Nat'l Ass'n of American Churches v. Comm'r of Internal Revenue

• Decision Date: 05 January 1984
• Docket Number: Docket No. 29251–81X
• Citation: 82 T.C. No. 2,82 T.C. 18
• Parties: NATIONAL ASSOCIATION OF AMERICAN CHURCHES,1 Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

82 T.C. 18

82 T.C. No. 2

NATIONAL ASSOCIATION OF AMERICAN CHURCHES,1 Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 29251–81X

United States Tax Court

Filed January 5, 1984.

Petitioner, having been denied tax-exempt status as a religious organization under section 501(c)(3), Internal Revenue Code of 1954, as amended, petitioned this Court for a declaratory judgment pursuant to section 7428. Petitioner is a central organization whose membership consists of separately incorporated family missions. In addition to its stated religious activities, petitioner provides assistance to the family missions in incorporating under state law and in handling any tax disputes which may arise concerning the missions' claimed tax-exempt status. Petitioner promotes tax seminars for its members. The administrative record is inadequate to disprove that the individual members did not transfer personal, family assets to their incorporated family missions for tax reasons, and that petitioner did not engage in the substantial nonexempt purpose of providing financial and tax advice. Held, respondents adverse ruling that petitioner does not qualify for tax exemption under section 501(c)(3) is sustained. Held, further, the local family missions do not qualify for a group ruling request. Williams W. Lentz and Denis H. Hare, for the petitioner.

Keith A. Acqui, for the respondent.

SWIFT, Judge:

This is an action for declaratory judgment pursuant to section 7428.² Petitioner filed an application with the Internal Revenue Service for recognition of exemption from Federal income taxes on March 11, 1980, seeking exemption under section 50(c)(3) and claiming to be a church within the meaning of section 170(b)(1)(A)(i). The application was filed as a group ruling request under Rev.Proc. 80–27, 1980–1 C.B. 677, seeking a determination of exempt status for petitioner and 72 affiliated missions.

After extensive efforts by respondent at the administrative level to obtain detailed factual information from petitioner concerning the activities, operations and financial affairs of petitioner and of its affiliated missions, respondent on June 17, 1981, issued an adverse ruling. Therein respondent determined that petitioner was not operated exclusively for exempt purposes, that it was operated for private rather than public interests, and that petitioner was not a church within the meaning of section 170(b)(1)(A)(i). With regard to the affiliated missions, respondent concluded that a group ruling request would not be appropriate since various requirement of Rev.Proc. 80–27, 1890–1 C.B. 677, had not been satisfied. In the adverse ruling of June 17, 1981, respondent also described much of the information provided by petitioner at the administrative level as vague, unresponsive and ambiguous.

On July 8, 1981, petitioner filed a protest of the June 17, 1981 ruling. On September 3, 1981, respondent issued a final adverse ruling, which stated in relevant part as follows:

You are not operated exclusively for exempt purposes within the meaning of section 501(c)(3) of the Code. You are operated in furtherance of a substantial non-exempt purpose. You are operated to serve private rather than public interests. Also, you have failed to establish that no part of your net earnings inures to the benefit of private individuals. Furthermore, even 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 seek non-private foundation status.

Prior to a discussion of the administrative record and the relevant legal precedents, it would appear helpful to review briefly the history and nature of a declaratory relief action under section 7428 and the scope of this Court's jurisdiction in such an action. In Houston Lawyer Referral Service v. Commissioner, 69 T.C. 570, 573 (1978), a reviewed opinion, this Court explained the history of section 7428 as follows:

Prior to the adoption of section 7428, added by section 1306, Tax Reform Act of 1976, 90 Stat. 1717, taxpayers, whose applications for exempt status under section 501(c)(3) were denied, had no judicial recourse for the review of an adverse Internal Revenue Service ruling except in the context of a deficiency proceeding in this Court or a tax refund suit in a district court or the Court of Claims. In two cases decided in 1974, Bob Jones University v. Simon, 416 U.S. 725 (1974), and Alexander v. “Americans United” Inc., 416 U.S. 752 (1974), the Supreme Court commented extensively on the hardship cast upon such organizations by the delay in obtaining a final judgment in these types of court actions. To provide a more appropriate remedy, section 7428 was enacted conferring jurisdiction on this Court along with the United States Court of Claims and the United States District Court for the District of Columbia to enter declaratory judgments as to the status of organizations claiming tax exemptions under section 501(c)(3).

