Church v. Comm'r of Internal Revenue, Docket No. 5221-79X.

• Decision Date: 28 July 1980
• Docket Number: Docket No. 5221-79X.
• Citation: 74 T.C. 846
• Parties: BASIC BIBLE CHURCH, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

74 T.C. 846

BASIC BIBLE CHURCH, PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 5221-79X.

United States Tax Court

Filed July 28, 1980.

Petitioner, having been denied tax-exempt status as a religious organization under sec. 501(c)(3), I.R.C. 1954, as amended, petitioned this Court for a declaratory judgment pursuant to sec. 7428. A subsidiary or auxiliary church of the Basic Bible Church, petitioner is not controlled, directed, or managed by its parent, is not liable for its parent's debts, and owns its property separately. Similarly, the Basic Bible Church is not liable for petitioner's debts, obligations, or liabilities. X, petitioner's founder and one of its two ministers, controls all of petitioner's financial decisions. X and Y, X's wife and petitioner's other minister, executed vows of poverty, transferred all of their possessions and income to petitioner under the condition subsequent that their gifts will revert to them if petitioner is not granted tax-exempt status, and filed a notice with X's secular employer to cease withholding all taxes from his wages. Over 96 percent of the total contributions received, mostly from X and Y, was expended on X's subsistence allowance, on X and Y's unsubstantiated travel expenses, and on utilities and upkeep of X and Y's house, which also serves as petitioner's parsonage. Less than 1 percent of petitioner's contributions were spent for directly related church purposes. Held, petitioner has the burden of proof in this proceeding. Held, further, petitioner is legally distinct from its parent church and therefore must prove that it qualifies for tax-exempt status on its own merits. Held, further, petitioner is not entitled to exemption from Federal taxation under secs. 501(a) and 501(c)(3), I.R.C. 1954, as amended, because it fails the operational test of sec. 501(c)(3) in that petitioner serves the private interests of its founder and his family and, in so doing, serves a substantial nonexempt purpose. Robert E. Kovacevich, for the petitioner.

Elizabeth D. DePriest, for the respondent.

OPINION

TIETJENS, Judge:

Respondent determined that petitioner is not exempt from Federal income tax under section 501(c)(3),¹ and that petitioner is not a church described in section 170(b)(1)(A)(i). The prerequisites for declaratory judgment having been satisfied,² petitioner has, pursuant to section 7428, invoked the jurisdiction of this Court

The issues for our determination are (1) whether petitioner or respondent carries the burden of proof in this proceeding; (2) whether petitioner is an auxiliary of the Basic Bible Church and not an independent organization which must qualify for section 501(c)(3) status on its own merits; (3) whether petitioner is operated exclusively for one or more exempt purposes delineated in section 501(c)(3), or whether petitioner is operated to serve the private interests of its founder, Francis Duval, and his family; and (4) assuming petitioner is held to be exempt under section 501(c)(3), whether petitioner is a church described in section 170(b)(1)(A)(i) and therefore not a private foundation.

The case was submitted on a stipulated administrative record under Rules 122 and 217, Tax Court Rules of Practice and Procedure. The stipulated record, which is assumed to be true for the purpose of this proceeding, is incorporated herein by reference.

Petitioner, an unincorporated Washington association which was organized on October 25, 1976, has its principal meeting place in Mica, Wash. On February 9, 1978, petitioner mailed its Application for Recognition of Exemption to the Internal Revenue Service, Ogden, Utah.

On January 23, 1979, respondent issued to petitioner a final adverse ruling letter which denied petitioner tax-exempt status for the following reasons:

You are not operated exclusively for one or more exempt purposes specified in section 501(c)(3) of the Internal Revenue Code. Furthermore, you are operated to serve private rather than public interests. We have also determined that if you were described in section 501(c)(3), you would be a private foundation because you are not a church described in section 170(b)(1)(A)(i), the only basis on which you claim non-private foundation status.

Petitioner's charter was granted by the Basic Bible Church of America, Minneapolis, Minn. (hereinafter Basic Bible Church), which has been granted exempt status under section 501(c)(3). The charter states that petitioner is a subsidiary or auxiliary church of the Basic Bible Church and is established to further its religious doctrine and principles. Petitioner's charter provides the following terms and conditions:

1. That the Church shall be governed by Three or more Trustees who shall hold all Real and Personal Property in trust, either individually, or as joint tenants (sic) for this Auxiliary Chartered Church. No property will become the property of the parent Church or any other Church unless given by gift or by bequest.

