Church lost exemption after ceasing religious activities and operating rental properties

View official IRS release (PDF)

Plain-English summary

A recognized church filed annual information returns reporting contributions, rental income, mortgaged properties, and outside-service expenses. During a church tax inquiry and examination, it did not demonstrate ongoing worship services, religious instruction, a regular congregation, ordained ministers, an ecclesiastical government, or other qualifying church activity. The examination found that the organization had conducted no church activities for several years, operated rental properties, and was winding up and dissolving. It also received donations from related religious organizations rather than parishioners. The IRS concluded that the organization failed the operational test for IRC § 501(c)(3) exemption. It further found that the organization failed both the IRS’s fourteen-factor church analysis and the associational test because it lacked a body of believers assembling regularly for worship. The IRS revoked exemption effective on a redacted date and determined that the organization no longer qualified as a church under IRC §§ 509(a)(1) and 170(b)(1)(A)(i).

Ruling snapshot

• Question: Did the inactive organization continue to operate for exempt purposes and qualify as a church?
• Outcome: Revocation
• Key authorities: IRC §§ 170(b)(1)(A)(i), 501(a), 501(c)(3), 508, 509(a)(1), 7611(g); Treas. Reg. § 1.501(c)(3)-1; Foundation of Human Understanding v. United States, 614 F.3d 1383 (Fed. Cir. 2010)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
Exempt Organizations Examinations

[redacted]

[redacted]

Date:
January 10, 2025

Taxpayer ID number (last 4 digits):
[redacted]

Form:
[redacted]

Tax periods ended:
[redacted]

Person to contact:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]

Release Number: 202514006
Release Date: 4/4/2025
UIL Code: 501.03-00

Last day to file petition with United States
Tax Court:
April 10, 2025

CERTIFIED MAIL - Return Receipt Requested

Dear [redacted]:

Why we are sending you this letter
This is a final determination that you don’t qualify for exemption from federal income tax under Internal

Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective
[redacted]. Your determination letter dated [redacted] is revoked.

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). You have failed to produce records and information which
demonstrate that you meet the requirements of IRC Section 501(c)(3). 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

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.

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

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.

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.

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

Keep the original letter for your records.

Sincerely,

Digitally signed by
Lynn A. Lynn A. Brinkley
F Date: 2025.01.08
B AIA kley 08:24:03 -05'00'
Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures: Tax Exempt and Government Entities Division

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 number or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digifs) Year/Period ended
ISSUES:

1. Whether (‘the Church’) failed to conduct qualifying

activities to meet the operational test.

2. Whether the effective date of revocation of the Church exempt status is

3. Whether qualifies as a church under Internal
   Revenue Code (“I.R.C.”) § 509(a)(1) and § 170(b)(1)(A)(i).
   FACTS:
   Incorporation
   On , the Church filed its articles of incorporation with the Office
   of the Secretary of State and is currently registered as an , Domestic, Non-profit
   (DNP). is listed on the Office of the Secretary of State website

as the Church’s registered agent. IRS records indicate that the Church's address is
. The Church does file annual information returns with the
Internal Revenue Service (“IRS”).

On , the Church filed Form 1023, Application for Recognition of
Exemption with the IRS.

The Church reported the following on the Form 1023 (in italics):
Part , , states that its activities will consist of the following:

Part , , states that the sources of financial support will by:

On Scheduled A of Form 1023, the Church responded to the given questions (in

Catalog Number 20810W Page 1 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

italics) in the following manner:

1. Provide a brief history of the development of the organization, including the
   reasons for its formation.

2. Does the organization have a written creed or statement of faith? If “Yes,”
   attach a copy.
   The Church checked “Yes” and there is a statement of faith attached.

3. Explain how the organization will attract members.

4. (a) How many active members are currently enrolled in the church?

5. (b) What is the average attendance at the worship services?

6. In addition to worship services, what other religious services (such as
   baptisms, weddings, funerals, etc.) does the organization conduct?

7. Describe the organization's religious hierarchy or ecclesiastical government.

8. Does the organization have an established place of worship?

If the organization has no regular place of worship, state where the services

Catalog Number 20810W Page 2 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

are held and how the site is selected.

16. Show how many hours a week the minister/pastor and officers each devote to
    church work and the amount of compensation paid to each of them. If the
    minister or pastor is otherwise employed, the nature of the employment, and
    the hours devoted to that employment.