As explained further in that opinion, the scope of this Court's review in a declaratory relief action of respondent's administrative decisions is narrow and is limited to a review of “the legal issues raised by the Internal Revenue Service's denial of an exemption ruling on the bassi of uninvestigated statements of facts submitted by the taxpayer in its ruling request and related papers.” 69 T.C. at 573.

Generally, in a declaratory relief action factual assertions contained in the administrative record are taken as true. See Houston Lawyers Referral Service, supra, at 577, and this Court's notes accompanying Rules 213(a) and 217(a), 64 T.C. 1177, and 68 T.C. at 1042, respectively. However, factual inferences may be drawn from the administrative record by this Court in the performance of its review function,and in some limited circumstances an evidentiary hearing may be appropriate. See Tax Court note to Rule 217, 64 T.C. at 1179, Houston Lawyer Referral Service, supra, at 575, and Animal Protection Institute, Inc. v. United States, 78–2 USTC, ¶ 9709, p. 85374; 42 AFTR 2d 78–5850, 78–5853 (Ct.Cl. Trial Judge's Opinion 1978). Based upon these rules which govern this Court's review of the administrative record in a declaratory relief action, we now proceed to summarize those facts contained in the administrative record herein which are considered relevant to the issue presented.

The Administrative Record

Petitioner filed its articles of incorporation with the Secretary of State of the State of Missouri on December 28, 1979. The articles state, inter alia, that the corporation is a church and that it will not carry on any activities not permitted to be carried on by a corporation exempt from Federal income tax under section 501(c)(3).

The initial registered office of petitioner was and is located at 2701 South 291 Highway, Independence, Missouri. This is a two-story commercial building which was donated to one of the family missions and which is not used by petitioner. It is not used as a residence for members of petitioner but is used for planning meetings, educational classes and occasional worship services. The incorporators and board of directors of petitioner are unrelated individuals all of whom reside in close proximity to Independence, Missouri. The articles of incorporation provide that upon dissolution all assets, after payment of liabilities, shall be disposed of exclusively to exempt organizations. The articles also provide that no part of the earnings of the corporation shall inure to the benefit of any private individual except for the payment of reasonable wages and expenses.

Petitioner's rudimentary religious beliefs appear to be somewhat similar to those of the Reorganized Church of Jesus Christ of Latter-day Saints, the headquarters of which also is located in Independent, Missouri. Petitioner's tenets and beliefs were summarized in its articles of incorporation as follows:

We believe in God the Eternal Father, Who only is Supreme; Creator of the universe; Ruler and Judge of all; unchangeable and without respect of persons.

We believe in Jesus Christ the manifestation of God in flesh, who lived, suffered and died for all mankind; whom we own as our only Leader, Witness and Commander.

We believe in the Holy Ghost, the Spirit of Truth, the Comforter, which searcheth the deep things of God, brings to our minds things which are past, reveals things to come and is the medium by which we receive the revelation of Jesus Christ.

We believe that men will be punished for their own sins and not for Adam's Transgression, and that as a consequence of the atonement of Christ “all little children are alive in Christ, and also all they that are without law. For the power of redemption cometh on all them that have no law; wherefore, he that is not condemned, or he that is under no condemnation, cannot repent.”

We believe that through the atonement of Christ all men may be saved by obedience to the laws and ordinances of the Gospel.

We believe in the literal second coming and millennial reign of Jesus Christ, in the resurrection of the Dead, and in Eternal Judgment; that men will be rewarded or punished according to the good or evil they may have done.

We believe that in the Bible is contained the Word of God and contains the “fullness of the Gospel”.

We believe in the principle of continuous revelation, that the canon of scripture is not full, that God inspires men in every age and among all people, and that he speaks when, where and through whom He may choose.

We believe that where there are three or more members, there the Church exists with full power of Church extension when acting in harmony with the law of God.

We believe the church is a theocratic democracy—not man-made, but of divine appointment and origin. It is brought into being by command of God, is guided and administered by His authority, is sustained by the light of His Spirit, and...