day after the
date this determination was mailed to you. Contact the clerk of the appropriate court for the
rules for initiating suits for declaratory judgment. You may write to the courts at the
following addresses:

United States Tax Court

400 Second Street, NW

Washington, DC 20217

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 20001

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that
can help protect your taxpayer rights. We can offer you help if your tax problem is causing a
hardship, or you’ve tried but haven’t been able to resolve your problem with the IRS. If you
qualify for our assistance, which is always free, we will do everything possible to help you.
Visit taxpayeradvocate.irs.gov or call 1-877-777-4778.

We will notify the appropriate State Officials of this action, as required by section 6104(c) of
the Internal Revenue Code.


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

Sincerely yours,

Maria Hooke

Director, Exempt Organizations Examinations

Enclosures:

Form 4621-A

Form 886-A, Explanation of Items
Form 6018

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
ISSUE

1. Whether , (the “Organization”), qualified

for exemption as an organization described in the Internal Revenue Code (IRC)
Section 501(c)(3) and 170(b)(1)(A)(vi)

2. Whether the Organization qualified for exemption as an organization described in IRC
Section 501(c)(3) and 170(b)(1)(A)(i)

FACTS
Background
The Organization was incorporated in the state of as a non-profit corporation on

October 30, 20XX. It received its recognition of exempt status under IRC section 501(c)(3) in a
determination letter dated August 13, 20XX. It was recognized as a publicly supported
organization under 170 (b)(1)(A)(vi).

Initial For-Profit Business

Prior to forming as a non-profit, ,a and the Organization’s
Treasurer, operated a for-profit corporation, , from July
17, 20XX until November 13, 20XX when it dissolved the for-profit corporation.

Non Profit

The Organization filed Form 1023, Application for Recognition of Exemption Under 501(c)(3) of
the Internal Revenue Code with the Service on November 26, 20XX. The Organization's Articles
of Incorporation were filed with the Secretary of State on October 30, 20XX. The
Articles of Incorporation stated that no part of the net earnings would inure to the benefit of its
officers or other private persons.

The Organization adopted bylaws on October 31, 20XX. Article Two of the bylaws stated the
Organization’s alleged purposes. Article Two stated the following:

“The mission of is to
further the mental, emotional, spiritual, and physical health of its members. The
founding members of this church ministry have experience in Christianity,
, and Spiritual Healing and will combine the best of all Their knowledge and
Abilities in the management of

. The mission of the Church Ministry is to educate and produce creative and
artistic projects in the form of books, presentations and church services that
enlighten mass consciousness on health, vitality and well-being.”

Catalog Number 20810W Page 1 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

The Organization stated in an attachment to its Form 1023, under the heading, “
” that “What we do is different because we focus on finding and removing

through specific,

The initial application showed the Organization’s hours were:

Mon: 11a.m.-1 p.m. & 4:15 p.m. — 7 p.m.

Tues 4:15 p.m. — 7p.m. with service beginning at 7 p.m.

Wed 11 a.m. — 1 p.m. & 3:30 p.m. — 5:30 p.m.

Thurs 11 a.m. — 1 p.m. & 4:15 p.m. — 7p.m. with service beginning at 7 p.m.
Fri-Sun — Closed for seminar travel days

The Organization filed Form 990, Return of an Organization Exempt from Income Tax in 20XX. It
suspended its operations in November 20XX. The Organization did not terminate, and instead
filed Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to
File Form 990 or Form 990EZ in 20XX. After suspending its operations, the Organization
continued banking, selling assets, and paying expenses, until the present day. The founder stated
that she took a break to recharge in preparation for future service and planning.

Church

When the Organization filed its Form 1023, it applied for recognition of church status and
completed Schedule A Churches.

The following shows the Form 1023 Schedule A questions and the Organization's answers.

Schedule A/Form 1023 Attachment

a. Do you have a written creed, statement of faith, or summary of beliefs? Yes.
i. The Organization presented a Statement of Faith in its attachment to
Schedule A. It also included references to “
that specific,
, and that comes from

and

b. Do you have a form of worship? Yes.

i. The Organization described its form of worship is through music, and that
everything they do can be an act of worship. It also stated that when they
serve others, they serve Jesus. They utilize healing prayers and use spiritual
habits.

c. Do you have a formal code of doctrine and discipline? Yes.

Catalog Number 20810W Page 2 www.irs.gov Form 886-A (Rev. 5-2017)

-I i Schedule number
Form 886-A Department of the Treasury — Internal Revenue Service

(May 2017) Explanations of Items

or exhibit

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

12/31/20XX

i. The Organization stated the Bible is its utmost code for doctrine and
discipline. It uses the Bible for morning and evening preparations and in their
meetings.

1. The Organization’s meetings were held twice a week.

Do you have a distinct religious history? No.
i. The Organization stated that it is the only one it knows of that conducts
” and brings spiritual, mental and emotional and
physical health to their members through education, prayer, worship and
. They are serving God through serving man.

Do you have a literature of your own? Yes.
i. The Organization provided brochures that described the
put there by God in its
pamphlet.

Describe the organization's religious hierarchy or ecclesiastical government. No.
i. The Organization stated it does not have a government or religious hierarchy.

Do you have regularly scheduled religious services? Yes.
i. The Organization described its services are held by speaking life into its
practice members and informing them of how God designed the body to heal
itself. They utilize the : pamphlet and hold services twice a
week.

. What is the average attendance at your regularly scheduled religious services? 0

Do you have an established place of worship? Yes.

i. The business address was listed as the place for religious services.

i. The Organization's business address was ,
Do you own the property where you have an established place of worship? No.

Do you have an established congregation or other regular membership group? Yes.
i. The Organization did not comment further on this question.

How many members do you have? 0

m. Do you have a process by which an individual becomes a member? Yes

i. The Organization stated that its current practice members (of the for-profit)
would switch over to the religious non-profit.

Catalog Number 20810W Page 3 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number

Form 886-A Department of the Treasury — Internal Revenue Service exhibit
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

. If you have members, do your members have voting rights, rights to participate in
religious functions, or other rights? Yes

. May your members be associated with another denomination or church? Yes and No
i. The Organization stated that practice members only needed a willingness to
learn and increase their well-being. Their members have the freedom to
believe what is correct for them. The Organization also stated that its
members are not members of other religious nonprofit organizations.
. Are all members part of the same family? No
. Do you conduct baptism, weddings, funerals, etc. No
Do you have a school for the religious instruction of the young? No
Do you have a minister or religious leader? Yes
i. The Organization presented as its religious leader, or
Leader. She does not have any ordination and is a
and has experience in prayer and spiritual healing.

