An organization will not qualify for exemption under IRC 501(c)(3) if its net earnings inure to the benefit of private shareholders or individuals. In The Founding Church of Scientology v. United States, 412 F.2d 1197 (Ct. Cl. 1969), cert. den., 397 U.S. 1009 (1970), the court, without considering the organization’s beliefs, held that it did not qualify for exemption under IRC 501(c)(3) because its net earnings inured to the organization’s founder and members of his family. See also People of God Community v. Commissioner, 75 T.C. No. 8 (1980); Bubbling Well Church of Universal Love v. Commissioner, 74T.C. 531 (1980); Unitary Mission Church of Long Island, Inc. v. Commissioner, 74 T.C. 507 (1980); Western Catholic Church v. Commissioner, 73 T.C. 196 (1979); The Basic Unit Ministry of Schurig v. U. S., 81–1 USTC S9188 (D.D.C. 1981); Church of the Transfiguring Spirit. Inc. v. Commissioner, 76 T.C. 1 (1981); Church of Scientology of California v. Commissioner, 823 F.2d 1310 (9th Cir. 1987). In Basic Bible Church v. Commissioner, 74 T.C. 846 (1980), the organization’s founder and his wife executed vows of poverty and transferred all their possessions and income to the organization on the condition that it qualified under IRC 501(c)(3). The founder controlled all financial decisions of the organization. The court found that a substantial purpose of the organization was to serve the private interests of the founder and his wife. Over 96 percent of the contributions the organization received (mostly from the founder and his wife) were spent on the founder’s and his wife’s subsistence, their unsubstantiated travel, and upkeep and utilities of their home, which was labeled their "parsonage." Less than one percent of contributions were spent for direct church related expenses. Accordingly, the court held that the organization did not qualify under IRC 501(c)(3). See also The Church in Boston v. Commissioner, 71 T.C. 102 (1978); and Southern Church of Universal Brotherhood Assembled v. Commissioner, 74 T.C. No. 89 (1980). In Beth-El Ministries. Inc. v. United States, 79–2 USTC § 9412, an organization whose members donated all their possessions and, if employed outside the organization, their salaries, to the organization, and which provided its members benefits in the form of food, clothing, shelter, medical care, recreational facilities, and educational services, was held not to be exempt as a religious organization. The court concluded that private benefits inured to the organization’s members because the organization paid their living expenses. See also Martinsyille Ministries, Inc. v. United States, 80–2 USTC § 9710 (D.D.C. 1979). But see Alive Fellowship of Harmonious Living v. Commissioner, T.C. Memo. 1984–87. The Tax Court held that no inurement resulted when an organization’s members received benefits on the basis of need. However, in approving this "unconventional" compensation arrangement, the court based its decision on the fact that members received less than modest assistance that did not exceed the value of the required services that they performed.
Posted on: Tue, 03 Sep 2013 08:47:23 +0000
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