Purported church loses exemption for founder inurement and unsubstantiated activities

Plain-English summary

The IRS revoked the 501(c)(3) status of an organization that claimed to operate as a church. The organization did not substantiate regular religious services, a regular congregation, an established place of worship, an active governing board, or several other characteristics the IRS uses to identify a church. Its founder and president controlled the bank account, and the account showed payments for apparent personal expenses including rent, clothing, restaurants, groceries, a nail salon, and vacation-resort charges. The founder said the payments furthered exempt purposes but did not provide supporting records, later refused to respond to additional information requests, and dissolved the organization. The IRS found private inurement, substantial private benefit, failure of the operational test, and insufficient evidence that the organization was a church.

Ruling snapshot

• Question: Did an organization remain exempt as a church when it did not substantiate church activities and its founder controlled funds used for apparent personal expenses?
• Outcome: revocation
• Key authorities: IRC §§ 170, 501(c)(3), 509(a)(1), 7611; Treas. Reg. § 1.501(c)(3)-1(a), (c), (d); American Guidance Foundation, Inc. v. United States

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
550 Main Street
Cincinnati, OH 45202-3222

Date:
June 3, 2024

Taxpayer ID numbers (last 4 digits):

Form:

Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
Fax:

Release Number: 202442006
Release Date: 10/18/2024
UIL Code: 501.03-00

Last day to file petition with United States
Tax Court:
September 1, 2024

CERTIFIED MAIL - Return Receipt Requested

Dear                         :

Why we are sending you this letter
This is a final determination explaining why your organization doesn't qualify as an organization described in
Internal Revenue Code (IRC) Section 501(c)(3) for the tax periods above.

Our adverse determination as to your exempt status was made for the following reasons: You have not
demonstrated that you are operated exclusively for charitable, educational, religious, or other exempt purposes
within the meaning of IRC Section 501(c)(3) or that no part of your net earnings inures to the benefit of private
shareholders or individuals. You have failed to produce records and information which demonstrate that you
meet the requirements of IRC Section 501(c)(3). You are operated for the substantial private benefit of your
founder, officer, and director. Your net earnings inured to the benefit of your founder, officer, and director. You
have also failed to demonstrate that you are a church or convention or association of churches within the
meaning of IRC sections 509(a)(1)/170(b)(1)(A)(i). See the attached Final Report of Revenue Agent under IRC
Section 7611(g) for more information.

Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns
and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov.

Contributions to your organization are no longer deductible under IRC Section 170.

What you must do if you disagree with this determination
If you want to contest our final determination, you have 90 days from the date this determination letter was
mailed to you to file a petition or complaint in one of the three federal courts listed below.

How to file your action for declaratory judgment
If you decide to contest this determination, you can file an action for declaratory judgment under the provisions
of Section 7428 of the Code in either:

* The United States Tax Court,
* The United States Court of Federal Claims, or
* The United States District Court for the District of Columbia

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this
determination letter to you. You can download a fillable petition or complaint form and get information about
filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one
of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee
with the petition or complaint.

You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available
on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to
do so. You may also file your petition at the address below:

United States Tax Court
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain
instructions about how to file your completed complaint electronically. You may also file your complaint at one of
the addresses below:

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20439
uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001
dcd.uscourts.gov

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an
organization described in IRC Section 501(c)(3).

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS or if you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Visit TaxpayerAdvocate.IRS.gov/contact-us or call 877-777-4778 (TTY/TDD 800-829-4059)
to find the location and phone number of your local advocate. Learn more about TAS and your rights under the
Taxpayer Bill of Rights at TaxpayerAdvocate.IRS.gov. Do not send your Tax Court petition to TAS. Use the
Tax Court address provided earlier in the letter. Contacting TAS does not extend the time to file a petition.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for
more comprehensive information.

Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you
have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E

You may fax your documents to the fax number shown above, using either a fax machine or online fax service.
Protect yourself when sending digital data by understanding the fax service's privacy and security policies.

Keep the original letter for your records.