Do you have schools for the preparation of your ordained ministers or religious
leaders? No

. Is your minister or religious leader also one of your officers, directors, or trustees?
Yes
i. was the Organization’s founder and Treasurer.
Do you ordain, commission, or license ministers or religious leaders? No
. Are you part of a group of churches with similar beliefs and structures? No
Do you issue church charters? No

Did you pay a fee for a church charter? No

Do you have other information you believe should be considered regarding your
status as a church? Yes

i. The Organization replied that its primary mission is sharing the message with
people and that being is just in their backgrounds and “NOT
the primary mission at all.”

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number

Form 886-A Department of the Treasury — Internal Revenue Service exhibit
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

IRS Determination on Church Status
The Organization’s final determination letter did not recognize the Organization as a church.

The Organization disputed its foundation status by contacting the Tax Exempt Government
Entities, (“TEGE”) Correspondence Unit and requested an update to church foundation status
170(b)(1)(A)(i) in May 20XX.

The Service reviewed the Organization’s Forms 1099K and Forms 1099-MISC and initiated an
examination to determine if the Organization was tax exempt and engaging in substantial
nonexempt activities subject to tax. The Service issued an examination letter in May 20XX to
the Organization. The Organization verbally claimed to be a church after it received the
Service’s initial contact Letter 3611. The Organization also submitted a letter to the Service
dated May 22, 20XX that stated that it was church.

Section 7611 procedures were instituted and followed. The TEGE Commissioner approved
issuance of a Notice of Church Tax Inquiry to the Organization. The Inquiry ensued because
information reported on Forms 1099-K and Forms 1099-MISC showed that a significant amount of
the Organization’s income came from merchant credit cards and insurance companies.

The Inquiry and subsequent conference with the Organization did not alleviate our concerns that
the Organization may not be tax exempt and engaging in substantial nonexempt activities subject
to tax. The TEGE Commissioner approved issuance of a Notice of Church Tax Examination to the
Organization.

The Service interviewed , the Organization’s Treasurer, on July 18, 20XX at the
Organization’s prior location, , . The Service completed
its questions and answers in written format. Both the Service and the Organization
signed the interview workpaper to show the content was accurate as written. provided
the information described in this report.

Resumed For-Profit

The Secretary of State website shows that resumed her for-profit
corporation under the names, on November 9, 20XX and
on April 7, 20XX.

Board Officers

isa served as the Organization’s Treasurer

and had primary responsibility and authority over the Organization’s bank account and financial
records. She remains in control of the Organization’s assets to the present day. The President

Catalog Number 20810W Page 5 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
and Secretary were unrelated to . primarily updated the board officers on the

Organization’s activities. The Officers were notified, but did not vote on Organization issues or
expenditures.

Operations

Building Appearance
The for-profit and non-profit Organization have both operated at different times out of the same

building on . The Organization provided a photo of the front of its building at
; in 20XX. A photo of its 20XX building signage shows the name “
-_ ” not “ .” The Service

took photos of the current building signage during the interview on July 18, 20XX.
The Service’s current photo showed the same building signage as 20XX, except the

business name is “ ” instead of “ .” (See Exhibit

1.)

Website

The Service accessed the Organization’s website on February 14, 20XX and April 18, 20XX. The
website showed the Organization’s name as “ ” on both dates. The

website did not show the Organization was a non-profit or a church.

The website also showed the and her husband, are both
and graduates of . The Service accessed the website at
. The website showed that isa college in
The Service accessed the website on July 17, 20XX and August 12,
20XX and was redirected to www. .com. The current website shows that
was founded by . The current website shows that
anda plan as it did in 20XX.

Additionally the Service accessed the internet archives, through The Wayback Machine,

https://www.archive.org on August 12, 20XX. The Service viewed website home page

images

captured of the website at on December
24, 20XX, March 15, 20XX, July 9, 20XX, and September 28, 20XX. The home page did not
change with the change in business names or changes from non-profit to for-profit.

Organization’s Website Home Page

For each of the visited dates outlined above, the Organization’s home web page showed the
same introduction as shown below:

Catalog Number 20810W Page 6 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. . or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

INFORMATION DELETED

From the information provided on the Organization’s website, it shows that the
organization’s primary activities consist of providing solutions and ,
' care.

Interview with the Organization

During the interview with on July 18, 20XX, stated that the difference
between the non-profit and the for-profit was the “God component.” She stated
that services were only provided after a person attended a “service.”

described the service as the way to describe the Organization’s non-profit mission
and donations policy. stated that the in the

Catalog Number 20810W Page 7 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
current for-profit . stated, “Every person that had a had to

go through a service first. We had to make sure everyone was on the same page.”

The examination showed that the Organization issued donation receipts for amounts paid for
services. The Organization issued donation receipts for everything it paid for and everything it

received payment for. Most of its checks showed “donation” in the memo section. stated
that she thought that everything that came into and went out of a non-profit was a donation. The
Organization also issued donation receipts to its members and to

. (See Exhibit 2.)

Financial Records

The Organization reported $0 on its 20XX Form 990. It provided its bank statements and all
cancelled checks from January 1, 20XX through December 31, 20XX. The bank statements
showed total deposits of $0. The Organization also provided all bank deposit records from January
1, 20XX through May 31, 20XX, and its donations check register.

The Organization provided a summary of its insurance payments on its “20XX Year End Tax
Deductible Receipts for Insurance.” The Organization’s summary amount was $0 more than
reported to the Service on Forms 1099-MISC. However, the total reported revenues did not
change because the bank deposits reconciled to the return and the check deposits register was
$0 less than the bank deposits. The discrepancy did not result in a larger total, just a larger
amount paid by insurance.

The chart below shows the Organization’s 20XX Form 990 reporting:

20XX Form 990 As Reported
Description Amount

Revenue Contributions 0
Expenses | Grants 0
Expenses _ | Other Expenses 0
Assets Cash 0
Assets Equipment 0
Liabilities 0

The Service reconciled the Organization’s type of income as shown below:

20XX Income
Type Amount
Credit Card $0

Catalog Number 20810W Page 8 www.irs.gov Form 886-A (Rev. 5-2017)

886-A Department of the Treasury — Internal Revenue Service Schedule number

Form - . or exhibit

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

Insurance $0

Cash/Check/Debit $0

Total Income $0

Pricing Policies

The Service received ten(10) Forms 1099-MISC that reported
. The Service received additional
that explained these payments from

1.

a. ,_ ,” reported payments of $0 in 20XX to
, i.e. the Organization.
b. Correspondence from showed that:
i. The Organization submitted
il was not under the impression it was donating to a charity.
it. did not receive requests for donations or a W-9 stated

the organization was a church.

Catalog Number 20810W Page 9 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number
or exhibit

Form 886-A Department of the Treasury — Internal Revenue Service

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

12/31/20XX

The Organization provided two “ ” as examples to show what the
Organization submitted to . These forms were for service
dates in February and March 20XX. They included . During the
interview, explained

Direct Payments

The Organization provided 0 payment agreements called, “ ” or
“Monthly Plan.” The agreements were signed by the and the Organization’s “Accounts
Secretary.”