17. Will any funds or property of the organization be used by any officer, director,
    employee, minister, or pastor for his or her personal needs or convenience?

18. List any officers, directors, or trustees related by blood or marriage.

The Church originally operated under the bylaws and principles of
, and , all of which had similar board membership at
the time. The IRS administrative file did not contain current bylaws for the Church.

The Church does not regularly maintain a website and produces no known paper
correspondence regarding its services or religious activities.

On , the IRS issued Determination Letter 947 granting exemption
from federal income tax under section 501(a) of the Code as an organization
described under section 501(c)(3). The letter also indicates that the Church is not a
private foundation within the meaning of section 509(a) of the Code because it is an
organization described under sections 509(a)(1) and 170(b)(1)(A)(i).

On the Church’s Form 990, Return of Organization Exempt From Income Tax, for the
calendar year , it indicated that it earned income from rental activities and made
payments on a mortgage.

The Church indicated on its information return that it received gross rents from
unidentified rental activities in the amount of $ from real property and $
from personal property. According to the information return, the Church reported

Catalog Number 20810W Page 3 www.irs.gov Form 886-A, (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

secured mortgages and notes payable to unrelated third parties in the amount of

$ . The Church also reported expenses of $ for outside services, but it
did not pay any wage compensation. The Church did not provide any further details
regarding the outstanding debt or outside services.

Section 7611 Examination

On , the Commissioner, Tax Exempt and Government Entities
Division (“TE/GE Commissioner’) personally approved the issuance of a Notice of
Church Tax Inquiry (“NCTI”).

On , the IRS issued the NCTI and enclosed church inquiry
questions to the Church.

On , the IRS received a response by from the Church to the
NCTI.

On ,_ the IRS received the same response to the NCTI by regular
mail.

Below is an excerpt from the NCTI with answers (in italics).

2. Are there any related organizations? If yes, please provide the full names of these
   organizations and the Employer Identification Numbers (EIN).

3. Identify and describe the sources of the Church’s gross receipts.

4. Describe in detail any expenses of the Church not related directly to religious
   instruction or activities.

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

Department of the Treasury — internal Revenue Service Schedule alle teas
Form 886-A s exhibit

(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

7. Does the Church have a regular congregation? If so, how many individuals are
   members of the congregation?

8. Does the Church have a regular schedule of religious services? If so, provide the
   following information:

a. Schedule of services offered:
b. Location where services are held.
and

c. The average attendance at such services.

9. Does the Church offer religious instruction or activities for adults or youth? If so,
   provide the following information:

a. Describe the religious instruction or activities offered;
b. Location where religious instruction or activities are provided;
c. and

d. The average attendance at such religious instruction or activities.

10. Does the Church have any workers or employees? If so, provide the following
    information for each worker or employee:

a. Title and description of duties;
b. Numbers of hours worked each week;
c. Annualized salaries if non-volunteers; and

d. Description and amount of benefits, if applicable.

Catalog Number 20810W Page 5 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

. exhibit
(May 2017) Explanations of Items

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

11. Are all Church assets and properties, including real estate, registered, or titled in the
    name of the Church? Does the Church jointly own any assets and properties,
    including real estate, with an individual or for-profit entity?

12. With respect to any assets and/or properties, including real estate, owned by the
    Church, provide the following information:

a. Address;
b. Date of purchase; and

c. The purpose or use of each asset and/or property.

13. Does the Church own any rental assets or properties, including real estate? If so,
    provide the following information with respect to each such asset or property:

a. Address of the asset or property;

b. Whether the asset or property is subject to a mortgage and/or whether you
incurred any debt in acquiring and/or improving the property; if so, explain the
loan terms and amounts; and

Catalog Nurnber 20810W Page 6 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

Schedule number or

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

c. Whether the property is rented as a residence or for commercial purposes.

The Church’s responses to the NCTI did not resolve the IRS concerns about the
Church's exempt status and tax liability.

Church Activities

On , the Church requested a conference to meet with an IRS official to
discuss the concerns which gave rise to the inquiry and the general subject matter of
the inquiry.

On , a conference was held with the Church’s representatives. The
purpose of the conference was to provide the Church's another opportunity to discuss
and resolve the IRS’s concerns that gave rise to the inquiry without the need for an
examination. The IRS reminded the Church at the meeting, in general terms, of the
stages of the church examination procedures and its rights under such procedures.

