(a) Ideology or Dogma Not Essential

Religion is not confined to a particular sect or ritual. One court has noted that the symbols of one religion may be anathema to another.⁵ Another court stated that judgments about the validity or truth of the organization's beliefs must be avoided by the courts: “It is not the province of government officials or courts to determine religious orthodoxy.”⁶ Religions that do not believe in a supreme being in the Judeo-Christian sense, such as Taoism, Buddhism, and secular humanism, are eligible for exemption.⁷ It is unnecessary to inquire into the nature of the beliefs of an organization. A religion with thousands of adherents based on supernatural revelations to its founder was found to operate for religious purposes, despite its total control by the founder and its lucrative publication sales.⁸

Although a formal written dogma, such as the Christian Bible or the Catholic catechism, may not be necessary, to be classified as religious an organization must adhere to or promote religious beliefs. In the Seeger case, the Supreme Court used a two-pronged test to identify a religious belief:

1. The beliefs must be deeply and sincerely held by its members.
2. Those beliefs must involve a matter of ultimate concern to the person to which all else is subordinate (such as the Catholic notion of God as the Supreme Being).

A series of questions was asked by another court to evaluate the existence of religion:⁹

• Does the system of beliefs address the meaning of life and death, a person's role in the universe, and the proper moral code of right and wrong?
• Is the system of beliefs comprehensive? (More than one moral teaching is expected.)
• Are there any formal, external, or surface signs that may be analogized to accepted religions (such as services, ceremonial functions, the existence of clergy, structure and organization, efforts at propagation, observation of holidays, and other similar manifestations associated with traditional religions)?

(b) Examples of Qualifying Organizations

Although religious orders and churches unquestionably qualify as religious organizations, a vast array of organizations conducting related activities also qualify under the religious category. To illustrate the concepts, the following list compares qualifying organizations to other organizations with a similar focus that do not qualify for exemption:

• Weekend retreat centers, open to individuals of diverse Christian denominations, where organized religious programs are presented and recreational time is limited, can qualify.¹⁰ In contrast, an organization sponsoring religious cruises that included extensive social and recreational activities was not permitted exemption.¹¹ Nor was a retreat center that held unscheduled and nonrequired religious activity available for its visitors, to encourage individual meditation and prayer. (It looked too much like a spa or vacation place.)¹²
• Kosher food preparation and inspection of commercial products for compliance with religious belief advances religion and can be exempt.¹³ However, a Seventh-Day Adventist Church affiliate was denied exemption for its vegetarian restaurant and food store that provided foodstuffs in accordance with church doctrines. Although not so stated, perhaps the fatal flaw was the fact that the stores were open to the general public, evidencing a commercial purpose beyond that of ministering to the spiritual needs of the church members.¹⁴
• A religious publishing house that disseminates literature to promote its own beliefs can qualify for exemption.¹⁵ Also, publication of a nondenominational newsletter is an exempt activity.¹⁶ If, instead, the publishing house sells a wide variety of religious publications and supplies in a profitable, commercial manner, it looks to the IRS and the courts like a business venture and cannot qualify for exemption.¹⁷
• Communal living groups that practice religious functions also provide food, shelter, and other basic human needs that give individual benefit to the commune members. New-age communes, however, were found not to qualify as exempt religious organizations in the late 1970s.¹⁸ Later, the IRS recanted its seeming discrimination against alternative religions. When the living quarters and provisions are minimal and “do not exceed those strictly necessary,” a few members work outside the community, and the group has a religious focus, the IRS may rule favorably.¹⁹ Groups of monks, nuns, and other clerics traditionally have been allowed to qualify as religious organizations and are often exempt as an integrated auxiliary of a church.²⁰ Special rules apply to religious orders and apostolic associations.²¹
• A nonprofit organization formed to “provide support, networking, and fellowship between Christians around the world, as well as reaching out to non-Christians in the industry,” was denied exempt status.²² A substantial purpose of the entity was to facilitate job networking information for the particular profession, and a major portion of its website was dedicated to nonexempt activities, such as contests, a trivia game, chat room, links, and member listings. The organization argued that those activities fostered the networking of its constituents and that every page of its website contained a religious message. Citing the Better Business Bureau case,²³ the IRS determined that the organization did not operate exclusively for religious and educational purposes. The “presence of a single non-educational purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of the truly educational purposes.”
• Establishing new churches and training church leaders to foster an evangelistic fellowship with local churches is a religious mission. Because the organization focused on training indigenous people to establish their own churches, the organization could not qualify itself as a church.²⁴
• The Satanic Temple's mission—“to encourage benevolence and empathy among all people, reject tyrannical authority, advocate practical common sense and justice, and be directed by the human conscience to undertake noble pursuits guided by the individual will”—was found by the IRS to qualify as a religious purpose in April 2019. The Church of Satan was also recognized in 1980.