The document showed the agreement for

The agreement also included the following statement at the top of the form:

“... the member is responsible for the , and any
outstanding balances will be due upon termination of or will come out of
credit/debit card on file. | give permission to charge my credit/debit card
for my balance.”

There is also a mention of court costs and attorney fees for any collection. Although during the
interview, stated the Organization did not collect on accounts and that this
should be worded differently.

The bottom of the form showed the Organization is a non-for-profit and that all monetary transfers
were considered donations and voluntarily agreed to by the member and that donations
were tax deductible. This form also showed the Organization was a “ ministry.”

Interviews
The Organization provided the first and last names, and telephone numbers for 0 . The
Organization provided a 28 page “Transactions” report for January 1, 20XX through November
10, 20XX, that included names, dates of payments, amounts of payments, and account
balances. The report showed all payments as “donations.”

The Service randomly selected three names from the Transactions report who also had a
and/or Monthly Plan. The Service contacted each of these

Each person stated they were paying for services and that they were not required
to attend a service prior to being seen by . None of the were aware that the
Organization was a church or a non-profit.

Catalog Number 20810W Page 10 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
Inurement
Mortgage payments on personal home
The Organization leased a business office at ; where it regularly
conducted business. However, the Organization paid $0 in mortgage payments on behalf of the
personal home in 20XX. and repaid the Organization after the house sold

in July 20XX.

Personal Expenses

The Organization's financial records showed “Other Expenses” between $0 and $0 each month in
20XX. The bank statements showed many debit card transactions for personal clothing, grooming,
fitness, sporting goods, etc. The financial records showed $0 for car travel, $0 for car maintenance
and $0 for food. The Organization stated the car and food were for business. However, it did not
keep contemporaneous records for these items to substantiate business use.

provided a document entitled, “Extra Notes” that explained that since she was not
receiving a paycheck she needed to look presentable. She needed general grooming expense
covered by the church.

Loans
Loans were made between the Organization and , for-profit
business, without any interest or contemporaneous contracts.

a. The Organization paid lease payments each month
from December 20XX until January 20XX.

b. The Organization made loans to an organization and person associated with
for $0 without requiring any interest.

c. The Organization’s assets were repurchased by after the
Organization suspended operations. The Organization did not pay rent on the
part of the building that occupied its assets while they were being
repurchased.

The Organization did not have an accountable plan for any of the above transactions.

= (501 c 3)
= ( Founder's husband's for-profit business)

| 20xx | 20xx | 20xx | 20xx | 20xx 20XX 20XX

Catalog Number 20810W Page 11 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service

Schedule number

Form 886-A . or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

Transactions Loans Loans Payments Loans Payments Loans Payments

made Lease Payments for 0.00 0.00 (0.00) 0.00 (0.00) 0.00

loans to Survival Depot (_ ) 0.00 (0.00)

cash loans to 0.00 (0.00)

loan to ( ) 0.00 (0.00)
AL made Asset Purchases from 0.00 0.00 (0.00) 0.00 (0.00) 0.00 (0.00)
Totals 0.00 0.00 (0.00) 0.00 (0.00) 0.00 (0.00)

Excess Loans = Loans - Payments at year end

20XX 0.00

20XX 0.00

20XX 0.00

20XX 0.00

LAW

Internal Revenue Code

Section 501(c)(3) of the Code exempts from federal income tax organizations which are
organized and operated exclusively for religious, charitable, scientific, testing for public safety,
literary, or educational purposes, or to foster national or international amateur sports
competition (but only if no part of its activities involve the provision of athletic facilities or
equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of
which inures to the benefit of any private shareholder or individual, no substantial part of the
activities of which is carrying on propaganda, or otherwise attempting, to influence legislation
(except as otherwise provided in subsection (h)), and which does not participate in, or intervene
in (including the publishing or distributing of statements), any political campaign on behalf of (or
in opposition to) any candidate for public office.

Section 170(c) of the Code provides that the term "charitable contribution" means a contribution or
gift for the use of organizations organized in the United States organized and operated exclusively
for religious and charitable purposes if the contribution or gift is made for exclusively public
purposes.

Federal Treasury Regulations

Section 1.501(c)(3)-1(d)(i) of the Federal Treasury Regulations, (the “Regulations”) provides
that an organization may be exempt as an organization described in 501(c)(3) if it is organized
and operated exclusively for one or more of the following purposes: religious, charitable,
scientific, testing for public safety, literary, educational, or prevention of cruelty to children or

Catalog Number 20810W Page 12 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (fast 4 digits) | Year/Period ended
12/31/20XX
animals.

Section 1.501(c)(3)-1(a)(1) of the Regulations provides that in order to be exempt as an
organization described in section 501(c)(3) of the Code, the organization must be one that is
both organized and operated exclusively for one or more of the purposes specified in that
section.

Section 1.501(c)(3)-1(c)(1) of the Regulations provides that an organization will be regarded as
“operated exclusively” for one or more exempt purposes only if it engages primarily in activities
which accomplish one or more of such exempt purposes specified in section 501(c)(3).

Section 1.501(c)(3)—1(c)(2) of the Regulations provides that an organization is not operated
exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the
benefit of private shareholders or individuals.

Section 1.501(c)(3)-1(e)(1) of the Regulations provides that an organization may meet the
requirements of section 501(c)(3) of the Code although it operates a trade or business as a
substantial part of its activities, if the operation of such trade or business is in furtherance of the
organization's exempt purpose or purposes and if the organization is not organized or operated
for the primary purpose of carrying on an unrelated trade or business, as defined in section 513
of the Code. In determining the existence or nonexistence of such primary purpose, all the
circumstances must be considered, including the size and extent of the trade or business and
the size and extent of the activities which are in furtherance of one or more exempt purposes.
An organization which is organized and operated for the primary purpose of carrying on an
unrelated trade or business is not exempt under section 501(c)(3) of the Code even though it
has certain religious purposes, its property is held in common, and its profits do not inure to the
benefit of individual members of the organization.

Section 1.501(c)(3)-1(f)(2) of the Regulations provides that in determining whether to continue to
recognize the tax-exempt status of an applicable tax-exempt organization described in section
501(c)(3) of the Code that engages in one or more excess benefit transactions that violate the
prohibition on inurement under section 501(c)(3), the Commissioner will consider all relevant facts
and circumstances, including, but not limited to, the following—

(A) The size and scope of the organization's regular and ongoing activities that further exempt
purposes before and after the excess benefit transaction or transactions occurred;

(B) The size and scope of the excess benefit transaction or transactions (collectively, if more than
one) in relation to the size and scope of the organization's regular and ongoing activities that
further exempt purposes;

(C) Whether the organization has been involved in multiple excess benefit transactions with one or
more persons;

Catalog Number 20810W Page 13 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

(D) Whether the organization has implemented safeguards that are reasonably calculated to
prevent excess benefit transactions; and

(E) Whether the excess benefit transaction has been corrected (within the meaning of section
4958(f)(6) [26 USCS § 4958(f)(6)] and § 53.4958-7), or the organization has made good faith
efforts to seek correction from the disqualified person(s) who benefited from the excess benefit
transaction.

