The term “church” is not actually defined in the Internal Revenue Code but when the IRS determines what a church is for tax exemption purposes, in more recent rulings it has exhibited a disturbing lack of predictability.
The ECFA recently reported on a non-traditional church that was denied church status by the IRS earlier this year. The organization applied for exemption as a church and religious organization (accounting for 60% of its activities) and as an educational organization by way of its seminary (40%). Every service, from sermons to seminary classes was offered online. There was no established physical meeting or teaching space.
In this case the IRS based its finding on several grounds in denying the organization tax exemption status; the primary basis in its adverse determination letter (found at http://www.irs.gov/pub/irs-wd/0912039.pdf) related to the characteristics needed to meet the definition of a church.
Since 1978, the IRS has typically relied upon its own fourteen-point criteria to define a church:
- Distinct legal existence
- Recognized creed and form of worship
- Definite and distinct ecclesiastical government
- Formal code of doctrine and discipline
- Distinct religious history
- Membership not associated with any other church or denomination
- Organization of ordained ministers
- Ordained ministers selected after completing prescribed courses of study
- Literature of its own
- Established places of worship
- Regular congregations
- Regular religious services
- Sunday schools for the religious instruction of the young
- Schools for the preparation of its members
This list was recognized in American Guidance Foundation v. U.S., 490 F. Supp. 304 (D.D.C. 1980). The court however chose to emphasize certain aspects from the list above, namely factors No.6 (Membership not associated with any other church or denomination), No.10 (Established places of worship), and No.12 (Regular religious services). Additionally, the court declared to be of central importance “the existence of an established congregation served by an ordained ministry, the provision of regular religious services and religious education of the young, and the dissemination of a doctrinal code.”
The 14 factors stated above were not accepted as a definitive test in Foundation for Human Understanding v. Commissioner, 88 T.C. 1341 (1987). Rather the court said that the IRS must consider all facts and circumstances.
But in analyzing the facts and circumstances of this case, the IRS appears to have actually narrowed the definition of a church. Some of its reasoning on what is considered the most important criteria is as follows:
- Sunday School. “Your Sunday school classes exist entirely on the Internet . . . Because there are no tests or final examinations required of these students, there is no way to establish that the students are learning their religious lessons. Thus, as a practical matter, you have no Sunday schools for the religious instruction of the young.”
The IRS appears to expect characteristics that are present in only some American churches. Catholic churches, for example may have “tests and final examinations” for the children to assure that they have learned their “religious lessons,” but that is not typical of most Protestant churches – traditional or otherwise. Furthermore, not every gathering of believers has the necessary resources or teachers available to conduct Sunday school.
- Exclusive Membership. “You state that you do not require prospective members to renounce other religious beliefs or their membership in other churches or religious orders to become members of your church. . . .This membership is insufficient to be treated as a regular congregation.”
Certainly many churches today do not inquire into all memberships of past churches and require renunciation when the congregant is willing to accept the creed of the present church. This again may mark a line between highly organized Catholic churches and more informal Protestant ones.
- Size of Pastorate & Congregation. “You have one minister, [name], ministering to your ‘congregation,’ which is composed of only [number] people. Thus you do not have a complete organization of ordained ministers ministering to their congregations.”
Size is not listed as a factor on the 14-point list; however, this factor seems to play an important role in the IRS’s consideration. Many churches in our country have only one pastor. We are not privy to the size of the congregation rejected here, but in our country small churches, including spin-offs, startups, and rural churches are perhaps more the rule than the exception.
- Internet. “Your services are held only on the Internet. This is not a building or a physical place. Thus you have no established places of worship.”
The internet has generated a plethora of never anticipated legal questions. Some examples include acceptable methods to serve process, unauthorized practice of law across state lines, and intellectual property issues. Simply because location is difficult to pin down does not mean it does not exist, as argued here. As the world becomes smaller through tools such as video conferencing, this issue will increase in relevance.
Regardless of whether the organization considered should have received church status recognition, if this is the analysis to be used in making future determinations, how many of our existing churches would survive this test?
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