Foundation of Human Understanding v. United States
614 F.3d 1383, 93 Fed. Cl. 1383, 106 A.F.T.R.2d (RIA) 5862 (2010)
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Rule of Law:
To qualify as a 'church' under I.R.C. § 170(b)(1)(A)(i), a religious organization must serve an associational role in accomplishing its religious purposes, which includes having a body of believers who assemble regularly for communal worship. An organization whose primary function is disseminating its message through broadcast and print media, with only incidental or sporadic in-person gatherings, does not meet this standard.
Facts:
- The Foundation of Human Understanding, a non-profit corporation based on Judeo-Christian beliefs, was incorporated in 1963.
- Historically, the Foundation owned buildings in Los Angeles and Grants Pass where it conducted regular services for congregations of 50 to 350 people.
- The Foundation also operated Brighton Academy, a school instructing students in its teachings, and held activities at its Tall Timber Ranch in Oregon.
- In 1991, Brighton Academy was separately incorporated and began operating as a non-denominational Christian school.
- During the mid-1990s, the Foundation sold its church buildings in Los Angeles and Grants Pass.
- During the audit period of 1998-2000, the Foundation's primary activities shifted to disseminating its message through radio broadcasts, printed materials, and the internet.
- Over the three-year audit period, the Foundation held a total of 21 seminars in various U.S. locations, five of which were at its Tall Timber Ranch, and meetings there became less frequent.
Procedural Posture:
- In 1983, the IRS denied the Foundation's request for a ruling that it qualified as a church.
- The Foundation filed an action in the U.S. Tax Court seeking a declaratory judgment.
- In 1987, the Tax Court ruled in favor of the Foundation, finding that it qualified as a church (Foundation I).
- In 2001, the IRS began a new inquiry for the tax years 1998-2000 and subsequently revoked the Foundation's church status, though it retained its tax-exempt status as a 'religious organization'.
- The Foundation filed an action in the U.S. Court of Federal Claims seeking a declaratory judgment to restore its church status.
- Both parties moved for summary judgment, and the Court of Federal Claims granted summary judgment in favor of the United States.
- The Foundation (Plaintiff-Appellant) appealed the decision to the U.S. Court of Appeals for the Federal Circuit.
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Issue:
Does a religious organization that primarily disseminates its message through broadcast, print, and internet media, with only sporadic in-person seminars and no regular congregation, qualify as a 'church' under I.R.C. § 170(b)(1)(A)(i)?
Opinions:
Majority - Judge Bryson
No. A religious organization must satisfy the 'associational test' to qualify as a 'church' under I.R.C. § 170, meaning it must provide a forum for a body of believers to assemble regularly for communal worship. The court agreed with prior decisions that Congress intended a more restricted definition for a 'church' than for a 'religious organization,' and the means by which a religious purpose is accomplished is what separates the two. While the IRS's 14 criteria can be a helpful guide, the core requirement is associational. The Foundation failed to meet this test because its 21 seminars over a three-year period in scattered locations did not constitute regular services for a regular congregation. Its primary activities were broadcasting and publishing, which do not fulfill the associational role of a church, as they do not provide an opportunity for followers to interact and worship communally. An 'electronic ministry' or 'virtual congregation' does not satisfy the requirement that a church bring people together for worship.
Analysis:
This decision solidifies the 'associational test' as the primary standard for determining church status for tax purposes, distinguishing 'churches' from other 'religious organizations.' It clarifies that organizations primarily engaged in media outreach without a substantial, regular, in-person congregational component will likely not qualify for the preferential tax status of a church. The ruling has significant implications for modern religious groups that heavily rely on virtual or broadcast ministries, establishing a clear legal preference for traditional models of communal, in-person worship to attain church status under the Internal Revenue Code.