Sincerely,

Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892
Form 886-A

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E

Form 886-A                Department of the Treasury - Internal Revenue Service     Schedule No. or
                                      Explanation of Items                          Exhibit
Name of Taxpayer                                                                  Year/Period Ended

Taxpayer ID number (last 4 digits):

Final Report of Revenue Agent under IRC Section 7611(g)

Issues:

Whether                         (          ) meets the requirements for exemption under
section 501(c)(3) of the Internal Revenue Code ("IRC").

Facts:

          was formed as a nonprofit corporation in the State of          on          ,          . On          ,          ,
          was formed in the State of          .                          was voluntarily
dissolved          ,          . On          ,          filed a Certificate of          "
                    or          On          ,          , a                          was filed for
                    and          .

Per the Articles of Incorporation filed with the State of          ,          is listed as the President of          . In
response to Information Document Request ("IDR") #1, for years ending          and          ,          listed
          ,          , and          as board members and          and          as
members of the Board          .

Per the Articles of Incorporation,          purpose is to "conduct the work of evangelism          , create
          necessary to support          , establish and oversee places of worship, and to          and
          of the          and to engage in activities which are necessary, suitable, or convenient for the
accomplishment of that purpose,          , or which are incidental thereto or connected therewith which are consistent with
Section 501(c)(3) of the Internal Revenue Code".

          Articles of Incorporation also include a clause stating that the corporation is organized exclusively for
charitable, religious, educational, and/or scientific purposes, and that no part of the net earnings of the corporation shall
inure to the benefit of, or be distributable to its members, trustees, officers, or other private purposes, except that the
corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make
distributions in furtherance of its charitable activities.

          has not filed a Form          requesting exempt status and no determination of exempt status letter has been
issued by the IRS.

There are          IRS Employer Identification Number ("          ") assigned to
          and          .                          was requested and assigned to                          .

In response to the IRS Church Tax Inquiry Question asking for the location of their established place of worship where
regularly scheduled religious services are held,          stated that its location is          ,          ,          .
This is the address of a          hotel. Per the pre-conference interview on          ,          ,          stated that they
have always been a "home church" and rented hotel space for certain activities such as          . In response to IDR #2
regarding          financial books and records,          stated that it was not a party to any lease agreements.

In response to the IRS Church Tax Inquiry Questions,          stated their organizational structure included church
employees and the employment of vendors. In response to IDR #2 requesting Form          data and a vendor list,
          stated a vendor list was not applicable as no vendors were hired and that Forms          and payroll records were
also not applicable as there were no employees.

Form 886-A (Rev. 4-68)             Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886-A                Department of the Treasury - Internal Revenue Service     Schedule No. or
                                      Explanation of Items                          Exhibit
Name of Taxpayer                                                                  Year/Period Ended

Taxpayer ID number (last 4 digits):

Final Report of Revenue Agent under IRC Section 7611(g)

          stated that          was unable to provide general ledger data or meeting minutes of the board for years
ended          ,          and          because a computer hard drive failure caused the loss of such documents.
          provided no other documentation to substantiate that the computer hard drive failure had taken place.

No samples of organizational publications showing          church activities and events have been provided.

          maintains a checking account in the name of          and          (founder and president of          ).
In IDR #2, the IRS requested a copy of all monthly bank statements from          through          . In
their response,          only provided the statements for          through          . The address on the
account is the personal residence of          . Bank statements list transactions that appear to be for personal
purposes as outlined in Exhibit A of this Revenue Agent Report.

In IDR #3, the IRS requested a description of several transactions from          bank statements which appeared to
be personal in nature. In response,          stated that all of the transactions in question were made to further
          exempt purpose and she provided a narrative description of each transaction. However, she did not provide
any substantiation to support her position that the expenditures were made in support of          exempt purpose.
The questionable transactions include rental payments made to          for roughly $          ,          monthly.
          response to IDR #3 indicated that these transactions were rental payments for the church's primary location at
          . Based on IRS records and          .com,          is the address for
          residence. During the examination,          did not provide any documentation to substantiate          claim
that religious services were held at                          or any other location.

Other transactions included in the questionable transaction list were payments to clothing retailers, restaurants, grocery
stores, a nail salon, and          . According to its website,          operates vacation resorts
throughout the          . In          response to IDR #3,          indicated that the payments to
          were "mortgage payments to          which allowed the church to rent rooms with kitchen facilities to prepare
meals, as many restaurants were closed or had very reduced hours due to covid."          did not provide any
additional documentation to substantiate her claim that the funds were used for her claimed purpose.

