## Facts

- Lutheran Social Service of Minnesota (LSS) was a separately incorporated, tax-exempt nonprofit affiliated with Lutheran church bodies and controlled through a board elected by church representatives.
- LSS’s stated purposes included witnessing to the Gospel through Christian love and maintaining a program of Christian social welfare consistent with the sponsoring churches’ faith and practice.
- LSS provided wide-ranging social services (e.g., child care and adoption, counseling, residential treatment programs, nutrition for the elderly, resettlement, and a chaplaincy program).
- Services were generally open to all regardless of faith; most programming was secular in outward form, and counselors were not required to use a specific religious orientation.
- LSS funded operations partly through client fees based on ability to pay, with a large portion of its budget coming from government sources.
- LSS filed its annual information return (Form 990) late; the IRS assessed a penalty, which LSS paid and then sought to recover in a refund suit.
- LSS claimed it was exempt from the Form 990 filing requirement as a “church,” a “convention or association of churches,” or an “integrated auxiliary of a church” under 26 U.S.C. § 6033(a)(2)(A)(i).

## Issues

1. Whether LSS qualified as a “church” for purposes of the Form 990 exemption in 26 U.S.C. § 6033(a)(2)(A)(i).
2. Whether LSS qualified as a “convention or association of churches” under the same provision.
3. Whether LSS qualified as an “integrated auxiliary of a church,” and whether a Treasury regulation limiting that status to organizations whose principal activity is “exclusively religious” was consistent with § 6033.

## Decision

- The court affirmed summary judgment against LSS on the claims that it was a “church” or a “convention or association of churches.”
- The court reversed on the integrated-auxiliary claim, holding LSS qualified as an “integrated auxiliary of a church” under § 6033(a)(2)(A)(i).
- The court held the “exclusively religious” regulatory limitation conflicted with congressional intent and could not be used to deny LSS the exemption.
- The case was remanded for relief consistent with exempt status and recovery of the assessed penalty.

## Legal Principles

- A separately incorporated entity providing social services is not a “church” or a “convention or association of churches” merely because it is church-affiliated and religiously motivated; functional characteristics associated with churches remain relevant.
- “Integrated auxiliary of a church” in § 6033 includes church-affiliated organizations substantially related to a church’s mission and owned or controlled by church bodies, even if their work includes charitable or social-service functions.
- Treasury regulations narrowing a statutory exemption beyond the statute’s text and legislative history are not controlling to the extent they conflict with congressional intent.
- A church-controlled social-service organization may qualify as an integrated auxiliary despite programs that are broadly available to the public, outwardly secular, and significantly government-funded.

## Conclusion

The Eighth Circuit held that LSS was not itself a church or an association of churches, but it was an integrated auxiliary exempt from Form 990 reporting; the IRS therefore could not impose a late-filing penalty based on a regulation requiring an “exclusively religious” principal activity.


Lutheran Soc. Serv. of Minn. v. United States, 758 F.2d 1283 (8th Cir. 1985)