Living Faith, Inc. v. C.I.R.
| Citation | 950 F.2d 365 |
| Decision Date | 02 December 1991 |
| Docket Number | No. 90-3626,90-3626 |
| Parties | -301, 92-1 USTC P 50,003 LIVING FAITH, INC., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Lorentz W. Hanson, White Plains, N.Y., for petitioner-appellant.
Abraham N.M. Shashy, Jr., I.R.S., and Gary R. Allen, Robert S. Pomerance (argued), Nancy G. Morgan, Dept. of Justice, Tax Div., Appellate Section, Charles S. Casazza, U.S. Tax Court, Washington, D.C., for respondent-appellee.
Before WOOD, Jr., FLAUM, and RIPPLE, Circuit Judges.
Living Faith, Inc. (Living Faith) appeals the Tax Court's affirmance of a determination by the Commissioner of the Internal Revenue Service (Commissioner) that Living Faith was not operated for exempt purposes within the meaning of § 501(c)(3) of the Internal Revenue Code (I.R.C.), 26 U.S.C. § 501(c)(3). This Court has jurisdiction to review the Tax Court's ruling pursuant to I.R.C. § 7482, 26 U.S.C. § 7482. Because this case was submitted to the Tax Court for decision on a stipulated administrative record, the record is presumed true for purposes of this appeal. Upon review of the record, we find that the Tax Court's determination was not clearly erroneous and affirm its decision.
Living Faith was incorporated as a not-for-profit corporation on September 4, 1986, under the laws of Illinois. According to its articles of incorporation, Living Faith was established for the purpose of keeping with the doctrines of the Seventh-day Adventist Church. 1 Living Faith is a member of the Association of Self-Supporting Institutions of the Seventh-day Adventist Church, but, like all members, is independent from the church and receives no direct funding. Seventh-day Adventists believe that the concept of health is permeated with religious meaning. Good health, according to Seventh-day Adventists, promotes virtuous conduct, and is furthered by a vegetarian diet and abstention from tobacco, alcohol, and caffeine. Ill health, in contrast, promotes sin, with the original sin consisting of eating food condemned by God.
Living Faith operates two vegetarian restaurants and health food stores, in Oak Brook Terrace, Illinois, and Glen Ellyn, Illinois, in a manner consistent with these religious beliefs. These two facilities--the subject of this litigation--are open to the public, and operate under the name "Country Life." Country Life is a worldwide chain of independently operated restaurants and food stores. Living Faith is licensed to use the name, without charge, by Oak Haven, Inc., a wholesale food distributor. Oak Haven's guidelines require Country Life facilities to employ Seventh-day Adventist management and maintain a good working relationship with the local Seventh-day Adventist Church. They also require that management have business ability, undergo six months training in operating a Country Life restaurant, and maintain good business relations with suppliers and the community. 2
The Oak Brook Terrace facility operates out of a 3,200 square foot leased space in a shopping center, of which 2,400 square feet is used for the restaurant. Its hours of operation are:
Restaurant
Sunday, Tuesday, Wednesday, Thursday 11:30 a.m."7:30 p.m
Monday 11:30 a.m."4:00 p.m.
Friday 11:30 a.m."2:00 p.m.
Saturday Closed
Health Food Store
Sunday "Thursday 10:00 a.m."8:00 p.m.
Friday 10:00 a.m."3:00 p.m.
Saturday Closed
----------
Operations at the Glen Ellyn facility are substantially similar to those at Oak Brook Terrace. Living Faith sets its meal and food prices at market rates. Buffet prices at its restaurants are set at approximately three times the wholesale cost of food, a formula commonly used in the food business, and retail prices at its health food stores are maintained at levels recommended by its wholesalers. According to Living Faith, its prices are similar to, and in some instances higher than, other vegetarian restaurants and health food stores. Products sold at the health food stores include grocery items, such as packaged and bulk foods, as well as vitamins, spices, and toiletries.
In addition to purveying food and health products, Living Faith disseminates various informational materials which promote both "[t]he healing message of Jesus Christ" and the "world famous" Country Life restaurants. Appendix at A34, A35. The literature is placed by the counter, the door, at the end of the buffet line, and on each table. Living Faith also offers books on religious subjects at no charge to its patrons. Customers are not required to take or read the literature. Living Faith states that its "literature evangelism" is currently limited to this in-store distribution, and estimates that 10 to 12 people have joined the Seventh-day Adventist Church as a result of its efforts.
Each day before the facilities open, Living Faith conducts a devotional talk by a staff member, hymn singing, and a Bible reading for workers. One Saturday each month, Living Faith provides the public an opportunity to sample vegetarian cooking by offering free meals. Those who attend may also peruse the Seventh-day Adventist literature and obtain information about the Church. Living Faith offers to the public a five-week cooking school which promotes vegetarian cooking. Classes meet on a weekly basis, during hours when the restaurants and food stores are closed, and are priced at $20 per person, or $25 per married couple, plus $15 for a cookbook. The organization also offers weekly Bible study class, free of charge, during hours when the facilities are closed. It occasionally provides meals to the needy in exchange for chores, such as washing dishes, and has collected and donated to charity approximately 100 plastic bags of used clothing.