(c) Peripheral Religious Activity

Other types of organizations conducting activities associated with religious matters include the following:

• A religious burial service, provided by an exempt organization to support and maintain basic tenets and beliefs of a religion regarding burial of its members, qualifies as exempt.²⁵
• A coffeehouse for college students to meet with church leaders, educators, and business leaders for discussion and counseling on religion, current events, or social and vocational problems is exempt.²⁶
• Radio and television broadcasts of religious materials and worship services are exempt religious activities. An organization presenting such broadcasts can qualify even when the station holds a commercial license, as long as the amount of broadcasting devoted to advertisements is insignificant.²⁷

(d) Secular Groups

Spirituality, rather than secular or worldly issues, should be the focus of a religious organization. An organization practicing a doctrine of ethical egoism by holding dinner meetings and publishing a newsletter was found not to be religious.²⁸ A nationwide broadcast ministry that engages in substantial legislative activity was also denied exemption.²⁹ In the absence of “any solid evidence of a belief in a supreme being, a religious discipline, a ritual, or tenets to guide one's daily existence,” the Neo-American Church, whose beliefs focused on psychedelic substances, was denied exemption.³⁰

An organization teaching “Gay Imperative” was denied exemption because it was a secular group.³¹ The organization was dedicated to “religious explorations and a secular lifestyle for men and women who won't worship a god who oppresses gays.” Although the court accepted the sincerity of their beliefs, it found that the group's beliefs were not religious. Be aware that this case was determined in 1982. The basis of the decision was threefold:

1. Religious beliefs must address fundamental and ultimate questions concerning the human condition—issues of right and wrong, life and death, good and evil. Focusing singularly on sexual preference and lifestyle was found not to be a religious question (might be a discrimination issue under the charitable category).
2. The beliefs must be comprehensive in nature and constitute an entire system of belief rather than merely an isolated teaching. The court found no outward characteristics analogous to those of other religions. There is no published literature explaining its tradition; no formal written documentation of beliefs, such as the Bible or Koran; nor an oral literature reflecting its beliefs or history.
3. The beliefs must be manifested in external form. This group held no regular ceremonies or services.

(e) Pseudoreligious Groups

Partly because of the lack of specific definitions, pseudoreligious groups formed to take advantage of favorable tax status afforded to ministers have proliferated over the years. The primary reason such groups are denied exemption is that they provide private benefits to their members, who are often their founders. The classic example is the mail-order, or personal, church. For a few hundred dollars, one buys a church—a charter, ordination papers, or other ministerial credentials—through the mail. In the typical scenario, the buyer takes a “vow of poverty” and gives all of his or her property to the church. Afterward, the church pays all of the person's living expenses in a purportedly nontaxable manner. It has been easy for the IRS and the courts to find that these organizations serve the private interests of their creators and cannot qualify for exemption.³²

(a) Special Aspects of a Church

Apparently for reasons of respecting the separation of church and state, churches benefit from several special rules:

• A church and its integrated auxiliaries are automatically exempt from income tax and need not seek recognition of exemption.
• No annual filing of Form 990 is required, and a high degree of abuse must be present for the IRS to seek to examine a church.⁴⁰
• Parsonage allowances are exempt from income tax, and ministers have special employment tax rules.⁴¹
• A church qualifies under §§509(a)(1) and 170(b)(1)(a)(i) as a public charity without regard to its sources of support.