In IDR #4, the IRS requested documentation to substantiate          position that the questionable transactions were
made for exempt purposes. The IRS also requested the bank statements that          did not provide in response to
IDR #2 (          through          ) as well as a copy of          membership book and church bulletins.
          later left a voicemail for Revenue Agent          indicating that she would not be responding to IDR
#4 nor any subsequent requests for information.          also indicated that she had dissolved          . The IRS
agent reviewed the State of          business search website and found that          filed Articles of Dissolution on
          ,          . No documentation has been provided to show how          final assets were distributed.

In IDR #5, sent from IRS to          ,          , the IRS attached a copy of the Articles of Dissolution and a
          .com screenshot showing that          address is                          - the same address where
she indicated, in response to IDR #3, that church services took place. The IRS requested a response to IDR #5 if any
of the information provided is incorrect or if taxpayer had any other comments.          did not respond to IDR #5.

Form 886-A (Rev. 4-68)             Department of the Treasury - Internal Revenue Service
Page: -2-

Form 886-A                Department of the Treasury - Internal Revenue Service     Schedule No. or
                                      Explanation of Items                          Exhibit
Name of Taxpayer                                                                  Year/Period Ended

Taxpayer ID number (last 4 digits):

Final Report of Revenue Agent under IRC Section 7611(g)

Applicable Law

IRC Section 501(c)(3) provides tax exemption for corporations and foundations that are operated exclusively for
religious, charitable, scientific, testing for public safety, literary, or educational purposes, no part of the net earnings of
which inures to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that in order to be exempt as an organization described in IRC
Section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes
specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not
exempt.

Treasury Regulation Section 1.501(c)(3)-1(c)(1) states 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). An organization will not be so regarded if more than an insubstantial part of its
activities is not in furtherance of an exempt purpose.

Treasury Regulation Section 1.501(c)(3)-1(c)(2) states 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.

Treasury Regulation Section 1.501(c)(3)-1(d)(1)(ii) states that an organization is not organized or operated exclusively for
one or more of the purposes specified in IRC Section 501(c)(3) unless it serves a public rather than a private interest.
Thus, to meet the requirement of this subdivision, it is necessary for an organization to establish that it is not organized
or operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders of
the organization, or persons controlled, directly or indirectly, by such private interests.

For an entity to qualify as a church under IRC section 501(c)(3), the IRS applies the minimum operational requirements
described in American Guidance Foundation, Inc. v. U.S., 490 F. Supp. 304 (D.D.C. 1980). The IRS uses a combination
of these characteristics, together with facts and circumstances, to determine whether an organization is considered a
church for federal tax purposes. These characteristics include:

* Distinct legal existence
* Recognized creed and form of worship
* Definite and distinct ecclesiastical government
* Formal code of doctrine and discipline
* Distinct religious history
* Membership not associated with any other church or denomination
* Organization of ordained ministers
* Ordained ministers selected after completing prescribed courses of study
* Literature of its own
* Established places of worship
* Regular congregations
* Regular religious services
* Sunday schools for the religious instruction of the young
* Schools for the preparation of its members

Form 886-A (Rev. 4-68)             Department of the Treasury - Internal Revenue Service
Page: -3-

Form 886-A                Department of the Treasury - Internal Revenue Service     Schedule No. or
                                      Explanation of Items                          Exhibit
Name of Taxpayer                                                                  Year/Period Ended

Taxpayer ID number (last 4 digits):

Final Report of Revenue Agent under IRC Section 7611(g)

In cases where a church demonstrates that the organization is not organized and operated exclusively for religious
purposes because of private benefit or inurement of net earnings, courts have held that the organization was not
organized and operated exclusively for religious purposes, regardless of whether or not it is engaged in any significant
religious activities. See Unitary Mission Church of Long Island v. Commissioner, 84 T.C. 36 (6.30.80), The Southern
church of Universal Brotherhood Assembled, Inc. v. Commissioner, 74 T.C. 89 (9.10.80), Basic Bible Church v.
Commissioner, 74 T.C. 72 (7-28-80), People of God Community v. Commissioner, 75 T.C. * (10.14.80).