2. This auxiliary Church shall remain unincorporated and no other churches or Orders may be formed by this auxiliary Church.

3. That this Church is organized primarily for Religious, Charitable, Literary and Educational purposes, exclusively.

4. That no part of the earnings of this Church will inure to the benefit of private shareholders or individuals.

5. That this Church, will not, as a substantial part of its activities, attempt to influence legislation, or participate in or against any candidate's political campaign for public office.

6. That this Church is not organized or operated for the benefit of any private interests, or other designated interests or individuals, or persons controlled, directly, or indirectly, by such private interests.

7. That this Church may accept and receive Contributions.

8. That this Church may employ missionaries.

9. That the Board of Trustees may lease, own and manage the Church and other Church property on behalf of the Church and may conduct other Church business in the same manner as if they were trustees of a common law trust.

10. That the duration of this Church shall be perpetual unless the Charter is revoked for a violation of these conditions.

11. That the office of the Church shall be at such place as the trustees may designate.

12. That the names and addresses of the Trustees shall at all times be filed with the Head Office of the Church addressed to P.O. Box 1708, Twin City Airport, Minnesota, 55111.

13. That this Church is formed and organized for the purposes set out in No. 3 above within the meaning of Section 501(c)(3) and 501(a), 26 U.S. Code, Internal Revenue Code of 1954.

14. That one of the purposes of this Church is to receive contributions and to pay them over to organizations that are described in Section 502(c)(3) (sic) and exempt from taxation under section 501(a) of the Internal Revenue Code of 1954.

15. That the Tenets or beliefs of the Basic Bible Church, which are the objects of conscientious regard and pursuit, and which are to be carried out conscientiously, by expression, association, conduct and ritual are The Magna Charta, The Declaration of Resolves of the 1st Continental Congress of 1774, The Declaration of the Causes and Necessity of Taking up Arms of 1775, The Constitution of the United States, The Declaration of Independence, The immutable Laws of Nature and Nature's Creator, and such parts and writings in the Sacred Scriptires (sic) consistent with the natural individual rights of Man, and the doctrines, principles and teachings set forth therein are to be held sacred.

16. That this Church is organized to promote the principles of separation of Church and State as are set forth in Thomas Jefferson's “Virginia Statute on Religious Freedom” of 1786.

17. Upon the Disolution (sic) of the Church, The Board of Trustees shall, after paying and disposing of all legal liabilities of the Church, dispose of all assets of the Church exclusively for the purposes of the Church in such manner and to such organization(s), organized and operated exclusively for Charitable, educational, Religious or scientific purposes which shall at the time qualify as an Exempt organization under 501(c)(3), of 26 U.S. Code, as the Board of Trustees shall determine. Any such assets not so disposed of shall be disposed of by the Court of Common Pleas of the County in which the principle office of the Church is then located, exclusively for such purposes to such organization(s) as the said Court shall determine which are organized and operated exclusively for such purposes.

18. That this Church Charter does not go into effect until it is agreed to by the Trustees of the Church Chartered hereby.

19. That the trustees of the Church Chartered hereunder may make such rules and by laws not inconsistent herewith. * * *

20. That the trustees of this Auxiliary Church have no power or authority to charter any other church under this church.

21. That this Auxiliary Chartered Church is not under the management, direction or control of the parent church and therefore the parent church is not liable for any debts, obligations, engagements entered into or liabilities of any kind or nature incurred by the auxiliary church.

22. That likewise, the parent church is not under the control o(f) the Auxiliary Church in any of its business dealings and in so doing business of any kind or nature, the Auxiliary Church is not liable for any debts, obligations or engagements entered into or liabilities of any kind or nature incurred by the Parent Church.

23. This Charter is granted upon the further condition that the members of the Basic Bible Church are bound by oath or affirmation that they support the principles of the Basic Bible Church including the principle and sacred belief that each individual owns the right over his own life, that he owns no right over the life of any one else, and that no one owns any right over his life.

Further, the Basic Bible Church abhors and detests the...