Revenue Ruling

Revenue Ruling 58-617, 1958-2 CB 260, (Jan. 01, 1958) Rulings and determinations letters
granting exemption from federal income tax to an organization described in section 501(a) of the
Internal Revenue Code of 1954, to which contributions are deductible by donors in computing their
taxable income in the manner and to the extent provided by section 170 of the Code, are effective
only so long as there are no material changes in the character of the organization, the purposes
for which it was organized, or its methods of operation. Failure to comply with this requirement
may result in serious consequences to the organization for the reason that the ruling or
determination letter holding the organization exempt may be revoked retroactively to the date of
the changes affecting its exempt status, depending upon the circumstances involved, and subject
to the limitations on retroactivity of revocation found in section 503 of the Code.

Revenue Ruling 76-244:1976-1 C.B. 155 provides that delivery meals to elderly on a sliding
scale based on a recipient's ability to pay is an exempt purpose.

Court Cases
In Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279 (1945), the

Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature, will
prevent exemption regardless of the number or importance of truly exempt purposes.

In B.S.W. Group v. Commissioner, 70 T.C. 352 (1978), the Tax Court found that a corporation
formed to provide consulting services in the area of rural-related policy and program development
to tax-exempt and not-for-profit clients was not entitled to section 501(c)(3) status because it was
primarily engaged in an activity that was characteristic of a trade or business. The Court found
that the organization's planned service areas were of the sort normally carried on for profit by
commercial businesses and the organization’s financing was not typical of section 501(c)(3)
organizations. The organization did not provide any free or below-cost services; its clientele was
not limited to section 501(c)(3) exempt organizations; its support came from fees for services, and
it did not receive or solicit charitable contributions.

In Airlie Foundation v. Commissioner, 283 F. Supp.2d 58 (D.D.C. 2003) the courts found that due
to the “commercial” manner in which an organization conducts its activities, the organization is
operated for nonexempt commercial purposes rather than for exempt purposes. Among the major

Catalog Number 20810W Page 14 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

. exhibit
(May 2017) Explanations of Items or exhibit

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

12/31/20XX

factors courts have considered in assessing commerciality are competition with for-profit
commercial entities; extent and degree of below cost services provided; pricing policies;
reasonableness of financial reserves; whether the organization uses commercial promotional
methods; and the extent to which the organization receives charitable contributions. Because it
operated its conference center in a manner consistent with that of a commercial business, it did
not meet the requirements of I.R.C. § 501(c)(3). Although, Airlie Foundation carried out a number
of charitable and educational activities, these were incidental to its primary activity of operating
center.

In Living Faith, Inc. v. Commissioner, 950 F. 2d 365 (7th Cir. 1991) aff'g 70 T.C. 352 (1978), the
court held that a vegetarian restaurant and health foods store that adhered to the principles of the
Seventh Day Adventist Church was not operated exclusively for exempt religious purposes, but
rather for a substantial commercial purpose. The court examined the method of operations to infer
the purposes. The court found substantial evidence to support a conclusion that the organization's
activities furthered a substantial nonexempt purpose, including:

a. The organization's operations were presumptively commercial;

b. The organization competed directly with other restaurants and food stores;

c. The organization used profit-making pricing formulas common in the retail food business;

d. The organization engaged in a substantial amount of advertising;

e. The organization's hours of operation were competitive with other commercial enterprises

The organization’s primary activities were managing a restaurant and health food store that was
operated in competition with commercial entities, charging competitive prices set by formulas
common in the retail food business, and using commercial promotional methods.

In Leon A. Beeghly Fund v. Commissioner, 35 T.C. 490 (1960), inurement occurred when
the organization entered a transaction to benefit the stockholders of a particular business
corporation, not to benefit the charity, even though corporation suffered no financial loss.

In Church of Spiritual Technology vs. United States, 26 Cl. Ct. 713, 714 cited a long line of
authority holding that the applicant bears the burden of showing it is entitled to exemption.

In order to meet the operational test of tax exemption under section 501(c)(3), the church had to
show that it operated exclusively for exempt purposes, that it had no substantial non-exempt
purpose, and that no benefits inured from it to private individuals. It was unable to do so. Further,
incidental provision of religious services was not sufficient to qualify the organization as a church.

The court case, Christian Echoes Nat'l Ministry v. United States, showed the exemption to
corporations organized and operated exclusively for religious purposes is granted because of the
benefit the public obtains from their activities and is based on the theory that: ". . . the Government
is compensated for the loss of revenue by its relief from financial burden which would otherwise
have to be met by appropriations from public funds, and by the benefits resulting from the
promotion of the general welfare." H.R. Rep. No. 1860, 75th Cong., 3d Sess. 19 (1939).” “

Catalog Number 20810W Page 15 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

(May 2017) Explanations of Items or exhibit
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
Taxpayer Position
The Taxpayer desires to agree with the revocation of exempt status.
Government Position

1. Whether , (the “Organization”), continues to

qualify for exemption as an organization described in the Internal Revenue Code (IRC)
Section 501(c)(3) under foundation status 170(b)(1)(A)(vi)

Section 501(c)(3) of the Code provides tax exemption for organizations that are organized and
operated exclusively for religious, charitable, scientific, testing for public safety, literary,
educational, or prevention of cruelty to children or animals’ purposes.

Section 1.501(c)(3)-1(c)(1) of the Regulations provides that an organization will be regarded as
“operated exclusively” for one or more exempt purposes only if it engages primarily in activities
which accomplish one or more of such exempt purposes specified in section 501(c)(3).

Section 1.501(c)(3)-1(e)(1) of the Regulations provide that an organization may meet the
requirements of section 501(c)(3) of the Code although it operates a trade or business as a
substantial part of its activities, if the operation of such trade or business is in furtherance of the
organization's exempt purpose or purposes and if the organization is not organized or operated
for the primary purpose of carrying on an unrelated trade or business, as defined in section 513
of the Code.

Section 1.501(c)(3)-1(e) of the Regulations provide that an organization is not described in
section 501(c)(3) of the Code if it operates a trade or business that primarily furthers a
nonexempt purpose. Similarly, the courts have denied exempt status under what is generally
known as the commerciality doctrine.