On , the , Tax Exempt and Government
Entities Division, decided to proceed with an examination.

On , the TE/GE Commissioner personally approved the issuance of a
Notice of Church Examination (“NCTE”).

On , the IRS issued a Notice of Church Tax Examination ("NCTE").
On ,_ the IRS issued Information Document Request (“IDR”)

On , the Church representatives requested an extension of time to
respond to the IDRs issued by the IRS on

On , the IRS issued a — extension letter (Letter 5798 TEGE IDR

Extension Notice, Rev. 10-2016) and granted the Church (_) business days to
provide the information requested on IDRs .

Catalog Number 20810W Page 7 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

Schedule number or

Form 886-A Department of the Treasury — Internal Revenue Service exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
On , the IRS received responses to IDRs . Below

is an excerpt from IDR # with answers (in italics).

1. Provide a brief, written history of the organization and its current activities.

2. Please provide the specific activities that supported a definition as being a church at
   any time during the organization existence.

3. In your Statement of Program Service Accomplishments, in Part of your
   Form 990, you describe the organization’s mission.” For tax year

ae ”

i. Please explain how this fits into your tax-exempt purpose.

ii. What activities specifically conducted in 2020 are religious
broadcasting and how do they fit the exempt purpose.

Catalog Number 20810W Page 8 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

Schedule number or

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

4. Identify all physical locations/addresses at which your organization was conducting
   its business operations during tax year . Explain what activities were taking
   place at each identified location.

5. We would like to conduct an on-site tour of your operations located at
   , and any other, nearby sites.

6. How many members/parishioners did you have during tax year and in what
   categories? Provide a copy of the membership/parishioners list.

Revenue

The Church reported total gross receipts of $ from contributions and rental
income (real and personal).

On Form 990, Return of Organization Exempt From Income Tax, as filed with the IRS

for the calendar year ending (under exam), the Church reported on:

• Part VIII, Statement of Revenue, , Related organizations $
  ¢ Part VIII, Statement of Revenue, , Gross rents:
  « (i) Real $

• (il) Personal $

Catalog Number 20810W Page 9 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
On , as a response to IDR # , the Church provided financial records

(general ledger, trial balance, chart of accounts, and other documents) in pdf format.

Per the Trial Balance, received as EXHIBIT —, page, it appears that the Church
received contributions in the amount of $ . Per the General Ledger the Church
received contributions from . As indicated
by the Church in response to the NCTI, question , both entities are related.

Also, per Form 990, Return of Organization Exempt from Income Tax, as filed with the

IRS by the Church for the calendar year ending ,on Schedule,
Part , Line , the Church reported on:
(a) (b) (c)
No. Name, Address, and Zip +4 Total Contributions
1 ]
5 eer

On Form 990, Return of Organization Exempt from Income Tax, as filed with the IRS by

the Church for the calendar year ending ,on Schedule , Part ,
Identification of Related Tax-Exempt Organizations, the Church reported on Line:
(a) (b) (d) (e)
Name, address, and EIN of | Primary activity Exempt Code Public
related organization section charity
status (if
section 501
(c)(3)
Catalog Number 20810W Page 10 www.irs.gov Form 886-A (Rev. 5-2017)

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
On , the IRS received correspondence related to the Church via
. Also, attached to this correspondence was a copy of letter 5307 and a copy of
NCTI as mailed by the IRS on to the Church.
On , the IRS received the same correspondence by regular mail.

For a copy of this correspondence, see Exhibit A attached to this report.

On Form 990, Return of Organization Exempt from Income Tax, as filed with the IRS by
the Church for the calendar year ending ,on Part Vil, Section A.
Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees,
Line 1a (4) is listed as Treasurer (Officer), and on Line 1a (7)

is listed as Secretary (Officer).

B. Rental Income

In determining the amount of rental income received during the year under examination
( ), as reported with the IRS, the Church provided copies of lease agreements
for properties own in the name of the Church. For copies of these lease agreements,
see attached to this report.

On the information return, as filed with the IRS for year under examination ( ),
the Church reported secured mortgages and notes payable to unrelated third parties in
the amount of $

As a response to the NCTI, question , Does the Church own any rental assets or
properties, including real estate? the Church answered that (in italics):

On , as a response to IDR # , the Church provided copies of the Master
Statement, dated , and other written documents relating to the

purchase of

The Church provided a copy of a Promissory Note dated, between
the Church, and , Inc, a non-for-profit corporation.

