Parker v. CIR

• Decision Date: 09 September 1966
• Docket Number: No. 18238,18239.,18238
• Citation: 365 F.2d 792
• Parties: Merle E. PARKER, the Foundation for Divine Meditation, Incorporated, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Merle E. PARKER, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

365 F.2d 792 (1966)

Merle E. PARKER, the Foundation for Divine Meditation, Incorporated, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Merle E. PARKER, Respondent.

Nos. 18238, 18239.

United States Court of Appeals Eighth Circuit.

September 9, 1966.

COPYRIGHT MATERIAL OMITTED

Dr. Merle E. Parker, pro se.

Thomas Silk, Atty., Dept. of Justice, Washington, D. C., for Commissioner of Internal Revenue; Richard M. Roberts, Acting Asst. Atty. Gen., Lee A. Jackson and Gilbert E. Andrews, Attys., Dept. of Justice, Washington, D. C., on the brief.

Before VAN OOSTERHOUT, BLACKMUN and GIBSON, Circuit Judges.

GIBSON, Circuit Judge.

This case is before us on a joint petition to review a decision of the Tax Court. T.C.Memo. 1965-77. The corporate petitioner is an organization known as the Foundation for Divine Meditation (F.D.M.) and the individual petitioner is the Reverend Dr. Merle E. Parker, the founder, director, and prime functionary of F.D.M.

In 1954 F.D.M. filed an application for exemption from taxation under § 101 (6)¹ of the Internal Revenue Code of 1939. The exemption was denied by the Commissioner in a letter dated November 16, 1955 and this ruling was reaffirmed in a letter dated June 30, 1958. F.D.M. was advised of the necessity to file income tax returns and pay the appropriate amount of tax. Nonetheless, from the year 1954 through 1959 F.D.M. filed no return and paid no tax. The Commissioner determined that a deficiency plus statutory penalties were due. The Tax Court upheld the assessment of the Commissioner.

The first issue for determination is whether the Tax Court was justified in ruling that corporate petitioner, F.D.M., was not entitled to a tax exemption as a religious organization under § 501 of the Internal Revenue Code of 1954. (26 U.S.C. 1958 ed. § 501).²

Petitioners maintain that the ruling of the Tax Court holding that F.D.M. was not entitled to an exemption was erroneous. A reading of petitioners' thorough brief indicates that petitioners' central allegations of error are: (1) The authority vested in the Commissioner to determine if an organization is entitled to an exemption from taxation is a "prior restraint" on the free exercise of their religion and violates their rights under the First Amendment to the Constitution, citing Cantwell v. State of Connecticut, 310 U.S. 296, 60 S.Ct. 900, 84 L.Ed. 1213 (1940). (2) Applying the case of Trinidad v. Sagrada Orden De Predicadores, 263 U.S. 578, 44 S.Ct. 204, 68 L.Ed. 458 (1924) petitioners feel that the only test to determine whether an organization is entitled to an exemption under § 501 as a religious organization is the ultimate destination of its income. This test, petitioners argue, was not applied by the Tax Court.

Dealing first with petitioners' Constitutional objections, we do not believe the free exercise of their religion as guaranteed by the First Amendment³ has been infringed upon by the method of taxation authorized by the 1954 Code. We believe it is constitutionally permissible to tax the income of religious organizations. Watchtower Bible & Tract Soc., Inc. v. Los Angeles County, 30 Cal. 2d 426, 182 P.2d 178 (1947), cert. denied 332 U.S. 811, 68 S.Ct. 112, 92 L.Ed. 389; Mordecai F. Ham Evangelistic Association v. Matthews, 300 Ky. 402, 189 S.W.2d 524, 168 A.L.R. 1216 (1954); Annot. 168 A.L.R. 1222 and cases cited therein; 51 Am.Jur., Taxation, § 610. In fact there are those who contend that the failure to tax such organization violates the "no establishment clause" of the First Amendment. Since the government may constitutionally tax the income of religious organizations, it follows that the government may decide not to exercise this power and grant reasonable exemptions to qualifying organizations,⁴ while continuing to tax those who fail to meet these qualifications. The receiving of an exemption is thus a matter of legislative grace and not a constitutional right. As long as exemptions are denied by the Commissioner on a non-discriminatory basis using specific and reasonable guidelines and without inquiry into the merits of the particular religious doctrines, the withholding of religious exemptions is permissible under the Constitution. The guidelines set out in § 501 are certainly reasonable. Petitioners have demonstrated no illegal discrimination in the refusal to grant the exemption, nor have they shown that the refusal was in any way based upon a judgment of the religious tenets espoused by the petitioners. The only judgment made by the Commissioner was that F.D.M. had a substantial non-religious purpose, which judgment, as we shall see later, was entirely justified.