Living Faith's financial statements for the 12-month periods ending September 30, 1987, and September 30, 1988, show the following results:
1987 1988
Sales revenue $ 73,134.78 $280,104.38
Cost of sales 34,576.03 158,340.22
---------------------------------------------------------------
Gross profit 38,558.75 121,705.99
General & administrative expenses 91,190.80 155,220.85
Operating loss (52,632.05) (33,514.86)
Donations 101,062.63 46,226.73
Miscellaneous income 6,999.20
---------------------------------------------------------------
Net income 48,430.58 19,711.07
----------
Stipends for Living Faith's five-member staff totalled $25,663.67 for the fiscal year ending September 30, 1987, 3 and increased to $63,673.93 the following fiscal year. According to Living Faith, its staff is composed of people who otherwise might have difficulty in finding employment. 4 Several staff members also serve as officers and directors of Living Faith. Three of these--the president, vice president, and secretary--are ordained deacons of the Seventh-day Adventist Church. The chairperson, who is not on the staff, is an ordained Elder of the Church.
According to Living Faith, any profits realized from its operations will be used to expand its health ministry in accordance with Seventh-day Adventist tenets. Its application for § 501(c)(3) tax exemption states that its future plans include the establishment of an "outpost evangelism program" where people "may live in harmony with the principles of the Bible and the writings of Ellen G. White," a founder of the Seventh-day Adventist Church. Appendix at A2. However, its current operations are limited to the two restaurants and health food stores.
Living Faith filed its application for tax-exempt status on March 29, 1988. The Commissioner denied Living Faith's application, finding that it was not operated exclusively for exempt purposes within the meaning of § 501(c)(3). Living Faith timely protested the ruling, and the Commissioner subsequently sent notice of the final adverse ruling. Living Faith filed a petition for a declaratory judgment with the Tax Court, pursuant to I.R.C. § 7428(a), requesting tax-exempt status pursuant to § 501(a) as an organization described in § 501(c)(3).
The Tax Court upheld the Commissioner's ruling, finding that Living Faith conducts its operations with a substantial commercial purpose and therefore does not qualify as a tax-exempt organization. Living Faith, Inc. v. Commissioner, 60 T.C.M. (CCH) 710 (1990). We now examine the Tax Court's decision.
Living Faith contends that it operates its restaurants and health food stores with the exclusive, tax-exempt purpose of furthering the religious work of the Seventh-day Adventist Church as a health ministry. 5 As the taxpayer claiming the exemption, Living Faith bears the burden of proving entitlement to it. Granzow v. Commissioner, 739 F.2d 265, 268 (7th Cir.1984); see also Church of Scientology v. Commissioner, 823 F.2d 1310, 1317 (9th Cir.1987), cert. denied, 486 U.S. 1015, 108 S.Ct. 1752, 100 L.Ed.2d 214 (1988); Senior Citizens Stores, Inc. v. United States, 602 F.2d 711, 713 (5th Cir.1979). Section 501(c)(3) establishes a tax exemption, pursuant to § 501(a), for organizations "organized and operated exclusively for religious, charitable ... or educational purposes, ... no part of the net earnings of which inures to the benefit of any private shareholder or individual...." To comport with these provisions, an entity must be both "organized and operated exclusively" for at least one of the listed exempt purposes. Treas.Reg. § 1.501(c)(3)1(a). The parties do not dispute that Living Faith satisfies the "organizational" test, or that its net earnings do...
To continue reading
Request your trial
-
Catholic Charities Bureau, Inc. v. State Labor & Indus. Review Comm'n
...by professing a religious motive without being required to provide support for that motive. See Living Faith, Inc. v. Commissioner, 950 F.2d 365, 372 (7th Cir. 1991) (noting, in an income tax exemption case, that "[w]hile we agree with Living Faith that an organization's good faith assertio......
-
Catholic Charities Bureau, Inc. v. State of Wis. Labor & Indus. Review Comm'n
...... APPEAL. from an order of the circuit court for Douglas County: Cir. Ct. No. 2019CV324 KELLY J. THIMM, Judge. Reversed. . . ... concerns of children with special needs, the stresses of. families living in poverty and those in need of disaster. relief." As noted above, four of those sub-entities ... its sub-entities are not required to be members of the. Catholic faith, but they are prohibited from engaging in. activities that violate Catholic social teachings. ......
-
Catholic Charities Bureau, Inc. v. State of Wis. Labor & Indus. Review Comm'n
...... APPEAL. from an order of the circuit court for Douglas County: Cir. Ct. No. 2019CV324 KELLY J. THIMM, Judge. Reversed. . . ... concerns of children with special needs, the stresses of. families living in poverty and those in need of disaster. relief." As noted above, four of those sub-entities ... its sub-entities are not required to be members of the. Catholic faith, but they are prohibited from engaging in. activities that violate Catholic social teachings. ......
-
Tomic v. Catholic Diocese of Peoria
...just as the Internal Revenue Service denies tax exemptions to religious associations that are not bona fide. Living Faith, Inc. v. Commissioner, 950 F.2d 365, 372-73 (7th Cir.1991); United States v. Jeffries, 854 F.2d 254, 257 (7th Cir.1988); Spiritual Outreach Society v. Commissioner, 927 ......
-
Tax Exemption And Unrelated Business Income Rules (UBIT): "Substantially Related" (Part 3 Of 3)
...did not apply, and the leased buildings were held to constitute debt-financed property. In Living Faith, Inc. v. Commissioner, 950 F.2d 365 (7th Cir. 1991), the issue was whether Living Faith was operated exclusively for exempt purposes under section 501(c)(3) of the Code when Living Faith'......