_ is listed as a related entity on Schedule L, Part II, of Form 990 as
filed by the Church with the IRS for the year under examination ( ).

Catalog Number 20810W Page 11 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

886-A Department of the Treasury — Internal Revenue Service Schedule aC
Form = . exhibit

(May 2017) Explanations of Items

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

Per the Promissory Note, the Church “

For the year under examination ( ), Property , was leased by , the
President of the Church starting for ($ ) per
month, payable in advance on the — day of each month. This lease agreement was
executed and entered on and signed by , as CFO in

the name of the Church (the lessor). Per the General Ledger, there were payments
recorded as received from

All transactions related to Property were recorded on the books and records of the
Church as reported on the information return as filed with the IRS.

As a response to the NCTI, question 13 (c), Does the Church own any rental assets or
properties, including real estate? the Church answered that (in italics):

For the year under examination, Property , was rented to ., of
. Per the lease agreement, the Church leases approximately square
feet of studio and storage space, located at , . Further, per

the lease agreement, section

" According to the General

Ledger, for the year under examination ( ), it appears that the Church received
($ ) each month from

' Note: Discrepancy noted between the response received from the Church to the NCTI and the
lease agreement. During the pre-conference it was explained that there is a typographical error.

Catalog Number 20810W Page 12 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

As a response to the NCTI, question 13 (c), Does the Church own any rental assets or
properties, including real estate? the Church answered that (in italics):

For the year under examination, Property , was rented to an individual for $ per
month. According to the General Ledger, the Church received rental payments for

Property

A reconciliation was performed to ensure all transactions reported on the information
return as filed by the Church with the IRS have been recorded in the books. No
discrepancies noted between information return filed with the IRS by the Church for
year ended and financial records provided as a response to IDR# .

The Church did not file a Form 990-T, Exempt Organization Business Income Tax
Return with the IRS for the calendar year , to report unrelated business income.

Expenses

On the information return as filed with the IRS, for the year under examination, the
Church also reported expenses of $ for outside services, but it did not pay any
wage compensation. The Church did not provide any further details regarding the
outstanding debt or outside services. Accordingly, a reasonable belief exists that the
Church may be improperly reporting its business activities during the year.

“

As a response to the NCTI, question
"the Church answered that (in italics):

Based on the IRS’s records, for the year under examination ( ), the Church filed

forms 1099-MISC. Beginning with Tax Year , Form 1099-NEC, Nonemployee
Compensation, must be used to report payments of nonemployee compensation (NEC)
previously reported in box on Form 1099-MISC. It is evident that the Church used the
incorrect form to report the expenses for outside services. Per the Trial Balance, the
Church reported Outside Services in amount of $ . All individuals reported on
the forms 1099-MISC are listed on the books and records. Other expenses related to
the maintenance of properties were recorded on the books and records.

LAW:

Catalog Number 20810W Page 13 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

Section 501(c)(3) of the Code provides for the exemption from federal income tax of
organizations organized and operated exclusively for charitable, religious, scientific, or
educational purposes provided no part of their net earnings inures to the benefit of any
private shareholder or individual.

Section 501 (a) of the Code allows an exemption from federal income taxes for
organizations described in section 501(c)(3). Section 501(c)(3) exempts from income
taxes corporations 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 . .. 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.

In general, organizations are not treated as exempt under section 501(c)(3) unless they
notify the Commissioner that they are applying for recognition of exempt status. I.R.C. §
508(a)(1). However, organizations which are “churches, their integrated auxiliaries, and
conventions or associations of churches” are excepted from the rule that organizations
are not treated as exempt under section 501(c)(3), although they may voluntarily notify
the Commissioner that they are applying for recognition of exempt status. I.R.C.§
508(c)(1)(A).