Petitioners rely primarily upon Cantwell v. State of Connecticut, 310 U.S. 296, 60 S.Ct. 900 (1940), which reliance, we feel is misplaced. In Cantwell the Court declared that a state could not require a license in order to solicit support for religious doctrines. No such license is being demanded herein. Petitioners are free to espouse their religious doctrine; to publish and to speak. They are free to solicit support for their cause in any way they deem necessary. However, if they desire the special privilege of tax immunity they are expected to follow the reasonable standards enacted by Congress and devote themselves exclusively to the pursuit of religious purposes. If they fail to qualify for this exemption they are still free to practice their religion, solicit funds, and engage in any commercial activities they deem expedient. They simply must pay the tax on their income the same as other individuals and corporations. The religion has not been deprived of its existence by the failure to secure a governmental license.

As their second allegation petitioners erroneously conclude that the only test for exemption under § 501 is the ultimate goal or use of the income. The statute clearly recognizes three requirements for exemption, not just one: (1) The organization must be "organized and operated exclusively for religious * * * purposes." (2) "No part of the net earnings may inure to the benefit of any private shareholder or individual." (3) "No substantial part of the activities * * * may be in attempting to influence legislation * * *". The taxing authorities have clearly recognized and demanded as prerequisites for exemption a demonstration of all three of these elements. Saint Germain Foundation v. Commissioner, 26 T.C. 648 (1956).

Trinidad v. Sagrada Orden De Predicadores, 263 U.S. 578, 44 S.Ct. 204 (1924), stated only that receiving income from "limited trading" which was purely incidental to the pursuit of its religious purposes would not deprive a religious organization of its tax exemption as long as the proceeds were used for a religious purpose. So, as recognized in Consumers-Farmer Milk Cooperative v. Commissioner, 186 F.2d 68 (2 Cir. 1950), cert. denied 341 U.S. 931, 71 S.Ct. 803, 95 L.Ed. 1360, not only must the ultimate purpose be religious, any profit must be incidental to this ultimate purpose, and devoted exclusively to that purpose. The Trinidad case thus did not destroy the three statutory requirements for exemption. The primary and basic requirement for exemption is still that the organization must be organized and operated "exclusively" for religious purposes. Only after this primary requirement has been met need we concern ourselves with the destination of any income or the organization's political activities. Appeal of Unity School of Christianity, 4 B.T.A. 61 (1926).

Of course, it is well established that the law does not demand a strict application of the word "exclusive" as used in the statute. "Exclusive" dedication to religious purposes is not required where non-qualifying activity is not substantial in nature. Better Business Bureau of Wash. v. Commissioner, 326 U.S. 279, 66 S.Ct. 112, 90 L.Ed. 67. As we stated in Stevens Bros. Foundation, Inc., v. Commissioner, 324 F.2d 633, 638 (8 Cir. 1963):

"In order for Foundation to occupy exempt status, it must be devoted to charitable purposes exclusively, and if there is present in its operations a single non-charitable purpose substantial in nature, though it may have other truly and important charitable purposes, it is not entitled to be exempt."

A review of the evidence in this case clearly supports the finding of the Tax Court that F.D.M. had a nonexempt purpose that was substantial in nature, and, therefore, under the law, was not entitled to tax exemption.

In 1948 Parker became interested in occult philosophy and religion. In 1949 he, along with other individuals whom Dr. Parker preferred to keep anonymous, founded F.D.M. as an unincorporated association with the stated purpose of advancing their ideas on religion and philosophy. Parker was installed as National Director for life. Between the years 1948 and 1953 Dr. Parker received training from Riverside College in California and from the College of Universal Truth in Chicago, Illinois. In 1953 he was awarded a doctorate in metaphysical psychology and divinity from the College of Universal Truth. In 1954, at the cost of $75,000-$80,000, a building was erected in Valley Center, California, which housed the offices of F.D.M. as well as a small meeting hall designed for religious services. In 1955 F.D.M. incorporated as a nonprofit corporation under the laws of California. From Easter 1955 until June 1958 weekly religious services were held in F.D.M.'s building. Attendance ranged from about 40 to 50 adults and children. In addition F.D.M. sponsored swimming and skating parties for members in facilities constructed on the property of F.D.M. There can be no doubt that the services and the sponsored recreational activities were religious in nature and had F.D.M. so restricted its activities, its exempt status would probably not be questioned.

Prior to the founding of F.D.M. and throughout the period in question, however, Dr. Parker authored innumerable ar...