In Airlie Foundation v. Commissioner, 283 F. Supp.2d 58 (D.D.C. 2003), the court found that, due
to the “commercial” manner in which an organization conducts its activities, the organization is
operated for nonexempt commercial purposes rather than for exempt purposes. Among the major
factors courts have considered in assessing commerciality are competition with for-profit
commercial entities; extent and degree of below cost services provided; pricing policies;
reasonableness of financial reserves; whether the organization uses commercial promotional
methods; and the extent to which the organization receives charitable contributions.

Competition with Commercial Entities

Catalog Number 20810W Page 16 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

Although the for-profit corporation dissolved on November 13, 20XX, the corporation’s name, “

,” continued to be used in signs and on the Organization’s website. The
Organization did not represent itself with the name associated with the non-profit or church to
the public. Instead, the Organization continued to employ similar commercial promotional
methods as the for-profit corporation had before. The building signage in 20XX and its website

showed, “ .” The Organization’s website was substantially similar to the
for-profit’s website and did not differ from any other business in that it showed several articles
regarding , information, contact information and

request information.

For the 20XX tax year, two explained they made payments of $0 and
$0 respectively specifically in response to submitted by the
organization. They were not under the impression they were donating to a charity. The

were . They received

The records of showed the submitted were not any different
when the Organization was a for-profit or a nonprofit. The also used the same

Building frontage and Website

The 20XX signage and website were similar, except the business name is different. Neither the
building frontage nor, the website showed the Organization was a non-profit or a church.
Instead, it appears as a business. The Organization’s website and business frontage
represented a office to the public. A contact form on the website allowed
prospective to become members by obtaining not by being involved
or as members of a church.

Services similar to for-profit businesses

Additionally, the current website for and for-profit office,
, also shows similar operations to its in 20XX, including
plans and tours of the office. During 20XX, and Organization records show that the

Organization requested a

The Service reviewed the website of . Similarly, the

office, named, in , website at
https://www. .com/ / shows its operations also

include a ,

The building frontage showed the words, “ ” in 20XX and 20XX. The

Catalog Number 20810W Page 17 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
term “ ” is a common statement of philosophy. The
Service reviewed the website of at:
https:// . This office is in the
state of , Which is the same state as the "alma mater, .
This business describes “ in connection with

on its website. The website shows, “

), .” Similarly, the Organization's “
agreements states, “
.” This shows there is no difference between the end result

of the care of the for-profit business and the non profit business.
The website also shows the following explanation, “True health comes from within,

. Our mission is to help empower you to express your full optimum potential
by introducing proper . Thus,

and allowing your mind, body and soul to communicate together in harmony.”
in also refers to a spiritual component of the “
” ideology on its website . It states, “The philosophy o
can be summarized with the acronym, which stands for “ .
We honor the truth that all healing comes from ; God into man, and life is

then .” Even though shows the spiritual component, it is a
for-profit corporation. The Secretary of State website shows that both and

are for-profit LLCs.

Operating hours similar to for-profit clinic
Additionally, the Organization was similar in operating hours to for-profit businesses as shown
below:

hours are:
Mon: 8am — 11am & 2pm — 7pm
Tue: 2pm — 6pm
Wed: 8am — 11am & 2pm — 7pm
Thu: 8am — 11am & 2pm — 7pm
Fri: 8am-11am
Sat — Sun: CLOSED

The Organization’s hours were:

Mon: 11a.m.-1 p.m. & 4:15 p.m. — 7 p.m.

Catalog Number 20810W Page 18 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

. exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
Tues 4:15 p.m. — 7p.m.
Wed 11 a.m. — 1 p.m. & 3:30 p.m. — 5:30 p.m.
Thurs 11 a.m. — 1 p.m. & 4:15 p.m. — 7p.m.
Fri-Sun - Closed
The initial Form 1023 was incorrect when it stated that the
the Organization performed were different.
are a normal part of as shown by the on
. Additionally, other for-profit offices operate similarly to the

Organization with the same ideology. The “God component’ is also, not unique to the
Organization and does not make it a non-profit.

Simply saying one's purpose is exclusively religious doesn't necessarily make it so. Courts
have consistently held that an organization's purposes may be inferred from its manner of
operations. Living Faith, Inc. v. Commissioner, 950 F. 2d 365 (7th Cir. 1991) aff'g 70 T.C. 352
(1978). As in Living Faith, Inc., the Organization’s operations and advertising were outwardly
commercial, competed with other offices, even those with a spiritual component,
as it had. It’s pricing was common to the business. It engaged in substantial
advertising through its website and building frontage. Its hours were similar to those of
commercial clinics.

Extent of Below Cost Services Provided
Charitable Contributions

The Organization submitted for payment for
. The were not any different when the Organization was a non-profit or a
for-profit. The showed normal that any

office would use to show

The Organization also signed agreements with who paid for their own
by cash, check, debit or credit card. The Organization prepared agreements with
its that showed the was required to “give” based on
The Service interviewed three (3) prior who stated they paid for
and were not required to attend a religious service before receiving . The were

not of the impression that they were donating to a non-profit or a church. There costs were not
based on their ability to pay.

Unlike Revenue Ruling 76-244:1976-1 C.B.155 that showed that delivery meals were made to
elderly persons on a sliding scale based on a recipient's ability to pay, the Organization

Catalog Number 20810W Page 19 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury ~ Internal Revenue Service Schedule number

. exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
charged market rate fees as evidenced by the
Pricing Policies
The were billed for services using that used
to obtain payments. The costs of services were required by the

The Organization provided 0 examples of signatures on “ ” and “Monthly
Plan” documents that showed the was responsible for all costs and outstanding
balances. The gave the Organization permission to charge their credit and debit cards

for their balances. The Organization’s records did not show its revenue included public
contributions. It did not solicit deficits from the public. Conversely, the fees were paid or the
credit/debit card on file was charged for balances due.

There is also a mention of court costs and attorney fees for any collection. Although during the
interview, stated the Organization did not collect on accounts and that this
should be worded differently.

The Organization did not substantiate any charitable contributions. It issued donation receipts in
exchange for payments for to its members. (See Exhibit 2.) Section 170(c) of the
Code provides that the term "charitable contribution" means a contribution or gift for the use of
organizations organized in the United States organized and operated exclusively for religious and
charitable purposes if the contribution or gift is made for exclusively public purposes.

The Service reconciled the Organization’s financial records to the following:

20XX Income

Type Amount | % of Total

Credit Card $0 0.00%
$0 0.00%

Cash/Check/Debit $0 0.00%

Total Income $0 0.00%

The pricing policies of the Organization were the same as for-profit

Reasonableness of Financial Reserves

The Organization’s 20XX Form 990 and bank statements showed an ending bank balance of

Catalog Number 20810W Page 20 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A
(May 2017)

Department of the Treasury — Internal Revenue Service

Explanations of Items

Schedule number
or exhibit

Name of taxpayer

Tax Identification Number (last 4 digits) | Year/Period ended

12/31/20XX

$0. The Organization utilized its balance to pay the lease for

behalf.