In making the determination of whether a religious entity is a church, the Service
developed a “fourteen-point test.” The “test” is a list of factors for use in determining
whether an entity qualifies as a church under section 170(b)(1)(A)(i). No one factor is
determinative, nor is there a minimum number of factors required to be a church. The
factors are (a) a distinct legal existence, (b) a recognized creed and form of worship,(c)
definite and distinct ecclesiastical government, (d) a formal code of doctrine and
discipline, (e) a distinct religious history, (f) a membership not associated with any other
church or denomination, (g) an organization of ordained ministers, (h) ordained
ministers selected after completing prescribed studies, (i) a literature of its own, (j)
established places of worship, (k) regular congregations, (I) regular religious services,
(m) Sunday schools for religious instruction of the young, and (n) schools for the
preparation of its ministers. Further, the IRS will look at any other facts and
circumstances that may bear upon the organization's claim for church status. It is
important to note that the IRS has not published the 14 factors in official guidance. The
IRS has argued the fourteen points in various court cases and courts have
acknowledged the IRS’ use of the fourteen points:

Faced with the difficult task of determining whether or not religious
organizations are in fact churches, the IRS has developed fourteen
criteria which it applies on an ad hoc basis to individual organizations.
American Guidance Foundation, Inc. v. United States, 490 F. Supp. 304

Catalog Number 20810W Page 14 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

(D.C. Dist. Ct. 1980).

Courts have found that the most important factor in the church status analysis is the
presence of a congregation, “[a]t a minimum, a church includes a body of believers or
communicants that assembles regularly in order to worship." Id. at 306. 7The seminal
case establishing the congregation requirement is Chapman v. Commissioner, 48 T.C.
358 (1967). In that case, the Tax Court was required to determine whether a donee was
a church for purposes of determining whether the Chapman’s contribution was
deductible under section 170. Three Tax Court judges agreed that an organization was
not a church within the meaning of IRC 170(b)(1)(A)(i) but could not agree why. In a
concurring opinion, Judge Tannenwald said a congregation is an essential part of being
church:

“The permissible purpose may be accomplished individually and
privately in the sense that oral manifestation is not necessary, but it may
not be accomplished in physical solitude. A man may, of course, pray
alone, but, in such case, though his house may be a castle, it is not a
church.

Similarly, an organization engaged in an evangelical activity exclusively
through the mails would not be a church." Chapman v. Commissioner,
supra at 367.

The D.C. District emphasized Tannenwald’s concurrence when deciding that a
congregation was, at a minimum, a requirement for church status. American Guidance
Foundation, Inc. 490 F. Supp. at 306.

In a more recent case, the Court of Federal Claims, and subsequently the Federal Circuit
Court, was faced with the question of whether an entity qualified as a church if its
“services” were predominantly carried on through internet and radio. The Court of
Federal Claims found that:

The weight of persuasive authority, further discussed below, holds that
radio and internet broadcasts lack critical associational aspects
characteristic of religious services and are therefore instead properly
regarded simply as broadcasting and publishing services insufficient to

7 In Foundation of Human Understanding, the Federal Circuit agreed with the Court of Claims
in declining to adopt the 14 criteria as definitive. It stated, “the associational test is an
appropriate test for determining church status under section 170, although we recognize
that the associational test and the'14 criteria test’ substantially overlap; as courts have
pointed out, among the most important of the 14 criteria are the requirements of ‘regular
congregations’ and ‘regular religious services.”" 614 F.3d 1383, 1389 (Fed. Cir.2010).

Catalog Number 20810W Page 15 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

qualify a religious organization for church status. See, e.g, Chapman, 48
T.C. at 367 (Tannenwald, J., concurring) (“The permissible purpose may
be accomplished individually and privately in the sense that oral
manifestation is not necessary, but it may not be accomplished in
physical solitude.”); see infra Part IV.B.2 (analyzing the application of the
associational test to plaintiff, and discussing the various cases in which
plaintiffs whose primary activities are broadcasting and publishing have
not gained church status).

Foundation of Human Understanding v. United States, 88 Fed. Cl. 203 (2009),
aff’d Foundation of Human Understanding v. United States, 614 F.3d 1383
(Fed. Cir. 2010).

Here, the information return does not indicate that the Church has a body of believers
or communicants that assembles regularly in order to worship. The Church's
information return states that “the lives of millions of people have been touched by the
broadcast of the gospel message. People have been saved, healed, and ministered to
in countless ways through this television network.” Additionally, apart from rental
income, the Church receives donations solely from other religious groups and
organizations with similar primary activities. No donations are received from
parishioners. The information return also fails to indicate the presence of some of the
14 factors, including, but not limited to, definite and distinct ecclesiastical government,
a membership not associated with any other denomination, or an organization of
ordained ministers.

