Lutheran Social Service of Minnesota v. U.S., 84-5074
| Decision Date | 03 April 1985 |
| Docket Number | No. 84-5074,84-5074 |
| Citation | 758 F.2d 1283 |
| Parties | -1171, 85-1 USTC P 9316 LUTHERAN SOCIAL SERVICE OF MINNESOTA, Appellant, v. UNITED STATES of America, Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Arthur Doten, Minneapolis, Minn., for appellant.
Robert Bernstein, Washington, D.C., for appellee.
Before HEANEY, ROSS and FAGG, Circuit Judges.
Lutheran Social Service of Minnesota (LSS) filed this action to obtain a refund of a $700.00 penalty which had been assessed against it by the Internal Revenue Service (IRS) for failing to file a tax information reporting form (Form 990) on time. The appellant claimed that it was exempt from filing the form under 26 U.S.C. Sec. 6033. The district court 1 rejected LSS's position and this appeal followed. Jurisdiction in this court is based on 28 U.S.C. Sec. 1291.
The facts in this case are essentially undisputed, and are as follows. LSS is a tax-exempt, nonprofit social service agency that is affiliated with the various synods of the Lutheran Church. The board of directors of LSS is elected by the Minnesota representatives of the three major national Lutheran bodies: the American Lutheran Church, the Lutheran Church in America, and the Lutheran Church-Missouri Synod. It is a separate corporation from these bodies. The articles of incorporation of LSS provide that the purposes of the organization are:
1. To witness to the Gospel of Jesus Christ through ministrations of Christian love to those who may be served, in conformity with the faith and practice of the church bodies to which this corporation is responsible.
2. To develop and maintain a program of Christian social welfare, with appropriate facilities, as needs are demonstrated and resources permit.
3. To work in close cooperation with other health and welfare programs in the community.
4. To participate in coordinating programs which may be sponsored by the church or community.
The services LSS provides include child care and adoption services, family and individual counseling services, residential treatment services for the emotionally disturbed, residential treatment services for mentally retarded adolescents and mentally retarded adults, residential treatment services involving a community based correctional program for young male felons, a nutrition program for the aging, a camp for mentally and physically impaired individuals, community counseling programs, resettlement programs, and a chaplaincy program. LSS charges fees for its services according to its clients' ability to pay. Additionally, approximately 65 percent of its operating budget is derived from federal, state, and county funds.
LSS maintains that the services it provides are religious in that they are "religiously motivated, a manifestation of religious belief, a form of worship, and a means of propagation of the Christian faith, according to the tenets and practices of [the Lutheran Churches by which LSS is owned and controlled]." Appellant's Brief at 18. LSS admits, however, that many of its services would be secular in nature if performed by secular organizations.
The dispute involved here arose when LSS filed a Form 990 (Return of Organization Exempt from Income Tax) with the IRS on July 24, 1979, for the tax year 1978. Since the form was due two months earlier, the IRS assessed a $700 late filing penalty pursuant to 26 U.S.C. Sec. 6652(d). After paying the penalty, the plaintiff filed a claim for a refund arguing that it was exempt from the filing requirement pursuant to 26 U.S.C. Sec. 6033(a)(2)(A)(i). The IRS eventually denied the claim giving rise to this lawsuit. 2 The issue came before the district court for resolution on cross motions for summary judgment. The government's motion was granted, and the refund denied. This appeal followed. For the reasons stated herein we reverse.
The issue presented by this appeal is whether LSS, a church-affiliated tax-exempt organization, is exempt from filing annual informational returns pursuant to 26 U.S.C. Sec. 6033(a)(2)(A)(i). 3
The statute which requires tax exempt organizations to file informational returns provides:
Sec. 6033. Returns by exempt organizations
(a) Organizations required to file.--
(1) In general.--Except as provided in paragraph (2), every organization exempt from taxation under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe * * *.
(ii) any organization (other than a private foundation, as defined in section 509(a)) described in subparagraph (C), the gross receipts of which in each taxable year are normally not more than $5,000, or
(iii) the exclusively religious activities of any religious order.
