Bubbling Well Church of Universal Love, Inc. v. Comm'r of Internal Revenue
| Decision Date | 09 June 1980 |
| Docket Number | Docket No. 5717-79X. |
| Citation | 74 T.C. 531 |
| Parties | BUBBLING WELL CHURCH of UNIVERSAL LOVE, INC., PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Held, in an action for declaratory judgment under sec. 7428(a), I.R.C. 1954, the administrative record does not establish that no part of petitioner's net earnings inure to the benefit of private individuals in violation of sec. 501(c)(3), I.R.C. 1954. Peter R. Stromer, for the petitioner.
Richard G. Goldman, for the respondent.
This is an action for declaratory judgment pursuant to section 7428(a). 1 Petitioner filed an application for recognition of exemption from Federal income tax on June 9, 1977, seeking exemption under section 501(c)(3) and claiming to be a church within the meaning of sections 509(a)(1) and 170(b)(1) (A)(i). Upon completion of the administrative consideration of petitioner's status, the Internal Revenue Service on April 11, 1979, issued an adverse ruling in part as follows:
You are neither organized nor operated for one or more exempt purposes within the meaning of section 501(c)(3) of the Code. You are organized and operated for private benefit, and your net earnings inure to the benefit of private individuals. We have also determined that if you were an organization described in section 501(c)(3), you would be a private foundation because you are not a church within the meaning of section 170(b)(1)(A)(i), the only basis on which you claim non-private foundation status.
Following the issuance of the adverse determination letter, petitioner timely filed the present action seeking a declaratory judgment that it is entitled to exemption as a church. The administrative record has been stipulated, and the controlling facts are here briefly summarized.
Petitioner filed its articles of incorporation with the Secretary of State of California on January 13, 1977. They recite that petitioner is organized for nonprofit purposes and that it is formed primarily to operate a church. The articles recite that the authorized number and qualification of members of the corporation, the different classes of membership, if any, and the voting and other rights and privileges of the members shall be set forth in the bylaws.
Appendix A to the bylaws states that there shall be two classes of members of the corporation. The first class shall be the voting members, and they shall be the members of the board of directors of the corporation. The second class, known as associate members, shall include any person who contributes funds or property to petitioner. Each voting member shall be entitled to one vote at petitioner's meetings, and associate members shall not be entitled to vote. No notice of any meeting of the membership need be given to any associate member.
At all times here pertinent, petitioner's only voting members were president John Calvin Harberts (Harberts) and secretary-treasurer Catherine C. Harberts, husband and wife, and vice president Dan C. Harberts, their son. They were also the only members of the board of directors. Petitioner's address was Harberts' residence, and he was the registered owner of the property on which the residence is located. The Harberts family thus completely controlled petitioner's operations and were in a position, as the only voting members, to perpetuate that control.
Petitioner states that it was “formed to disseminate as its tenets a belief in a Supreme Being who does not differentiate in bestowing his benevolence on all species of life, whether of this earth or in the life hereafter.” Petitioner adds that: “The specific purpose for which this organization was formed is to disseminate this transcendental concept encompassed with its tenets.” The administrative record contains no elaboration of these tenets. Petitioner had no literature explaining its tenets and conducts no training schools.
Harberts is the son of a Presbyterian minister who has been active in church and choral functions throughout his lifetime, but he has no formal theological training. He holds a certificate of ordination from the Universal Life Church, Inc.2 Petitioner, however, was not affiliated with that organization or any other organization, denomination, or sect. Mrs. Harberts has an extensive choral and music background. Dan C. Harberts was graduated from the University of California with a degree in business administration.
On February 17, 1978, the Internal Revenue Service requested petitioner, among other things, to furnish a list showing the names and addresses of its active members and a statement showing the amounts and names of donors for each contribution during 1977 and 1978 to date. This list would have disclosed the names of petitioner's associate members as defined in the bylaws. Petitioner objected to furnishing this information and did not do so on the ground that requiring it to make that disclosure would violate the First Amendment to the Constitution. The Internal Revenue Service twice requested similar information suggesting use of code numbers rather than the names of the donors, but petitioner's response was virtually meaningless except that petitioner advised that: “Directors, officers, trustees, etc. contributions are included” among the contributors. Thus, the only three contributors who have been identified are the members of the Harberts family.
On February 17, 1978, the Internal Revenue Service also requested petitioner to furnish an itemized statement of income and expenses for the year ended December 31, 1977. The response showed the following:
To qualify for exemption under section 501(c)(3),3 petitioner has the burden of showing (1) that it was organized and operated exclusively for religious or charitable purposes, (2) that no part of its earnings inured to the benefit of a private individual or shareholder, and (3) that no substantial part of its activities consisted of the dissemination of propaganda or otherwise attempting to influence legislation or engaging in political activity. Sec. 1.501(c)(3)-1, Income Tax Regs. Even for an organization claiming the benefits of section 501(c)(3) as a religious organization, “exemption is a privilege, a matter of grace rather than right.” Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 849, 857 (10th Cir. 1972), cert. denied 414 U.S. 864 (1973).
After careful consideration of all the evidence of record, we are not satisfied that petitioner has made the requisite showing.
Preliminarily we note that petitioner, at all pertinent times, was completely dominated by the Harberts family—-a father, mother, and son. Because they were the only voting members and they composed the board of directors, the Harberts were in a position to perpetuate this control of petitioner's operations and activities indefinitely. Petitioner had no affiliation with any denomination or ecclesiastical body and, therefore, the Harberts family was not subject to any outside interference or influence in the control of petitioner's affairs. This means that the Harberts, without challenge, could dictate petitioner's program and operation, prepare its budget, and spend its funds, and could continue to do so indefinitely.
The record contains no explanation of why the Harberts chose to arrange petitioner's organization and operation in this manner—-particularly when some of the statements submitted by petitioner suggest that it sought to proselytize others to its faith. While this domination of petitioner by the three Harberts, alone may not necessarily disqualify it for exemption, it provides an obvious opportunity for abuse of the claimed tax-exempt status. It calls for open and candid disclosure of all facts bearing upon petitioner's organization, operations, and finances so that the Court, should it uphold the claimed exemption, can be assured that it is not sanctioning an abuse of the revenue laws. If such disclosure is not made, the logical inference is that the facts, if disclosed, would show that petitioner fails to meet the requirements of section 501(c)(3). See Founding Church of Scientology v. United States, 188 Ct. Cl. 490, 498, 412 F.2d 1197, 1201 (1969), cert. denied 397 U.S. 1009 (1970); Parker v. Commissioner, 365 F.2d 792, 799 (8th Cir. 1966), affg. a Memorandum Opinion of this Court, cert. denied 385 U.S. 1026 (1967).
We do not think the administrative record as stipulated by the parties makes the necessary showing. Quite to the contrary, petitioner declined to furnish some of the information requested of it. Moreover, the answers to other inquiries were vague and uninformative.
We are not convinced from the information in the administrative record that part of the net earnings did not inure to the benefit of the Harberts family or, stated another way, that petitioner was not operated for the Harberts' private benefit. Of the total income of $61,169.80 in 1977, at least a...
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