NONPROFIT DOES NOT QUALIFY FOR CHURCH CLASSIFICATION.

UIL 170.07-01

We have considered your request to reclassify B as a church described in sections 509(a)(1) and 170(b)(1)(A)(i) of the Internal Revenue Code. Based on the information provided, we have concluded that B does not meet the requirements for classification as a church described in sections 509(a)(1) and 170(b)(1)(A)(i). The basis for our conclusion is set forth below.

B is organized for religious purposes, in particular to glorify God by the urgent evangelization of E's peoples. Its vision statement is:

B amended its Articles of Incorporation (in date F) to refer to itself as a "church" and an "evangelistic agency in fellowship with local churches." It is governed by a self-elected Board of Directors. It does not have voting members. B is also organized for the support of C, a G corporation that carries on activities similar to those of B. C is not organized as a "church."

B missionaries focus on establishing churches among "unreached people groups" in areas of E where the Gospel has not been preached. B missionaries train indigenous persons to become leaders in these local churches, and "assist[] the fledgling church in training leaders, publishing literature and developing its own missionary sending ministry." B believes that its role is to establish and influence such churches, but not to control them. It seeks to emulate the model of the 1^st century church, which it describes as "church planting coupled with autonomy and empowering of local Christian leaders . . ." It also states, on a web site describing B, H (see enclosure), "There are no [B]-controlled denominations or parachurch groups, as we aim to see indigenous church and campus movements established with their own identity and leadership."

Accordingly, B oversees its missionaries, but does not exercise any direct supervision or control over its affiliate churches or their leaders. Nor does B exercise any administrative or financial oversight over these churches. B has no structural connection with these churches, which are organizationally and ecclesiastically independent. Although B missionaries may help leaders of newly established churches develop appropriate church structures that are appropriate for the churches' respective cultures, local churches are ultimately responsible for establishing their own church structures and governments. In some cases, local churches in small rural villages operate without governing documents. Once the churches B establishes reach sufficient levels of maturity, B missionaries step out of any leadership positions they temporarily occupied in such churches. Many of these churches maintain an affiliation with B that is typically not formalized.

B's affiliate churches generally remain affiliated with B on a relational -- rather than a structural or organizational-level. Neither B's affiliate churches nor their members are "members" of B. Some of these churches do not even have the concept of members or membership. Nor does B impose any reporting requirements on its affiliate churches. These churches do not adopt B's name or any variation thereof. B does not seek or receive tithes or contributions from them. B seeks to influence its affiliate churches through its missionaries, who often continue to provide support and guidance to the churches. If any of these churches were to adopt doctrine inconsistent with B's doctrine, B would "disassociate" itself from such church.

In its literature, B describes itself as a "mission agency," an "interdenominational Protestant missionary society," a "global network of Christians," and an "evangelistic agency," but not as a "church." Its literature often distinguishes itself, as a missions agency, from churches with which B partners. On a web site describing B (see enclosure), B states, "We believe the local church has a primary role in sending missionaries, and our role is to connect and support them with ministry opportunities and leadership on the field." B's own web site, I (see enclosure), states,

Nor does B ordain, license, or commission ministers of its affiliate local churches or establish uniform formal qualifications for ordination of such ministers. Rather, its affiliate churches are responsible for ordaining their own ministers.

B has an M that reflects its code of doctrine. B missionaries ensure that the doctrinal statements of the churches they establish are consistent with B's Statement of Faith. B also has established policies for its staff members, including adherence to Biblical standards of conduct, commitment to prayer, involvement in a local church, a prohibition on sexual misconduct, and a prohibition on fundraising. B may discipline or even terminate an employee who violates such policies. However, B does not have a code of discipline to which it requires affiliate churches to subscribe. B's literature does not describe its use of any traditional means of ecclesiastical discipline (e.g., confession, withholding of sacraments, excommunication) utilized by churches. Although B missionaries assist affiliate churches in resolving disciplinary issues, it is those churches -- not B -- that are responsible for disciplining their members.

B's staff members in its J headquarters oversee the activities of B missionaries worldwide. The B headquarters hosts daily devotional services for 10-28 staff members. Two times a year, B hosts a "Day of Prayer" at its headquarters. B also hosts occasional Sunday morning worship services at its headquarters. These meetings typically consist of prayer, singing, and teaching from the Bible. However, staff members at B headquarters do not routinely refer to B as a "church."

B does not require its missionaries to renounce their membership in other churches or religious orders to become missionaries, or "members," of B. In fact, B requires that potential B missionaries be actively involved in a "home church" that is separate and distinct from B, in which they become mature and seasoned in their faith. B missionaries who establish churches are expected to maintain connected with their home church.

B's affiliate churches offer regular religious instruction of the young. B assists new churches in establishing programs for such instruction.

Although B does not own or operate any schools for the preparation of ministers, it has started or helped to start Bible schools and training centers in K. B also provides funding for local church leaders to attend training and further their theological education.

Section 170(b)(1)(A)(i) of the Code describes a church or convention or association of churches.

