Ecclesiastical Order of the ISM of AM, Inc. v. Comm'r of Internal Revenue

• Decision Date: 02 May 1983
• Docket Number: Docket No. 10769-81X.
• Citation: 80 T.C. 833
• Parties: THE ECCLESIASTICAL ORDER of THE ISM of AM, INC., PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

80 T.C. 833

THE ECCLESIASTICAL ORDER of THE ISM of AM, INC., PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 10769-81X.

United States Tax Court

Filed May 2, 1983.

Petitioner seeks a declaratory judgment that it is entitled to tax-exempt status as a religious organization under sec. 501(c)(3), I.R.C. 1954. Petitioner recruits new members by emphasizing to a great extent that tax benefits of becoming a minister in petitioner's “religion.” Tax avoidance counseling permeates petitioner's literature. Held, 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's tax counseling serves a substantial nonexempt purpose. Joseph Falcone, for the petitioner.

Alan C. Levine, for the respondent.

OPINION

TANNENWALD , Chief Judge:

This is an action for declaratory judgment pursuant to section 7428.¹ Petitioner filed an application for recognition of exemption from Federal income tax on January 15, 1980, 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). After a lengthy administrative review, respondent, on February 18, 1981, issued an adverse ruling which stated in part that—

You are not operated exclusively for religious or any exempt purpose described in section 501(c)(3) of the Code. You are not operated in such a manner that no part of your net earnings will inure to the benefit of any individual. In addition, you are operated for 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 within the meaning of section 170(b)(1)(A)(i), the only basis upon which you claim non-private foundation status.

Petitioner then timely filed its petition herein.

This case was submitted fully stipulated pursuant to Rule 122. The administrative record filed by respondent is incorporated herein by this reference. See Rule 217.

Petitioner was incorporated in Michigan in 1978. Its officers are Rev. George N. Baustert, president, Cardinal Chalmers O. Smith, vice president, and Janette C. Schwedt, secretary-treasurer.²

Petitioner is composed of a home office and approximately 26 chartered orders. At times, petitioner contends that each order is a separate entity; at other times, petitioner appears to suggest that all orders are part of a single entity. It is clear, however, that only the home office is a party to the present action.³

Petitioner conducts an active campaign for followers. Originally, petitioner sought converts through a pamphlet entitled “The Proof of Am,” which explains the Ism of Am's deistic beliefs.⁴ No one converted, however, because, as petitioner candidly admits, “Something was missing!” After studying materials developed by the Universal Life Church, Rev. Baustert wrote new literature and instituted several refinements in petitioner's method of operations. These changes greatly enhanced petitioner's recruitment effort.

The new recruiting approach developed by petitioner emphasizes to a great extent the tax benefits of becoming a minister in the Ism of Am. This emphasis is illustrated in the “education” given to new ministers, in the materials distributed by petitioner to potential converts, and in the training given to petitioner's “membership counselors.”

Degrees and/or titles are awarded by petitioner to ministers upon completion of each of four stages of the “Phases of Awareness.” Although certain pamphlets are provided with each “phase,” no check is provided to assure that each minister studies and understands them. However, some of these pamphlets are, no doubt, studied very carefully, for, as petitioner observes, completion of the “Phases of Awareness” assures that “you will be an expert in the administration and benefits of a Chartered Order of ISM of AM.” (Emphasis added.)

Petitioner's “Awareness” program is structured as follows:⁵ For a “donation” of $25 (Phase I), one is ordained as a Minister in the Ism of Am. Each new minister receives instructions entitled “Ecclesiastical Orders of Law I” and a copy of “The Book of Am--The Enlightenment.”⁶ For a “donation” of $75 (Phase II) one receives a Doctorate of Divinity degree and a “Legal Charter * * * complete with federal and state exempt numbers.” Instructions provided include “Ecclesiastical Orders of Administration I” and “Untaxables I.” For a “donation” of $50 (Phase III), one is bestowed with a Certificate of Bishop and instructions entitled “Untaxables II.” Finally, for a “donation” of $50 (Phase IV) one is canonized to Cardinal. Instructions received include “Untaxables III” and “Share with Am.”