Exemption

Catalog Number 20810W Page 16 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

Section 501(a) provides that an organization described in subsection (c) or (d) shall be
exempt from taxation under this subtitle unless such exemption is denied under section
502 or 503.

Section 501(c)(3) generally includes corporations organized and operated exclusively
for purposes that include religious, educational, or charitable purposes, and which no
part of the net earnings inures to the benefit of any private shareholder or individual.

Treas. Reg. § 1.501(c)(3)-1(a)(1) states that in order to be exempt as an organization
described in 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.

Treas. Reg. § 1.501(c)(3)-1(b)(2) states that the term articles of organization or articles
includes the trust instrument, the corporate charter, the articles of association, or any
other written instrument by which an organization is created.

Treas. Reg. § 1.501(c)(3)-1(b)(4) states that an organization is not organized
exclusively for one or more exempt purposes unless its assets are dedicated to an
exempt purpose. An organization's assets will be considered dedicated to an exempt
purpose, for example, if, upon dissolution, such assets would, by reason of a provision
in the organization's articles or by operation of law, be distributed for one or more
exempt purposes, or to the Federal Government, or to a State or local government, for
a public purpose, or would be distributed by a court to another organization to be used
in such manner as in the judgment of the court will best accomplish the general
purposes for which the dissolved organization was organized. However, an
organization does not meet the organizational test if its articles or the law of the State
in which it was created provide that its assets would, upon dissolution, be distributed to
its members or shareholders.

GOVERNMENT’S POSITION:
l. ISSUE 1: OPERATIONAL TEST

Section 501(c)(3) requires an organization to be both “organized” and “operated”
exclusively for one or more Section 501(c)(3) purposes. If the organization fails either
the organizational test or the operational test, it isn't exempt. See Treas. Reg. §
1.501(c)(3)-1(a)(1).

Treas. Reg. § 1.501(c)(3)-1(a)(1) states that in order to be exempt as an organization
described in section 501(c)(3), an organization must be both organized and operated

Catalog Number 20810W Page 17 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

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.

An organization that doesn't qualify as a church may still qualify for Section 501(c)(3)
status and public charity status as a religious organization, depending on the
circumstances.

It is evident that the Church doesn't conduct any qualifying activities, and therefore
doesn't meet the operational test in Tres. Reg. § 1.501(c)(3)-1(a)(1).

il. ISSUE 2: DATE OF REVOCATION

As described above, the Church doesn’t conduct any qualifying activities but failed to
communicate that change to IRS. A revocation of tax-exempt status on the grounds
that the organization doesn’t conduct qualifying activities appears appropriate and the
revocation of exempt status is effective ;

I]. ISSUE 3: CHURCH QUALIFICATION

In the absence of Congressional guidance, courts have applied the IRS' Fourteen
Criteria and the Associational Test to determine whether a taxpayer qualifies as a
"church" for purposes of section 170(b)(1)(A)(i). See Foundation of Human
Understanding. 88 Fed.Cl. at 218. As described below, fails to meet both standards.

A. The IRS's Fourteen Criteria

Catalog Number 20810W Page 18 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

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

Courts have used the IRS' 14 criteria to help ascertain whether an organization qualifies
as a church under section 170(b)(1)(A)(i).

Based on IDR responses, the IRS considers the following:

1. A distinct legal existence:
   Registered as an , Domestic, Non-profit (DNP).
2. Arecognized creed and form of worship:

The Church indicated on its Form 1023 application, Schedule A, that it has a written
creed or statement of faith.

lt was discovered that the Church didn't conduct any qualifying activities during the
year under examination ( ), except rental of properties. Also, the Church's
representatives indicated that the Church is in the process of winding up its
operations and dissolving.

3. A definite and distinct ecclesiastical government:

No definite and distinct ecclesiastical government. It was discovered that the
Church didn’t conduct any qualifying activities during the year under examination

( ), except rental of properties. Also, the Church’s representatives indicated
that the Church is in the process of winding up its operations and dissolving.

4. A formal code of doctrine and discipline:

The Church indicated on its Form 1023 application, Schedule A, that they do not have
a formal code of doctrine and discipline. It was discovered that the Church didn't
conduct any qualifying activities during the year under examination ( ), except
rental of properties. Also, the Church's representatives indicated that the Church is
in the process of winding up its operations and dissolving.

