Unitary Mission Church of Long Island v. Comm'r of Internal Revenue
| Decision Date | 03 June 1980 |
| Docket Number | Docket No. 8268-79X. |
| Citation | 74 T.C. 507 |
| Parties | UNITARY MISSION CHURCH of LONG ISLAND, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner, having been denied tax-exempt status as a religious organization under sec. 501(c)(3), I.R.C. 1954, as amended, petitioned this Court for a declaratory judgment pursuant to sec. 7428. Petitioner's financial decisions are controlled by X, one of petitioner's ministers, and his wife. X received widely fluctuating “parsonage allowances” over a 3-year period as compensation for leading Sunday services and for being available for pastoral counseling. There is no evidence in the administrative record of any differing duties that he performed over these years. There is also insufficient evidence in the record regarding some of the travel expenses paid to X and his wife and regarding two loans made to X's secular employer. Parsonage allowances of fluctuating amounts were also paid in some years to petitioner's other two ministers; yet, there is no evidence in the record about any services they performed for petitioner. 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 a part of its net earnings inures to the benefit of private shareholders or individuals. Sheridan Albert, for the petitioner.
Elizabeth D. DePriest, for the respondent.
Respondent determined that petitioner is not exempt from Federal income tax under section 501(c)(3),1 and that petitioner does not qualify as a church under section 170(b)(1)(A)(i). Petitioner has invoked the jurisdiction of this Court for a declaratory judgment pursuant to section 7428.2
The issues for our determination are: (1) Whether any part of petitioner's net earnings inure to the benefit of any private shareholder or individual, thereby preventing petitioner from qualifying for exemption, under section 501(c)(3), from Federal income taxation, and (2) assuming petitioner is held to be exempt under section 501(c)(3), whether petitioner is a church within the meaning of sections 509(a)(1) and 170(b)(1)(A)(i), and therefore, not a private foundation.
The case was submitted on a stipulated administrative record under Rules 122 and 217, Tax Court Rules of Practice and Procedure. The stipulated record, which is assumed to be true for the purpose of this proceeding, is incorporated herein by reference.
Petitioner, organized in July 1974, is an unincorporated New York State association with its principal meeting place in Wantagh, N.Y. Petitioner has never filed an “Application for Recognition of Exemption” with the District Director, Brooklyn, N.Y.
In letters dated September 26, 1977, and December 7, 1977, the District Director notified petitioner that it would have to submit information to determine whether petitioner qualified as a church under section 1.511-2(a)(3) (ii), Income Tax Regs. By letter dated March 14, 1978, the Regional Commissioner notified petitioner that an examination of petitioner's books and records would be conducted to determine petitioner's initial or continuing qualification for exemption under Section 501(c)(3). After this examination was conducted in the spring of 1978, the District Director notified petitioner that he was referring the case to the National Office for technical advice. Attached to this letter was a statement of facts and issues and a request for petitioner to respond and state the extent of its agreement with the statement. The issues listed in the statement were:
1. Whether organization qualifies as a church to which contributions are deductible under section 170(c)(2) of the Internal Revenue Code?
2. Alternatively, does the fact that an individual is assigning a substantial portion of his income from outside employment to the church to be used primarily to defray the operating expenses of the residence/church constitute inurement to the individual taxpayer's benefit?
3. If so, does this inurement indicate that the organization is not operated exclusively for religious or charitable purposes as required by section 501(c) (3) of the Internal Revenue Code?
Responding to this letter, Kenneth W. Bucher (hereinafter Kenneth), cofounder and trustee of petitioner, asserted, in a letter dated July 21, 1978, his disagreement with the statement of facts and issues. He stated, “We have no substantial disagreement with such facts as were presented, but additional information is clearly necessary to present a complete explanation of our situation.”
In a letter dated March 23, 1979, the District Director issued to petitioner a final adverse determination letter, stating:
Our recent examination of your books and records disclosed that your organization is not exempt under section 501(c)(3) of the Internal Revenue Code and further that you do not qualify as a church under section 170(b)(1)(A)(i) of the Code.
Contributions to your organization are not deductible under section 170 of the Code.