The American Atheists' complaint seeking injunctive and declaratory relief to have the IRS enforce tax laws against churches and religious groups that they alleged receive preferential treatment was dismissed by a Kentucky district court. The list of privileges they sought to remove included lack of requirement that an application for exemption be filed and annual Forms 990 be filed for parsonage allowance, exemption from income tax withholding and FICA taxes for ministers, and higher standards for a “church tax examination.”⁴²

(b) Definition of Church

The decision in an early case noted that Congress left the definition of church to the “common understanding of the word.”⁴³ A religious order organized under the auspices of the Roman Catholic Church to train members to teach in Catholic schools was found not to be a church. Similarly, an organization formed by missionaries affiliated with different Christian churches was not a church.⁴⁴ The court declared that the Congress used church more in the sense of a denomination or sect than in a generic or universal sense, though to be considered a church, organizational hierarchy or buildings were not required. Judge Tannenwald, in the concurring opinion, stressed the importance of a congregational component. He said, “A man may, of course, pray alone, but in such a case, though his house may be a castle, it is not a church. Similarly, an organization engaged in an evangelical activity exclusively through the mails would not be a church.”

The IRS in 1978 announced a very specific set of characteristics that a church must possess to gain such favorable tax status. Subsequently, for organizations conducting religious services on the Internet, the IRS has espoused the view that number 11 in the following list, a physical congregation, is a required attribute of a church. The criteria are not exclusive; any other facts and circumstances that may bear on the organization's claim for church status may be considered.⁴⁵ The 14 attributes are:⁴⁶

1. Distinct legal existence.
2. Recognized form of worship and creed.
3. Definite and distinct ecclesiastical government.
4. Distinct religious history.
5. Formal code of doctrine and discipline.
6. Membership not associated with any other church or denomination.
7. Organization of ordained ministers.
8. Ordained ministers selected after completing prescribed courses of study.
9. Literature of its own.
10. Places of worship.
11. Regular congregations.
12. Regular religious services.
13. Sunday schools for religious instruction for youths.
14. Schools for preparation of its ministers.

Determinations are not made simply on the basis of the number of characteristics the organization possesses. Given the variety of religious practices, a determination of what constitutes a church is inherently unquantifiable. The 1981 IRS EO CPE Text cited items 5, 7, 11, 12, and 13 as the most significant attributes. “At a minimum, a church includes a body of believers or communicants that assembles regularly in order to worship. Unless the organization is reasonably available to the public in its conduct of worship, its educational instruction, and its promulgation of doctrine, it cannot fulfill this associational role.”⁴⁷

The IRS determined once again that spirituality cannot be conveyed electronically. They found that a website was not a “place of worship” and persons accessing a website did not “constitute a congregation,” thus continuing the IRS policy that a church must operate physically and meet the “associational” test.⁴⁸ Similarly, an entity with no place of worship and no regular worship services cannot constitute a church.⁴⁹

The first case to apply the 14-point test concluded that, at a minimum, an organization failed the test because it did not have a body of believers that assembled regularly in order to worship.⁵⁰ A religious publishing organization without membership also failed.⁵¹ An organization founded to spread “God's love and hope throughout the world” also did not qualify as a church.⁵² It conducted bimonthly programs with prayers and gospel music in an amphitheater. It built a small chapel for unsupervised meditational activities and individual prayer, but did not conduct religious services in the chapel. Although the society argued that the test discriminated against new, rural, and poor religious organizations, the court agreed that the IRS's standard for qualification as a church was appropriate. The failure to meet three particular criteria influenced the court:

1. The society did not have a regular congregation and its attendees did not consider it their church.
2. It did not ordain ministers but held services conducted by guest ministers.
3. It did not conduct a school for religious instruction of the young.

Some courts view the IRS's criteria as helpful guidance, but will not require that each criterion be satisfied for an organization to be classified as a church.⁵³ The IRS, in contrast, insists that an organization will qualify as a church only 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.⁵⁴

A television ministry known as the Foundation of Human Understanding had its status as a church challenged by the IRS because about one-half of its budget went to pay for the broadcasts to its 30,000 regular listeners. Its estimated total audience was 2 million persons. There was no question that television broadcasts alone do not qualify an organization as a church. This entity, however, conducted regular services at two locations for 50 to 350 persons under the guidance of an ordained minister. Religious instruction was provided and it had a “distinct, although short, religious history.” The Tax Court felt that it possessed most of the criteria to some degree, and that the critical factors were satisfied, and thus church classification was permitted.⁵⁵ The court also noted that the diversity of religious beliefs and the First Amendment rights must be respected in identifying a church.

