Churches – Part 1


Church Law and Tax 1989-01-01 Recent Developments

Churches – Definition

The IRS ruled that a religious organization was properly exempt from federal income taxes as a “church.” Such rulings are very helpful, since the term “church” is not defined in the federal tax law. The organization in question was established to develop an ecumenical form of religious expression that would “unify western and eastern modes of religious practice” and place greater significance on the mystical aspects of religious truth. Some twenty or so persons meet for an hour each week in the church’s facilities, and are asked to pay dues of $3 each month and subscribe to the church’s ten precepts. A “Sunday school” is provided for children of members and nonmembers, and literature is produced. The IRS concluded that this organization was properly exempt from federal income taxes as a church, since it satisfied a majority of the 14 criteria developed by a federal court in American Guidance Foundation, Inc. v. United States, 490 F. Supp. 304 (D.D.C. 1980). The court in the American Guidance Foundation case listed the following 14 criteria to be used in deciding whether or not a particular organization qualifies as 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; (8) ordained ministers selected after completing prescribed studies; (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 its ministers. The IRS observed that “the organization meets most of the 14 criteria in American Guidance Foundation. It is fully incorporated and has a fully distinct legal existence. It has a creed and form of worship recognized by its members. Although it is still in a developing stage, it has a definite and distinct ecclesiastical government …. It has a formal code of doctrine and discipline as evidenced by the ten precepts …. While it has a history of only a few years because it is a relatively new organization, its members have documented its growth and major changes. It has what could be called an organization of ordained ministers … a literature of its own … an established place of worship … a regular congregation … and regular services including Sunday school.” The IRS noted that the church does not have a “membership not associated with any other church or denomination” since members are not required to sever their ties with other churches. However, a failure to meet this factor was “overcome” by the presence of the remaining 13 factors. This ruling is significant, for (1) it demonstrates that the IRS national office follows the American Guidance Foundation definition of the term “church,” and (2) it demonstrates that not all 14 criteria must be met in order for an organization to constitute a church. IRS reliance on the American Guidance Foundation criteria is unfortunate. The 14 criteria were the creation of a court that obviously did not understand or appreciate the fundamental distinction between hierarchical and congregational church polity and between local churches and denominations. The criteria address only hierarchical church denominations (i.e., denominations having centralized authority), and not congregational churches (i.e., local churches that are either wholly or partially independent of denominational control). To illustrate, few local churches would satisfy the 7th, 9th, or 14th criteria, and in some cases a number of others, since these pertain to denominations. Such confusion in the very test by which a church’s existence are to be judged is inexcusable. Hopefully, clarification will be forthcoming. IRS Technical Advice Memorandum 8833001.

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