26 U.S.C. Sec. 6033(a)(2)(A) (emphasis added). Additionally, organizations that are not separately incorporated from the churches with which they are affiliated are exempt under the mandatory exception for churches. See Treas.Reg. Sec. 1.6033-2(g)(5)(iv), example 6. Cf. St. Martin Evangelical Lutheran Church v. South Dakota, 451 U.S. 772, 784, 101 S.Ct. 2142, 2149, 68 L.Ed.2d 612 (1981) ().
LSS contends that it is exempt from filing the Form 990 informational return because it is a "church" or a "convention or association of churches" within the meaning of section 6033(a)(2)(A)(i). Furthermore, although LSS concedes that it is not an integrated auxiliary of a church as the term is defined by the IRS, LSS asserts that the Treasury regulation which defines integrated auxiliary is invalid because it includes an exclusively religious purpose requirement not contained in the statute. See Treas.Reg. Sec. 1.6033-2(g)(5)(i). Although we reject the appellant's position that LSS is a church or a convention or association of churches, we agree that the exclusively religious purpose requirement embodied in Treas.Reg. Sec. 1.6033-2(g)(5)(i) is contrary to the legislative history of section 6033.
The appellant contends that it is entitled to an exemption as a church within the meaning of 26 U.S.C. Sec. 6033(a)(2)(A)(i). We do not agree.
Section 6033 does not define the term "church," and the Treasury regulations to that section make no attempt to clarify the term. See Wheelan, "Church" in the Internal Revenue Code: The Definitional Problems, 45 Fordham L.Rev. 885, 893 (1977) (hereinafter cited as Wheelan ). "Church" is, however, defined in Treasury Regulation Sec. 1.511-2(a)(3)(ii), a regulation that pertains to organizations exempt from taxes on unrelated business income. The regulation provides in part:
(ii) The term "church" includes * * * a religious organization if such * * * organization (a) is an integral part of a church, and (b) is engaged in carrying out the functions of a church, whether as a civil law corporation or otherwise. In determining whether a religious * * * organization is an integral part of a church, consideration will be given to the degree to which it is connected with, and controlled by, such church. A religious * * * organization shall be considered to be * * * carrying out the functions of a church if its duties include the ministration of sacerdotal functions and the conduct of religious worship * * * [which is to be determined based upon] the tenets and practices of a particular religious body constituting a church.
Treas.Reg. Sec. 1.511-2(a)(3)(ii) (emphasis added). Additionally, the IRS has developed fourteen criteria which it applies to individual organizations when determining whether the organization is a church:
(1) a distinct legal existence
(2) a recognized creed and form of worship
(3) a definite and distinct ecclesiastical government
(4) a formal code of doctrine and discipline
(5) a distinct religious history
(6) a membership not associated with any other church or denomination
(7) an organization of ordained ministers (8) ordained ministers selected after completing prescribed studies
(9) a literature of its own
(10) established places of worship
(11) regular congregations
(12) regular religious services
(13) Sunday schools for religious instruction of the young
(14) schools for the preparation of its ministers.
Speech of Jerome Kurtz, IRS Commissioner, at PLI Seventh Biennial Conference on Tax Planning, Jan. 9, 1978, reprinted in Fed.Taxes (P-H) p 54,820 (1978). As one court has observed with respect to these criteria:
While some of these are relatively minor, others, e.g. the existence of an established congregation served by an organized ministry, the provision of regular religious services and religious education for the young, and the dissemination of a doctrinal code, are of central importance. The means by which an avowedly religious purpose is accomplished separates a "church" from other forms of religious enterprise. See Chapman v. Commissioner of Internal Revenue, supra, 48 T.C. at 367 [ (1967) ] (Tannenwald, J., concurring). 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.
American Guidance Foundation, Inc. v. United States, 490 F.Supp. 304, 306 (D.D.C.1980) (emphasis added).
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