. The Organization was reimbursed for the monies paid on the

’ for-profit business,

After the application of the commerciality doctrine, the Service determined the Organization's

main activity to provide

Substantially, all of the Organization’s income came from providing
at market rates. The Organization failed the operational test.

service was in competition with commercial firms.

services

Instead of accomplishing the mission it expounded in its bylaws to educate and produce creative
and artistic products, the Organization had a substantial non-exempt purpose to commercially
services. In Better Business Bureau of Washington, D.C. v. United States,
326 U.S. 279 (1945), the Supreme Court held that the presence of a single non-exempt purpose, if
substantial in nature, will prevent exemption regardless of the number or importance of truly
exempt purposes.

provide

Inurement

Section 501(c)(3) of the Code provides that a public charity cannot have any part of the net
earnings inure to the benefit of any private shareholder or individual.

Section 1.501(c)(3)—1(c)(2) of the Regulations clarifies that an organization is not operated
exclusively for exempt purposes if its net earnings inure to the benefit of private individuals.

, the Organization’s Treasurer, was in control of the Organization’s assets,
which included the bank account and financial records. She was in a position to exercise
substantial influence over the Organization’s affairs.

Under

’ direction, the Organization’s net earnings were allowed to inure for her
and her husband’s personal benefit as shown below:

Mortgage payments on personal home

The Organization paid $0 in mortgage payments on behalf of the ~
repaid the Organization after the house sold in July 20XX, which was after the
organization received notice of an impending church tax inquiry. However, in 20XX, the

and

Organization’s bank account was used to benefit the

” personal home in 20XX.

by paying off their mortgage.

Where an exempt organization engages in a transaction with an insider and there is a
purpose to benefit the insider rather than the organization, inurement occurs even though
the transaction ultimately proves profitable for the exempt organization. The test is not
ultimate profit or loss but whether, at every stage of the transaction, those controlling the
organization guarded its interests and dealt with related parties at arm’s-length.

Catalog Number 20810W

Page 21 www.irs.gov

Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

. exhibit
(May 2017) Explanations of Items or exhibit

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

12/31/20XX

The Organization is like Leon A. Beeghly Fund v. Commissioner, 35 T.C. 490 (1960),
where inurement occurred when the organization entered a transaction to benefit the
stockholders of a particular business corporation, not to benefit the charity, even though
corporation suffered no financial loss. The Organization did not suffer financial loss as a
result of the paying the mortgage in the end, but it is still considered inurement because
when the Organization entered into the transaction, it benefited the business owners.

Personal Expenses

The Organization’s bank statements showed many debit card transactions for personal clothing,
grooming, fitness, sporting goods, etc. stated that since she was not receiving a
paycheck, the church paid for her general grooming expense. The financial records also showed
$0 for car travel, $0 for car maintenance and $0 for food. The Organization did not keep
contemporaneous records such as a mileage log for the personal vehicle or an events log for the
many purchases of food to substantiate business use.

Loans
Loans were made between the Organization and ’, for-profit
business, without any interest or contemporaneous contracts. The

amounts were repaid with the exception of $0 by June 20XX.

The above transactions were completed because treated the Organization’s
assets as if they were her personal bank account and personal assets. The Organization
and its Treasurer did not operate for the benefit of the Organization, but for personal
benefit.

Section 1.501(c)(3)-1(e)(1) of the Regulations provides that an organization may meet the
requirements of section 501(c)(3) of the Code although it operates a trade or business as a
substantial part of its activities, if the operation of such trade or business is in furtherance of the
organization's exempt purpose or purposes and if the organization is not organized or operated
for the primary purpose of carrying on an unrelated trade or business.

Section 1.501(c)(3)-1(f)(2) of the Regulations provides that in determining whether to continue to
recognize the tax-exempt status of an applicable tax-exempt organization described in section
501(c)(3) of the Code that engages in one or more excess benefit transactions that violate the
prohibition on inurement under section 501(c)(3).

The Service considered the A-E, five factors of section 1.501(c)(3)-1(f)(2) of the Regulations as
shown below:

Catalog Number 20810W Page 22 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

(1) The size and scope of the organization's regular and ongoing activities that further
exempt purposes before and after the excess benefit transaction or transactions

occurred:

The Organization’s regular and ongoing activities were determined to further commercial purposes
due to substantial non-exempt activities of operating a business in a commercial
manner and receiving substantially all of its income from fees for medical services.

(2) The size and scope of the excess benefit transaction or transactions (collectively, if
more than one) in relation to the size and scope of the organization's regular and
ongoing activities that further exempt purposes:

The excess benefit transactions were a substantial part of the Organization’s expenses. Loans
were unpaid at the end of each year from 20XX — 20XX.

(3) Whether the organization has been involved in multiple excess benefit transactions
with one or more persons;

The transactions were frequent and routine. The Organization was involved with the Treasurer,
her husband and their related businesses in regard to excess benefit transactions.

(4) Whether the organization has implemented safeguards that are reasonably
calculated to prevent excess benefit transactions.

a. -The Organization has suspended its operations. Safeguards were not implemented.

(5) Whether the excess benefit transaction has been corrected or the organization has
made good faith efforts to seek correction from the disqualified person(s) who
benefited from the excess benefit transaction.

a. The Organization corrected the excess benefit transaction with the
mortgage payments and has repaid all except $0 of the loans.

Even though the Organization corrected some of the transactions, correction was made
after the audit was started. The loans were being repaid prior to the audit. The Organization
is disqualified from recognition of exemption under section 501(c)(3) because it operated
for a commercial purpose and because the Organization’s net earnings inured to the benefit
of the insider (owner) instead of furthering an exempt purpose. To be charitable, an
organization must serve a public rather than a private interest.

2. Whether the Organization qualified for exemption as an organization described in IRC

Catalog Number 20810W Page 23 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

Section 501 (c)(3) under foundation status 170(b)(1)(A)(i)

The Organization was denied church status when it initially submitted its Form 1023 application.
The Service maintains that the Organization is not a church and does not qualify for foundation
status 170(b)(1)(A)(i).

During the interview, stated that the “God component” was the main distinction in
their claims to be a church instead of a for-profit business. This included teaching that all
healing comes from Above, i.e. from God. The Organization also stated that they utilized much

prayer and Christian music. stated that the Organization played Christian music all
the time. She regularly prayed openly for her for their healing. She submitted herself
to God.

Services

The Organization held services twice a week and offered ministering health talks. ,
statements also showed she stated that all were required to attend a service before
being seen by the . The service was held to explain the Organization’s mission and that

all payments are donations. However, three prior patients did not corroborate this statement.
The patients stated they were not required to attend any services and were seen for
services.

