Key point. The operation of a coffee shop as a church outreach to the community will not constitute a basis for tax-exempt status if the operation of the coffee shop is overly commercialized to the extent that the religious purpose is minimal.
The IRS ruled that a "coffee shop" established by a church for personal evangelism in an urban area did not qualify for tax-exempt status since it was indistinguishable in operation from secular, for-profit coffee shops. A nonprofit corporation (the "Corporation") was formed for the following four purposes:
- Proclaim earnestly the gospel message and to urge its personal acceptance.
- Promote prayer, Bible study, missions, Christian fellowship, evangelism, Christian service and encouraging, in every possible way, a lifetime commitment to Christ.
- Provide a forum in which the Gospel of Jesus Christ can be discussed with non-believers outside of a formal church setting.
- Generously extend the grace of God by giving away 100% of all profits (except those retained for capital expenditures) to community ministries, other local, national or international nonprofits or organizations, or those in financial need.
The founder of the Corporation came up with the vision to form a coffee shop where believers could interact with nonbelievers in a safe and friendly environment to convey the gospel in a nonconfrontational manner in word and deed. The founder served as pastor of a local church, but he elected to form the Corporation as a separate entity from his church in order to encourage other Christian churches and organizations to participate in his vision. The founder's church granted funding for the Corporation's start up, and the Corporation's bylaws specified that a majority of its board members had to be members of the church.