In his answer, respondent asserted the affirmative allegation that his determination was based on the inurement of church property to the private benefit of Kenneth. No reply was filed admitting or denying this allegation.
Petitioner's articles of incorporation name its three founders and trustees: Kenneth, G. Mara Bucher (Kenneth's wife), and Thomas D. Blackburn, Jr. Its articles further state that petitioner is organized exclusively for religious purposes; that the trustees shall be the ultimate authority for all ecclesiastical matters and have the power to ordain ministers; that no part of the net earnings of the church shall inure to the benefit of its members, trustees, officers, or related persons; that the church may pay reasonable compensation for services rendered or for property acquired; that the church may make payments and distributions in furtherance of its religious purposes; that carrying on propaganda or otherwise attempting to influence legislation shall not be a substantial part of the activities of the church; and that upon dissolution, remaining assets shall be distributed for religious purposes or to organizations exempt under section 501(c)(3).
Petitioner's theology is based on peace, salvation, and freedom within one's self and soul. Its basic tenet is the body of belief regarding that which is eternal, ultimate, ulterior, true, and good which is held in the achievement of the best life that is open to him. The sacraments it observes are:
Majority—Adulthood. The Acceptance of responsibility.
Marriage—A contracting for the sharing of lives.
Consecration—The dedication of person or property to sacred purposes.
Transformation—The changing of physical materials to create something of greater utility and value.
Exchange—The voluntary exchange of values.
A minister of petitioner has performed a marriage ceremony. Sunday worship, which is led by Kenneth, consists of a sermon/topic presentation followed by an open discussion of the sermon/topic. Petitioner also holds Wednesday meetings for study and meditation. Although it presently has no Sunday school, petitioner says one is planned in the future.
Petitioner's three ministers are Thiel E. Geddes (hereinafter Geddes) of Long Beach, N.Y., ordained on July 7, 1975; George B. Lyons (hereinafter Lyons) of Jersey City, N.J., ordained on February 18, 1975; and Kenneth, ordained on July 1, 1974. While petitioner does not require candidates for its ministry to undergo formalized instruction, it requires them to take an oral exam given by the directors of the International Council of Unitary Mission Churches (hereinafter ICUMC).3
Petitioner's place of worship is located in the ground floor of the Buchers' home in Wantagh, N.Y. Petitioner did not answer respondent's question about how many members it has; respondent's letter containing a statement of facts indicates that petitioner has 11 members.
Petitioner received $140,000 in contributions for the years 1975 through 1977. Kenneth contributed approximately 74 percent, or $103,900, over these years as follows:
+-------------+
¦1975¦$28,700 ¦
+----+--------¦
¦1976¦40,200 ¦
+----+--------¦
¦1977¦35,000 ¦
+-------------+
Approximately another 15 percent of petitioner's contributions came from its other two ministers, Geddes and Lyons, who in 1975 and 1976 contributed a total of $20,700 as follows:
+--------------------+
¦1975¦Lyons ¦$13,000 ¦
+----+------+--------¦
¦1976¦Geddes¦7,700 ¦
+--------------------+
During the years 1975 through 1977, petitioner's expenses amounted to $125,000. It paid “parsonages” to its ministers as follows:4
+------------------------------------------------------+
¦Kenneth ¦Lyons ¦Geddes ¦
+------------+------------+----------------------------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+----+-------+----+-------+---------------------+------¦
¦1975¦$13,600¦1975¦$12,350¦1976 ¦$7,086¦
+----+-------+----+-------+---------------------+------¦
¦1976¦35,650 ¦1976¦3,800 ¦1977 (through Oct. 1)¦1,235 ¦
+----+-------+----+-------+---------------------+------¦
¦1977¦12,000 ¦ ¦ ¦ ¦ ¦
+------------------------------------------------------+
Petitioner has expended at least $22,000 for permanent improvements and maintenance of its “parsonage,” the ground floor of the Buchers' house. More than $12,000 of this amount was spent for such permanent improvements as the construction of a fireplace, the installation of a sound system, the purchases of a piano, an organ, tables, chairs, a statue, and paintings. The remaining money was spent on painting, landscaping, carpeting, furniture, lighting, and general repairs.
Travel expenses were paid to the Buchers for the following trips:
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