Advertising

The Organization's building frontage and website did not indicate it was a church. The
Organization advertised itself to the public as a business. Although it provided Form W-9 to
insurance companies that showed it was a “nonprofit” the insurance companies made payment
based on the claim forms submitted, not as a response to a request for donations to
a church. The Organization did not represent itself to any insurance company as a church.

God component not original to Organization

The building frontage showed the words, “ ” in 20XX and 20XX.

The Service reviewed a for-profit clinic’s website for an office in , it
used this same terminology and ideology in connection with adjustments.

in refers to a spiritual component of the “
” ideology on its website . The website states, “The
philosophy of can be summarized with the acronym, which stands for
. .” We honor the truth that all healing comes from ; God
into man, and life is then .” The website also states, “

Catalog Number 20810W Page 24 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

- . or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

Additionally, the website also shows the business seeks to “Serve the world as the hands of
Christ” and also mentions helping missions. The Secretary of State shows isa
for-profit LLC.

The distinctions that makes are not any different from any or
business person who may pray regularly openly or silently, listen to Christian music and submit
themselves to God for help in their work. These distinctions in how the chose to

operate their business do not make them a church as evidenced by

Statutory requirements of a church
Any religious organization, including a church, must satisfy the statutory requirements to be
exempt under IRC 501(c)(3).

Section 1.501(c)(3)-1(c)(1) of the Regulations provided that an organization's activities in
furtherance of a religious belief must serve exclusively exempt purposes. If the organization’s
activities promote a substantial nonexempt purpose, exemption under IRC 501(c)(3) is precluded.

The Organization's commercial activities showed that even if the Organization did hold services,
events, utilize prayer and seek God in its , it did not further its distinctly religious beliefs.
Instead, the Organization advertised and adhered to beliefs common to

instead of that distinctly held by a church.

The Organization's net earnings inured to its founder and her husband instead of benefiting a
public purpose. The Organization’s net earnings were expended for and her husband,
’ mortgage payments, personal expenses, and loans without interest.

The court in Church of Spiritual Technology cited a long line of authority holding that the applicant
bears the burden of showing it is entitled to exemption. In order to meet the operational test of tax
exemption under section 501(c)(3), the church had to show that it operated exclusively for exempt
purposes, that it had no substantial non-exempt purpose, and that no benefits inured from it to
private individuals. It was unable to do so. Further, incidental provision of religious services was
not sufficient to qualify the organization as a church.

The court case, Christian Echoes Nat'l Ministry v. United States, 470 F.2d 849, 1972 showed the
exemption to corporations organized and operated exclusively for religious purposes is granted
because of the benefit the public obtains from their activities and is based on the theory that: ". . .
the Government is compensated for the loss of revenue by its relief from financial burden which
would otherwise have to be met by appropriations from public funds, and by the benefits resulting
from the promotion of the general welfare." H.R. Rep. No. 1860, 75th Cong., 3d Sess. 19 (1939).”

In Living Faith, Inc. v. Commissioner, 950 F. 2d 365 (7th Cir. 1991) aff'g 70 T.C. 352 (1978), the
court held that an organization that operated vegetarian restaurants and health food stores in a

Catalog Number 20810W Page 25 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

manner consistent with the religious beliefs of the Seventh-Day Adventist religion did not qualify
for recognition of exemption under IRC 501(c)(3). The court concluded its operations evidenced a
substantial nonexempt commercial purpose.

Likewise, the Organization was not operated exclusively for exempt purposes, had a substantial
non-exempt purpose, and had benefits inure from it to private individuals. Thus, any incidental
provision of religious services is not sufficient to qualify the organization as a church. Additionally,
the profit-producing activity was not merely incidental to and in furtherance of the religious
activities and their exempt purpose.

Evaluation of Form 1023, Schedule A Churches

The Organization completed, Schedule A Churches, when it filed Form 1023. The Service has
adopted a “ruling position” based on historical and practical considerations. In doing this, the
Service has attempted to identify, from judicial sources and historical precedent, those indications
of the existence of a church which are most objective and in the least involved with the nature of
the particular religious beliefs and practices.

The Service considered the Organization’s Schedule A during the examination. The Service
showed the questions and the Organization’s reply below.

The Organization formed as a nonprofit corporation in the state of and had a
separate legal existence.

Schedule A/Form 1023 Attachment

aa. Do you have a written creed, statement of faith, or summary of beliefs? Yes.
i. The Organization presented a Statement of Faith in its attachment to
Schedule A. The Statement of Faith showed what the founder believed. It
also included references to “ ” and that specific,

and that comes from God. There wasn’t any evidence that this
statement of faith was purported during the Organization’s primary activity of
making during its business hours to its

Also as shown, for-profit s also hold to these same tenants in
the operations of their businesses.

bb.Do you have a form of worship? Yes.

i. The Organization described its form of worship is through music, and that
everything they do can be an act of worship. It also stated that when they
serve others, they serve Jesus. They utilize healing prayers and use spiritual
habits.

Catalog Number 20810W Page 26 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

12/31/20XX

1. Nothing in the Organization’s records indicated it implemented a form
of worship. Instead, the form of worship appears to describe how the

founder individually operated her business as she
submitted herself to God.

2. As noted, , a for-profit also viewed their business as

serving Jesus by serving others.

3. While the Organization stated it held services and that all
members were required to attend a service before seeing the ,
the member agreements did not indicate they had any
knowledge of participating or adhering to certain forms of worship.
Instead the Organization was represented to them as a
business.

cc. Do you have a formal code of doctrine and discipline? Yes.

i. The Organization stated the Bible is its utmost code for doctrine and
discipline. It uses the Bible for morning and evening preparations and in their
meetings.

1. The Organization’s meetings were held twice a week. It wasn’t
apparent that members were regularly informed of meetings.
The building frontage showed a business name. The Organization had
office hours that compared to other offices.

2. It appears the founder utilized the Bible for personal and individual
doctrine and discipline; however, the Organization primarily utilized the

dd. Do you have a distinct religious history? No.

i. The Organization stated that it is the only one it knows of that conducts
“Ministering Health Talks” and brings spiritual, mental and emotional and
physical health to their members through education, prayer, worship and
. They are serving God through serving man.

1. in , discuss their New
Orientation on its website and stated it educates on healthy
lifestyle choices and .
2. Discussing that healing comes from God is not a distinctly church
concept. As noted, uses this concept and notes the founder of
adhered to it as well.

ee. Do you have a literature of your own? Yes.

Catalog Number 20810W Page 27 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

i. The Organization provided brochures that described the
potential inside each and every person put there by God in its Ministering
Health pamphlet.

ff. Describe the organization’s religious hierarchy or ecclesiastical government. No.
i. The Organization stated it does not have a government or religious hierarchy.