The U.S. Court of Federal Claims, however, agreed with the IRS, and the Supreme Court affirmed, that to qualify as a church the entity must serve an associational role that at a minimum has a body of believers or communicants that assembles regularly in a physical location in order to worship.⁵⁶ The listeners to its electronic broadcast services were found not to be a congregation that required they join together physically. This position will undoubtedly be challenged again in the future as electronic communications replace physical meetings in business, social, and educational contexts.

A “global evangelical ministry” (GEM) similarly could not qualify as a church. Though its primary activity is the establishment and support of new churches, it essentially serves as an incubator for and advisor to its affiliate churches, providing spiritual and practical guidance and training through its missionaries. The reasons cited by the IRS included:⁵⁷

• GEM has no authority over, responsibility for, or formal affiliation with the new churches.
• GEM is interdenominational without its own code of discipline; the churches its missionaries help to establish are not united by a definite and distinct “ecclesiastical government.”
• GEM missionaries do not renounce their membership in other churches or religious orders to become members of GEM.
• GEM does not conduct religious or other sacerdotal functions.
• GEM conducts a ministry that teaches Christian values to at-risk children, but does not operate its own Sunday schools or comparable programs for the regular religious instruction of the young within a congregation.

An IRS Technical Advice Memo also identified the factors identified to find that a religious organization could retain its exempt status, though it no longer qualified as a church, including:⁵⁸

• No regular religious services conducted and no record maintained of those conducted on a seasonal basis.
• Previously used church buildings sold to for-profit subsidiary.
• No listing among the local churches displayed on websites or in the phone directory.
• No school for ordaining ministers.
• Primary minister provided no evidence that he was ordained by recognized religious body.
• Part-time ministers had no defined religious duties.
• Board of directors comprised of minister, his wife, and immediate family members.

The organization did conduct seminars, discussion group meetings, and radio broadcasts to disseminate the organization's views. The IRS cited the De La Salle Institute case, which concluded that “certain incidental church-like activities, such as religious services, do not make a religious organization a church.”⁵⁹

(c) Conventions and Auxiliaries

Conventions or associations of churches also qualify as churches.⁶⁰ Such organizations customarily undertake cooperative activities for churches of the same denomination, and for some groups, such as the United States Catholic Conference, represent a governing body. An interdenominational cooperative association of churches may also qualify as a church, as long as it otherwise qualifies as a religious organization.⁶¹ In Lutheran Social Service of Minnesota v. U.S., the Fifth Circuit determined that a “convention or association of churches,” in the context of §6033 exemptions from filing annual information returns, refers to the organizational structure of congregational churches, and that Congress included the phrase to treat congregational and hierarchical churches equally.⁶²

An integrated auxiliary of a church is afforded the same benefits as a church. Church schools, missionary groups, youth organizations, theological seminaries, and women's and men's fellowship associations are listed in the regulations as examples of qualifying auxiliary organizations. Hospitals, retirement homes, orphanages, and some schools do not perform religious functions and so may not necessarily qualify as auxiliaries. To qualify as an integrated auxiliary of a church before 1995, the organization needed to operate exclusively for religious purposes and be controlled by a church or an association of churches.

The regulations defining a church's integrated auxiliary were revised, effective in December 1995, to encompass a financial support test and eliminate an exclusively religious test.⁶³ An auxiliary can now be independently controlled as long as it has a legal structure similar to a supporting organization.⁶⁴ Note that the definition of a religious order continues to require that the activities be exclusively religious. The amended regulations provide that the auxiliary cannot finance itself with public donations and charges for services to the general public. Instead, its money must come from church constituents. Specifically, an integrated auxiliary of a church is defined as an organization that:

• Is affiliated with a church or a convention or association of churches.
• Receives its primary financial support (more than 50 percent) from internal church sources rather than public or governmental sources, or is “internally supported.”