Additionally, there are numerous court memorandum decisions where IRC section 170 deductions were disallowed on
same basis - that the church was not organized and operated exclusively for religious purposes because of inurement or
private benefit. See Manson v. Commissioner, T.C.M. 1980-315, Abney v. Commissioner, T.C.M. 1980-27, Pusch v.
Commissioner, T.C.M. 1980-4.

Government's Position

The organization has failed to meet the operational test described in Treasury Regulation Section 1.501(c)(3)-1(c)(1),
above.

The founder and officer,          , has complete control over          bank account. In response to IDR #2 in
which we requested all bank statements for calendar years          and          ,          only provided          monthly bank
statements for          (          through          ). On these statements, there were several transactions that appear to be
personal in nature. A list of these questionable transactions is attached on Exhibit A. These transactions include
payments to          for rent,          , restaurants, grocery stores, and clothing retailers.

In IDR #3, we asked          to describe the purpose of the transactions listed on Exhibit 1 and provide documentation
to demonstrate that these expenditures were made for a business, not personal, purposes. In her response to IDR #3,
          indicated that all of the expenditures were made for an exempt purpose. For instance, she indicated that
the payments to          were rental payments for the church's use of space at          . According
to our records and a public internet search on          .com, this is the address of          personal residence.
          did not provide any additional documentation to substantiate her position that the expenditures were
made for a business purpose.

As stated in Treasury Regulation Section 1.501(c)(3)-1(c)(1), "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). An organization will not be so regarded if more than an insubstantial part of its
activities is not in furtherance of an exempt purpose." For the          months of bank statements provided, there is no
evidence to support the taxpayer's assertion that the expenditures made were exempt purpose expenditures and not for
personal purposes. The IRS requested documentation to support her claims in IDR #4 and          left the IRS
Agent a voicemail indicating that she would not be responding to IDR #4 nor any subsequent IRS requests for
information.

There is evidence that          is being operated for private rather than public interests due to the control of
          assets being under the exclusive control of the President,          , and evidence of personal expenditures from
          assets that personally benefit          . Due to the inurement,          cannot demonstrate that it is
organized and operated exclusively for religious purposes, regardless of whether it engaged in religious activities.
          appears to be a vehicle for          to pay her personal expenses.

Form 886-A (Rev. 4-68)             Department of the Treasury - Internal Revenue Service
Page: -4-

Form 886-A                Department of the Treasury - Internal Revenue Service     Schedule No. or
                                      Explanation of Items                          Exhibit
Name of Taxpayer                                                                  Year/Period Ended

Taxpayer ID number (last 4 digits):

Final Report of Revenue Agent under IRC Section 7611(g)

          also does not meet the criteria to be considered a church for federal tax purposes based on its characteristics
and the relevant facts and circumstances.          does have a separate legal existence and a recognized creed and form
of worship. However, there is no evidence of an active governing board nor has the church provided evidence of rules
governing their leaders and clergy nor how they are communicated. There is no evidence there is any other clergy
associated with          other than          and no evidence of a seminary or school specific to developing the
organization's religious leaders. There is historic evidence that          operated under the          name of
                              thereby making it difficult to determine          has a distinct religious history unique to itself
only.

There has been no evidence provided that          has a membership base that is exclusive to          . No literature has
been provided to evidence          has its own distinct body of literature such as books, manuals, speeches, and/or
procedures for religious rites and services.          provided an address of its physical location as a          but
there is no corresponding evidence that          held religious services in that location or any other location during the
examination years.          has also stated that services have also been held in the home of          .          did
not provide any evidence that regular religious services were held nor did it provide any evidence that it had members
(regular congregation).

Based on the above analysis of the facts and circumstances,          does not qualify for exemption under IRC Section
501(c)(3).

Conclusion

          does not qualify for exemption under IRC section 501(c)(3) for the reasons stated above. Consequently, we are
proposing revocation of          tax exemption for tax years ended          ,          and          .

Form 886-A (Rev. 4-68)             Department of the Treasury - Internal Revenue Service
Page: -5-