Supreme Court won't review holding that Foundation of Human Understanding wasn't a church Foundation of Human Understanding v. U.S., (CA Fed Cir 08/16/2010) 106 AFTR 2d ¶2010-5204 , cert denied 3/21/2011 The Supreme Court has refused to review a finding by the Court of Appeals for the Federal Circuit that the Foundation of Human Understanding, a tax-exempt organization under Code Sec. 501(c)(3) , failed to qualify as a church under Code Sec. 170(b)(1)(A)(i) . The organization's main function of disseminating its religious message through radio, an “electronic ministry” on the internet, and written publications didn't satisfy the associational test for qualifying as a church. Background. Code Sec. 501(c)(3) allows an exemption from federal income taxes for certain charitable organizations. ( Code Sec. 501(c)(3) ) Code Sec. 509(a) provides that organizations exempt under Code Sec. 501(c)(3) are private foundations unless the organizations fits within certain classes of public charities and thereby qualifies for non-private foundation status. ( Code Sec. 509(a) ) Among the organizations qualifying for non-private foundation status are churches ( Code Sec. 170(b)(1)(A)(i) ) and organizations which normally receive a substantial part of their support from direct or indirect contributions from the general public. ( Code Sec. 170(b)(1)(A)(vi) ) These public charities are not subject to the various excise taxes under Code Sec. 4940 that apply to private foundations, and their contributors can claim deductions subject to the 50% (contribution base) limitation. ( Code Sec. 509(a)(1) ) Additionally, being classified as a publicly supported charity under Code Sec. 170(b)(1)(A)(vi) is less advantageous than achieving church status because a church is exempt from annual information filings, and there are restrictions on audits of churches. The Internal Revenue Manual lists the following fourteen criteria for determining whether a charitable organization is a church: (1) a distinct legal existence; (2) a recognized creed and form of worship; (3) a definite and distinct ecclesiastical government; (4) a formal code of doctrine and discipline; (5) a distinct religious history; (6) a membership not associated with any other church or denomination; (7) an organization of ordained ministers ministering to their congregations; (8) ordained ministers selected after completing prescribed courses of study; (9) a literature of its own; (10) established places of worship; (11) regular congregations; (12) regular religious services; (13) Sunday schools for religious instruction of the young; and (14) schools for the preparation of ministers. (IRM 7.26.2.2.4(4)) Under the associational test, an organization is a church if it serves an associational role in accomplishing its religious purpose. Under this test, at a minimum, a church includes a body of believers or communicants that assembles regularly in order to worship. (American Guidance Foundation v. U.S. (DC DC 1980), 46 AFTR 2d 80-5006 ) Facts. The Foundation of Human Understanding (Foundation) has as its specific and primary purposes the promulgation of the religious, charitable, scientific, literary and education aspects of mind over matter and spiritual health known as psychocatalysis. Its founder, Roy Masters, developed a particular form of meditation that is used by his followers. Foundation conducted call-in radio and internet broadcasts and sporadically held Sunday meetings, weddings and seminars on church grounds. After conducting an examination of Foundation, IRS revoked its status as a church retroactive to Jan. 1, '98. Court of Federal Claims. In 2009, the Court of Federal Claims found that Foundation wasn't a church under Code Sec. 170(b)(1)(A)(i) . Foundation met some but not all of IRS's 14 criteria standard, but it did not provide religious services to an established congregation, and thus failed the associational test. The Court held that Foundation's radio and internet broadcasts lacked critical associational aspects characteristic of religious services and were therefore instead properly regarded simply as broadcasting and publishing services insufficient to qualify an organization as a church. The Foundation's main purpose was to disseminate its religious message through radio, internet and written publications. Court of Appeals for the Federal Circuit. Affirming the Court of Federal Claims's decision, the Appellate Court held that attendance of groups of people at occasional Foundation seminars in cities scattered across the country did not constitute a regular assembly of a cohesive group of people for worship. And Foundation could not show that the five meetings at its regular headquarters during the three-year period at issue enabled congregants to establish a community of worship. While the associational test does not demand that religious gatherings be held with a particular frequency or on a particular schedule, it does require gatherings that, by their nature and frequency, provide the opportunity for members to form a religious fellowship through communal worship. In sum, the Appellate Court agreed with the Court of Federal claims that the in-person services conducted during the years in question were merely incidental to Foundation's primary purposes, and were therefore insufficient to demonstrate that it was a “church” for tax purposes. The Appellate Court didn't buy Foundation's argument that its members regularly assembled to worship as a “virtual congregation” in an “electronic ministry” by listening to sermons broadcast over the radio and the internet at set times, referred to as “appointments to listen.” It ruled that disseminating religious information, whether through print or broadcast media, does not fulfill the associational role required to qualify as a “church” under Code Sec. 170 . The Court also ruled that Foundation's running a call-in show didn't provide a basis for concluding that Foundation's religious activities satisfied the associational test. Supreme Court declines review. On March 21, 2011, the Supreme Court refused to review the decision of the Court of Appeals for the Federal Circuit inFoundation of Human Understanding, thus closing the chapter on a significant case addressing how Code Sec. 170(b)(1)(A)(i) applies to “electronic ministries.” www.irstaxattorney.com 888-712-7690