1. The exam determined the Organization operated independently under
the direction of its founder,

gg. Do you have regularly scheduled religious services? Yes.
i. The Organization described its services are held by speaking life into its
members and informing them of how God designed the body to heal
itself. They utilize the “ : pamphlet and hold services twice a
week. However, the Organization did not substantiate regularly scheduled
weekly religious services. Its records show it was offering

services to its members. The name, “
” was not advertised on the building frontage or website. The three previous
members the Service contacted only received services

and were not aware of any religious services.

hh. What is the average attendance at your regularly scheduled religious services? 0
i. Regular religious services were shown on the One practice member recalled
a Appreciation meeting that he described as “kind of churchy.”
However, the Organizations records show it was offering and fulfilling
services to its practice members. Membership was obtained by coming to
the and ;

not by attending or being involved in religious services.

i. Do you have an established place of worship? Yes.
i. The business address was listed as the place for religious services.
ii. The Organization’s business address at

as shown on Exhibit 1 was a business front. Nothing on the front of the
building would tell the public they were attending a church or religious
service.

iii. The website did not show or have any reference to the Organization being a

church. In fact, the website and the building were named, “

” not

jj. Do you own the property where you have an established place of worship? No.
i. The Organization leased the property as part of the same lease agreement it
had when the same address was a for-profit clinic in 20XX.

kk. Do you have an established congregation or other regular membership group? Yes.

Catalog Number 20810W Page 28 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

. exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX
i. The Organization did not comment further on this question.
ii. The Organization provided a list of and their telephone numbers.
However, these are , not an established congregation or group.
iii. The agreements showed they were going to the to
receive not as a member of a congregation or group.

ll. How many members do you have? 0
i. The Organization provided a list of its members, a.k.a.
names and telephone numbers.

mm. Do you have a process by which an individual becomes a member? Yes

i. The Organization stated that its current practice members (of the for-profit)
would switch over to the religious non-profit.

ii. During the exam, explained that the members were scheduled for
a progress report and told they would be giving donations and get tax
deductible receipts for it. They were clear about the changes in the healing
and lost a lot of

1. When the Organization returned to a for-profit in November 20XX,
the Organization had a meeting to let the members know they would
not be receiving donation receipts and it would only be
from then on.

2. The examination showed the Organization was issuing donation

receipts for amounts paid for services. The Organization
issued donation receipts for everything it paid for and everything it
received payment for. thought that everything that came into
and went out of a nonprofit was a donation because it was from or for a
nonprofit.

3. The examination showed the Organization had a process for individuals to
become members of a , Not achurch.

nn. If you have members, do your members have voting rights, rights to participate in
religious functions, or other rights? Yes

oo. May your members be associated with another denomination or church? Yes and No

i. The Organization stated that members only needed a willingness to
learn and increase their well-being. Their members have the freedom to
believe what is correct for them. The Organization also stated that its
members are not members of other religious nonprofit organizations.

ii. The examination showed the Organization did not have any opportunities for
voting. The could participate in meetings, but how they were notified
of such meetings and how the meetings were presented, and how they were
incorporated into the business was not substantiated.

Catalog Number 20810W Page 29 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number

. exhibit
(May 2017) Explanations of Items or exhibit

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

12/31/20XX

pp. Are all members part of the same family? No
qq. Do you conduct baptism, weddings, funerals, etc. No
rr. Do you have a school for the religious instruction of the young? No
ss. Do you have a minister or religious leader? Yes
i. The Organization presented as its religious leader, or Ministering

Health Leader. She does not have any ordination and is a
and has experience in prayer and spiritual healing.

ii. The examination showed that the primary role of in the
Organization was to act in the role of ofa who
regularly prepared and submitted and
for . Any role as a religious leader was incidental to the

business operations.

tt. Do you have schools for the preparation of your ordained ministers or religious
leaders? No

uu. Is your minister or religious leader also one of your officers, directors, or trustees?
Yes
i. was the Organization’s founder and Treasurer.
x. Do you ordain, commission, or license ministers or religious leaders? No
ww. Are you part of a group of churches with similar beliefs and structures? No
i. As shown above, the Organization is similar to the for-profit
that demonstrates similar beliefs on its website.
xx. Do you issue church charters? No

yy. Did you pay a fee for a church charter? No

zz. Do you have other information you believe should be considered regarding your
status as a church? Yes

i. The Organization replied that its primary mission is sharing the message with

people and that being is just in their backgrounds and “NOT
the primary mission at all.”
ii. Conversely, the examination showed that operating a ’s office

was the primary mission. However, the founder may have operated her

Catalog Number 20810W Page 30 www.irs.gov Form 886-A (Rev. 5-2017)


Schedule number

Form 886-A Department of the Treasury — Internal Revenue Service exhibit
. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
12/31/20XX

from a spiritual standpoint. This was her choice. As shown above,
use a variety of ways to operate their businesses and get their
message across to potential about the benefits of

The receiving of an exemption is matter of legislative grace and not a constitutional right. As long
as exemptions are denied by the Commissioner Internal Revenue Service on a non-discriminatory
basis using specific and reasonable guidelines and without inquiry into the merits of the particular
religious doctrines, the withholding of religious exemptions is permissible under the Constitution.

An organization which is organized and operated for the primary purpose of carrying on an
unrelated trade or business is not exempt under section 501(c)(3) even though it has certain
religious purposes, its property is held in common, and its profits do not inure to the benefit of
individual members of the organization. In Better Business Bureau of Washington, D.C. v. United
States, 326 U.S. 279 (1945), the Supreme Court held that the presence of a single non-exempt
purpose, if substantial in nature, will prevent exemption regardless of the number or importance of
truly exempt purposes.

As outlined above we have determined that the Organization does not meet the qualifications of a
church. Furthermore, even if the Organization was to meet some of the qualifications of a church,
where a church is engaging in a substantial commercial activity the issue of whether or not it is a
church is largely irrelevant. Universal Church of Jesus Christ, Inc. v. Commissioner, 55 T.C.M.
144 (1988). Lastly, the Organization’s operations showed that its earnings inured to its founder,
and it did not substantiate that its expenses were non-personal in nature.

CONCLUSION

The Organization is disqualified from recognition of exemption under section 501(c)(3)
because it engaged in a substantial commercial purpose and its net earnings inured to the
benefit of its owner and her husband, private individuals.

The exempt status of the Organization is to be revoked effective January 1, 20XX because the
organization is not organized for exempt purposes under section 501(c)(3) of the Code.

The Organization does not qualify as a church.

The organization is liable to file Forms 1120 for the tax period ended December 31, 20XX and for
all subsequent periods.

In accordance with Section 6104 of the Internal Revenue Code, state charity officials will be
notified of the revocation.

Catalog Number 20810W Page 31 www.irs.gov Form 886-A (Rev. 5-2017)