The “instructions” that accompany each phase discuss, in great detail, the tax benefits of being a minister in the Ism of Am. Nothing would be gained by describing these documents in detail; a few examples reveal their tenor. Untaxables I begins with the self-serving caveat that “The Ism of Am is not a tax reform movement, and it is important to note that it is not our intention to teach you how to evade taxes.” The pamphlet then provides, inter alia, a laundry list of personal expenses incurred by the minister that the order can pay as part of the minister's housing allowance. Lest anyone be concerned about the propriety of such actions, the pamphlet goes on to state that—-

It may seem that, if one starts a Chartered Order, donates money, and then uses the money to benefit the officers of the Order, this action might be considered “Self Dealing”. Had you decided to form your own church wherein you would be responsible for control of the entire church, the problem of “Self Dealing” might be very real. However, since your Chartered Order is as much an Order of the ISM of AM as the Home Office, you need not be concerned about self dealing. All ministers of the ISM of AM are members of and make contributions to The Ecclesiastical Order of the ISM of AM, Inc. What the Order does with these contributions is of no concern to others outside of the Order. Not all donations donated to the Catholic Church are required to be sent to the Pope. [[[Emphasis added.]

Untaxables II further “educates” one in the “benefits” of being a minister in the Ism of Am. In an illuminating passage, Untaxables II states that—-

Being a Minister of AM, you are entitled to be reimbursed for using your personal auto for Order related business. However, you will be required to keep daily records of this usage since, unlike the Minister's housing allowance, all money received by the Minister as an auto allowance is considered TAXABLE income to the Minister. The Minister is allowed to deduct 17¢ per mile for the first 15,000 miles, and 10¢ per mile for all mileage over 15,000, for all mileage driven on church related business.

Most Ministers prefer to have their Order own the auto, and be authorized as the Minister of the Order, to exclusive use of the vehicle. This way the Order is responsible to pay all associated operational costs, including gas, oil, insurance, license and registration fees, as well as maintenance and repairs. This is possible only if the vehicle is used primarily in Order work. Since you as the Minister are always seeking new members to “Share With AM” every where you go, the auto is indeed being used for the benefit of your Chartered Order, and the free use of the auto IS NOT considered taxable income to the Minister. [[[Reproduced literally; emphasis added.]

In another illuminating passage, Untaxables II states that—-

THE FAMILY OF AM

Being a Minister of AM, you are now privileged to have your Chartered Order provide you, as the minister, with a home, food, clothing, insurance, travel expenses, etc. However, under the law, your order is not authorized to provide your wife and/or children with their worldly needs. Of course your wife and children, 18 years or older, are privileged to become Ministers of AM in their own right and enjoy the benefits guaranteed by law to a Minister of a Chartered Order, nonetheless, your children and/or congregational members that are younger than 18 years are not eligible for tax exempt compensations from your order. But, by the law, your Order is authorized to pay for any maintenance, improvements or repair to your home, as provided by your Order, and may very well hire your children for such services without regard as to the amount of payment. As long as none of these children receive more than $2,600 per annum, they are not required to even file income tax returns. They can use these earnings to provide for themselves the necessities and pleasures that you as the Minister are not authorized to provide them with on a direct basis, using your Chartered Orders' assets. [Reproduced literally; emphasis added.]

Untaxables III advises that “there is a way * * * to significantly reduce the amount of withholding taxes taken from [your] paychecks. Ministry in the% ISM of AM is the answer .” (Emphasis added.) Orders of Law I claims that “The wealthy families in this country have taken advantage of the tax laws of this country for more than two centuries. It is for this reason that we do not have to explain or defend our actions regarding the avoidance of taxes.” (Emphasis added.) Orders of Administration I states that Each Chartered Order is granted the PRIVILEGE of using the Federal and State identification numbers and the TAX EXEMPT status of the Home Office. This relieves the Charter Order of the responsibility of dealing with the IRS.”⁷ The pamphlet also contains the jingle “ Run your business with businesslike finesse, and you'll never be the business of the IRS.” (Emphasis in original.) Similarly, the pamphlet “The Rational Religion of Rational Humankind,” which is distributed to potential converts to “set[ ] the attitude for acceptance of the I AM U U AM I vow” (emphasis...