Section 170(b)(1)(A)(vi) of the Code describes a tax-exempt organization that normally receives a substantial part of its support from a government unit or from direct or indirect contributions to the general public.

In De La Salle Institute v. United States, 195 F.Supp. 891 (N.D. Cal. 1961), the court held that a nonprofit corporation composed of non-clerical members of a religious order that operated schools, a winery, and a chapel, among other activities, was not a church. It explained that although the corporation was closely affiliated with the Roman Catholic Church, it was separate and distinct from that church for federal tax purposes. Id. at 901. The corporation's operation of a chapel did not convert it into a church, as this activity was incidental to the corporation's primary activities of operating the school and winery. The court noted, "[t]he tail cannot be permitted to wag the dog. The incidental activities of plaintiff cannot make plaintiff a church." Id. 901-02.

In Chapman v. Commissioner, 48 T.C. 358 (1967), an interdenominational organization sent out evangelical teams to preach throughout the world and to establish small indigenous churches. These teams used dental services as the initial means by which they contacted prospective converts to Christianity. The court held that the organization was not a church for federal tax purposes, in part because it was interdenominational and independent from the churches with which its members were affiliated. The organization's religious services and preaching, though functions normally associated with a church, were not its primary activities and therefore were not determinative of church status. Id. at 364. The court characterized the group as an "evangelical organization" and a "religious organization comprised of individual members who are already affiliated with various churches," but not as a church. It noted that although every church may be a religious organization, not every religious organization is a church. Id. at 363.

In American Guidance Foundation. Inc. v. United States. 490 F.Supp. 304 (D.D.C. 1980), the court recognized the Internal Revenue Service's 14-part test in determining whether a religious organization was a church. The 14 criteria are:

In Foundation of Human Understanding v. Commissioner, 88 T.C. 1341 (1987), the court found that an exempt organization that operated a radio ministry and established local congregations qualified as a church for federal tax purposes, because it met most of the 14 IRS criteria for determining church status. Although the court found these 14 criteria to be helpful in deciding what constitutes a church, it did not adopt them as a definitive test. It explained that the IRS will also consider any other facts and circumstances that may bear upon the organization's claim for church status under section 170(b)(1)(A)(i) of the Code. Id. at 1358. Although the organization's broadcasting and publishing functions constituted a large percentage of its total receipts and expenditures, these functions did not overshadow its church activities, which the court found to be more than incidental. Id at 1360-61. The court noted that many of the organization's followers looked upon the organization as their only church Id. at 1359.

In Spiritual Outreach Society v. Commissioner, 927 F.2d 335 (8^th Cir. 1991), the court noted that of central importance in determining whether an organization constitutes a church for federal tax purposes is the existence of an established congregation served by an organized ministry. The court found that the organization did not have an established congregation because "nothing indicates that the participants considered [the organization] to be their church." Id. at 339.

In Lutheran Social Service of Minnesota v. United States, 758 F.2d 1283 (8^th Cir. 1985), the Fifth Circuit determined that a "convention or association of churches," in the context of section 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.

Rev. Rul. 74-224, 1974-1 C.B. 61, held that a cooperative undertaking of churches of different denominations that works together to carry out religious activities constitutes a "convention or association of churches" within the meaning of section 170(b)(1)(A)(i) of the Internal Revenue Code. The ruling noted that the term "convention or association of churches" historically referred to a cooperative undertaking by churches within the same denomination.

B meets several of these 14 criteria. For instance, it has a distinct legal existence, a formal code of doctrine, a recognized creed, a distinct religious history, and literature of its own. However, these are not distinctive characteristics of a church, but are common to both churches and non-church religious organizations. Meeting these criteria is not sufficient to establish B as a church within the meaning of section 170(b)(1)(A)(i) of the Code.

B's 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. These churches are initially led by B missionaries who train indigenous leaders to assume leadership of each church, which then operates independently from such missionaries. Although B oversees its missionaries, it does not have any formal authority over the churches or their leaders, or even a formal affiliation with most of the churches. Like the missionary society in Chapman, supra, is interdnominational and independent from the local churches with which its missionaries are affiliated. Chapman, Id. at 364. Thus, B and its affiliate churches are not united by a definite and distinct "ecclesiastical government." Because B's affiliate churches are separate and distinct from B, their members, worship services, and other church activities are also separate and distinct from those of B. See De La Salle Institute, 195 F.Supp. at 901. Thus, B does not have a regular congregation of its own that engages in regular worship services in an established place of worship.

B does not require its missionaries to renounce their membership in other churches or religious orders to become missionaries of B. In fact, B requires its missionaries to be members of local churches that are separate and distinct from B. As in Spiritual Outreach Society, 927 F.2d at 339, B has failed to establish that its missionaries or staff members consider B to be their church. Nor do B's affiliate churches or their members consider themselves members of B. Accordingly, B has neither a regular congregation nor a "membership not associated with any other church or denomination."