From an organizational standpoint, an auxiliary is considered affiliated if it:

• Is covered by a group exemption.
• Is operated, supervised, or controlled by or in connection with a church (relationship of a type embodied in §509(a)(3)).
• One of the following facts and circumstances shows that it is so affiliated:
  • The organization affirms in its charter, trust instrument, bylaws, articles of association, or other organizing documents that it shares common religious doctrines, principles, disciplines, or practices with the church.
  • The organization's name indicates an institutional relationship.
  • Reports of financial and general operations are made at least annually to the church.
  • The church affirms the organization's affiliation with it.
  • In the event of dissolution, the affiliate's assets are required to be distributed to the church.

The support requirement is written negatively to say that an organization is internally supported unless it both

• Offers admissions, goods, services, or facilities for sale, on other than an incidental basis, to the general public, and
• Normally receives more than 50 percent of its support from a combination of governmental sources, public solicitation of contributions, and exempt function receipts.

Ministers employed by an integrated auxiliary of a church qualify for special employment tax treatment.⁶⁵ For that purpose, the IRS provided a list of criteria for defining what in 1972 it called an integral agency.⁶⁶ The following factors given in that ruling can be applied to ascertain when an auxiliary is controlled by the church:

• Whether the religious organization incorporated the institution.
• Whether the corporate name of the institution indicates a church relationship.
• Whether the religious organization continuously controls, manages, and maintains the institution.
• Whether the trustees or directors of the institution are approved by or must be approved by the religious organization or church.
• Whether trustees or directors may be removed by the religious organization or church.
• Whether annual reports of finances and general operations are required to be made.
• Whether the religious organization or church contributes to the support of the institution.
• Whether, in the event of dissolution of the institution, its assets would be turned over to the religious organization or church.

The ruling provides that the absence of one or more of these characteristics will not necessarily be determinative in a particular case. Church-affiliated organizations that are exclusively engaged in managing funds or maintaining retirement programs can also be treated as an integrated auxiliary of a church.⁶⁷

(d) IRS Examination Protection

The IRS has limited information and power to review the tax-exempt status of a church. Churches are not required to file an application for recognition of exemption on Form 1023,⁶⁸ or an annual information return on Form 990. The IRS must be able to prove an extraordinary abuse of the tax law to request to examine the records of a church. A church may be audited by the IRS only if the Director, Exempt Organizations Examinations, reasonably believes, based on a written statement of the facts and circumstances, that the organization (1) may not qualify for the exemption, or (2) may not be paying tax on unrelated business or other taxable activity.⁶⁹

The Church of Scientology and some of its branches have won significant court battles with the IRS about the application of these rules. The church won a limitation of the IRS's right to request information under the IRC §7611(b)(1)(A) summons provisions when the court found that the records were not necessary, rather than merely relevant, to determining the church's tax liability.⁷⁰ In similar battles in Florida and California, the government was more successful.⁷¹ The church in Los Angeles sued the IRS under the Freedom of Information Act for details of a “tax shelter litigation project” designating the church and its parishioners.

After 30 years of battle, the Church of Scientology received favorable IRS determination letters recognizing the tax-exempt status of some 20 of its related organizations in October 1993. A Scientology booklet titled Information on Taxes and Your Donation said, “The Internal Revenue Service's action has two consequences of utmost interest to Scientologists. First, this action signifies that the IRS—and the United States Government as well—has formally recognized that the Church operates exclusively for religious purposes and that Scientology, as a bona fide religion, is beneficial to society as a whole. Second, the action means that the donations you make to the church—including donations for auditing and training—qualify as charitable contributions and can be claimed as deductions on your federal and state income tax return!” Payments for training sessions had been considered by the IRS and the Supreme Court⁷² to represent nondeductible quid pro quo⁷³ donations. In a decision surprising to some observers,⁷⁴ the IRS Exempt Organization division, as a part of its settlement of Scientology, agreed effective January 1, 1993, not to follow the Supreme Court decision. The IRS agreed to drop all pending cases involving deductibility of payments to the church and discontinue any audits already under way.