5. A distinct religious history:
   As a request for information, on , the Church indicated that “

" It was discovered that the Church didn’t conduct any qualifying
activities during the year under examination ( ), except rental of properties.
Also, the Church's representatives indicated that the Church is in the process of
winding up its operations and dissolving.

6. Amembership not associated with any church or denomination:
   As a request for information, On , the Church indicated that “

Catalog Number 20810W Page 19 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

Form 886-A Department of the Treasury — Internal Revenue Service schedule a Tle ls
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

It was discovered that the Church didn’t conduct any qualifying activities during the
year under examination ( ), except rental of properties. Also, the Church’s
representatives indicated that the Church is in the process of winding up its
operations and dissolving.

7. An organization of ordained ministers:
   None during , the year under examination. The Church is in the process of
   dissolving.

8. Ordained ministers selected after completing prescribed studies:

As a request for information, on , the Church indicated that “

"It was discovered that the Church didn’t conduct any qualifying activities
during the year under examination ( ), except rental of properties. Also, the
Church's representatives indicated that the Church is in the process of winding up
its operations and dissolving.

9. A literature of its own:

As a request for information, on , the Church indicated that there is no
literature of its own. No literature of its own for . The Church is in the
process of dissolving.

10. Established places of worship:
    On the Form 1023 the Church indicated that “

It was discovered that the Church didn’t conduct any qualifying activities during the
year under examination ( ), except rental of properties. Also, the Church’s
representatives indicated that the Church is in the process of winding up its
operations and dissolving.

11.Regular congregation:

On Form 1023, the Church answered question 8(a) and 8(b), as N/A. During the
year under examination ( ), the Church revealed that there are no
members “ " and is in the process of dissolving.

12. Regular religious services:
    It was discovered that the Church didn’t conduct any qualifying activities during the

year under examination ( ), except rental of properties. During the
examination, it was discovered that the Church had no church activities for several
years.

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

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

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

13. Schools for the religious instructions of the young:
    As a request for information, on , the Church indicated that “

un

During the examination, it was discovered that the Church had no church activities
for several years.

14. Schools for the preparation of its ministers:

No schools for the preparation of its ministers reported on Form 1023 filed by the
Church. During the examination it was discovered that the Church had no exempt
activities for several years.

In weighing the 14 criteria discussed above, the Church would not qualify as a church
within the meaning of sections 509(a)(1) and 170(b)(1)(A)(i).

B. Associational Test

To qualify as a church, “an organization must serve an associational role in
accomplishing its religious purpose.” Church of Eternal Life and Liberty. Inc. v.
Commissioner, 86 T.C. 916, 924 (1986). The associational test is a "threshold"
standard which religious organizations must satisfy in order to obtain church status.
In creating the associational standard, the United States District Court for the District
of Columbia stated that demonstrating associational aspects is the "minimum"
requirement necessary for a religious organization to gain church status. American

Guidance Foundation. Inc. v. United States, 490 F. Supp. 304, 306 (D.D.C. 1980).

Courts have also followed American Guidance in finding that a “church" may be
distinguished from other religious organizations by fulfillment of an "associational
role:" The means by which an avowedly religious purpose is accomplished separates
a "church" from other forms of religious enterprise. At a minimum, a church includes
a body of believers or communicants that assembles regularly in order to worship.
Unless the organization is reasonably available to the public in its conduct of worship,
its educational instruction, and its promulgation of doctrine, it cannot fulfill this
associational role.

it is evident that the Church doesn’t conduct any qualifying activities and is in the
process of winding up its operations and dissolving.

TAXPAYER’S POSITION:
Unknown currently.

In accordance with the Power of Attorney currently on file with the Internal Revenue
Service, we are sending a copy of this letter to your authorized representatives.

Catalog Number 20810W Page 21 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)

Schedule number or

Form 886-A Department of the Treasury - Internal Revenue Service exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
CONCLUSION:

It is evident that the Church doesn't conduct any qualifying activities, and therefore
doesn't meet the operational test in § 1.501(c)(3)-1(a)(1).

As a result, the effective date of revocation of exempt status is

In addition, the Church failed to qualify as a church within the meaning of I.R.C. §
509(a)(1) and 170(b)(1)(A)(i).

Catalog Number 20810W Page 22 www.irs.gov Form 886-A (Rev. 5-2017)
Final Report of Revenue Agent under IRC Section 7611(g)