B has not shown evidence of having a code of discipline for its affiliate churches. For instance, B's literature does not describe its use of any traditional means of ecclesiastical discipline (e.g., confession, withholding of sacraments, excommunication) utilized by churches, either in disciplining affiliate church members or members of B's own staff. B's affiliate churches -- not B -- exercise discipline over their members.

Although B has established training requirements for and provides some training to the missionaries it appoints, it does not ordain or license them as ministers, and does not require them to be ordained or licensed. Nor does B ordain or license ministers of the local churches it establishes. Rather, its affiliate churches are responsible for ordaining their own ministers. Thus, B is not an "organization of ordained ministers."

B assists its affiliate churches in establishing programs for religious instruction of the young within their churches. However, B has not established that it operates its own Sunday schools or comparable programs for the regular religious instruction of the young within a congregation.

B's headquarters hosts daily devotional worship meetings and a periodic "Day of Prayer" for its office staff. However, these activities are incidental to the main activity of B's headquarters, which is to exercise administrative, financial, and operational oversight over B's worldwide ministry. B employees are paid to engage in these activities at its headquarters. Incidentally, most of these employees voluntarily attend worship services offered by B. Just as the operation of a chapel did not convert the corporation in De La Salle Institute, supra, into a church, because this activity was incidental to the corporation's primary activities of operating a school and winery, the conduct of devotional worship and prayer services does not convert B's administrative office into a church within the meaning of section 170(b)(1)(A)(i) of the Code. Furthermore, B staff members all belong to other local churches, and do not consider B to be their "church."

Further, B does not identify itself publicly as a church. Neither B's web site nor the literature it distributes to the public refers to B as a church. Rather, B describes itself as a "missions agency," a "missionary society," and an "evangelistic agency," but not as a "church." Its literature often distinguishes B, as a missions agency, from churches with which B partners. This undermines B's contention that it is a church for federal tax purposes.

Just as B does not qualify as a church for federal tax purposes, it does not qualify as an association or convention of churches. B is neither a cooperative undertaking of churches within a denomination nor a cooperative undertaking of churches across denominations, as described in Rev. Rul. 74-224, supra. The churches B establishes are independent from B and from one another. B-established churches in one culture do not appear to be connected in any kind of ongoing ministry with B-established churches in other cultures. Although they have a common parent in B, they do not share common supervision or control, or a common organizational structure as referenced in Lutheran Social Service of Minnesota, supra.

B missionaries do not bring new churches within the organizational structure of an "association" or "convention." Rather, they establish independent churches that function and minister within their respective cultures, separate and distinct from B. Although some of these churches maintain an affiliation with B, and B seeks to exert spiritual influence over them, they do not maintain a structural or organizational relationship with B or its other affiliate churches. Therefore, B does not qualify as a convention or association of churches.

Nor does B meet most of the other criteria the IRS considers in determining whether to classify an organization as a church described in sections 509(a)(1) and 170(b)(1)(A)(i) of the Code. In particular, B does not ordain ministers, operate Sunday schools or similar programs for religious instruction of the young, or have a code of discipline, a distinct ecclesiastical government, an established place of worship, or a membership not associated with other local churches or denominations.

Although B's affiliate churches may meet most of the criteria for classification as a church for federal tax purposes, B is separate and distinct from those churches. Nor do B or its affiliate churches share the interconnectedness necessary to constitute a convention or association of churches.

Accordingly, based on all the facts and circumstances, B has failed to establish that it meets the requirements for classification as a church described in sections 509(a)(1) and 170(b)(1)(A)(i) of the Code. Instead, B will continue to be classified as a public charity under sections 509(a)(1) and 170(b)(1)(A)(vi).

You have the right to file a protest if you believe this determination is incorrect. To protest, you must submit a statement of your views and fully explain your reasoning. You must submit the statement, signed by one of your officers, within 30 days from the date of this letter. We will consider your statement and decide if the information affects our determination.

You also have a right to request a conference to discuss your protest. This request should be made when you file your protest statement. An attorney, certified public accountant, or an individual enrolled to practice before the Internal Revenue Service may represent you. If you want representation during the conference procedures, you must file a proper power of attorney, Form 2848, Power of Attorney and Declaration of Representative, if you have not already done so. For more information about representation, see Publication 947, Practice before the IRS and Power of Attorney. All forms and publications mentioned in this letter can be found at www.irs.gov, Forms and Publications.

If you do not file a protest within 30 days, you will not be able to file a suit for declaratory judgment in court because the Internal Revenue Service (IRS) will consider the failure to protest as a failure to exhaust available administrative remedies. Code section 7428(b)(2) provides, in part, that a declaratory judgment or decree shall not be issued in any proceeding unless the Tax Court, the United States Court of Federal Claims, or the District Court of the United States for the District of Columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the IRS.

If you do not intend to protest this determination, you do not need to take any further action. If we do not hear from you within 30 days, we will issue a final adverse determination letter. That letter will provide information about filing tax returns and other matters.

Please send your protest statement, Form 2848 and any supporting documents to this address: