## Facts

- New Life Tabernacle was a church whose members turned over their income to the church.
- The church treated members’ transferred funds as a common treasury.
- The church used the common-treasury funds to provide members with necessities of daily living, including housing, food, clothing, and transportation.
- The church did not solicit contributions from the general public; the funds transferred by members were the church’s only source of revenue.
- The Commissioner of Internal Revenue determined the church did not satisfy the private-inurement requirement and denied the church’s application for recognition of exemption from income tax under I.R.C. § 501(c)(3).
- The church filed a declaratory-judgment action under I.R.C. § 7428 seeking a declaration that it qualified for exemption.
- The church argued it was operated exclusively for charitable, religious, and educational purposes.
- The church also argued that the amounts spent for members’ needs were in lieu of compensation for services members performed for the church.
- The church did not identify specific services rendered by particular members and did not provide information that would allow a determination of a reasonable rate of pay for such services.

## Issues

1. Whether any part of the church’s net earnings inured to the benefit of private individuals, contrary to I.R.C. § 501(c)(3).
2. Whether the church was operated exclusively for exempt purposes (charitable, religious, and educational) as required by I.R.C. § 501(c)(3), including whether it served a public rather than a private interest.
3. Whether, in a declaratory-judgment proceeding under I.R.C. § 7428, the church carried its burden to show it qualified under § 501(c)(3) despite the Commissioner’s adverse determination.

## Decision

- The Tax Court sustained the Commissioner’s denial of recognition of exemption under § 501(c)(3).
- The court concluded the church failed to show that no part of its net earnings inured to the benefit of private individuals, given the use of pooled funds to meet members’ personal living needs.
- The court rejected the church’s “in lieu of compensation” argument because the church did not identify specific services or provide facts permitting a finding that the benefits provided were reasonable compensation for services performed.
- The court determined the church did not meet the operational requirements for § 501(c)(3) status because its arrangement primarily functioned to support members rather than to operate for exempt purposes in a manner serving a public interest.

## Legal Principles

- To qualify under I.R.C. § 501(c)(3), an organization must be organized and operated exclusively for one or more exempt purposes (including charitable, religious, and educational purposes).
- An organization fails § 501(c)(3) if any part of its net earnings inures to the benefit of a private shareholder or individual; providing economic benefits to insiders may constitute inurement.
- An organization must serve a public rather than a private interest; operation for the benefit of a limited group of insiders can defeat exemption under the operational test.
- Payments or benefits characterized as compensation can be consistent with exemption only when tied to actual services and shown to be reasonable in amount; unsupported payment of living expenses can be treated as impermissible inurement.
- In a declaratory-judgment action under I.R.C. § 7428 challenging an adverse IRS determination, the petitioner bears the burden of proving it satisfies the requirements for exemption.

## Conclusion

In New Life Tabernacle v. Commissioner, the Tax Court upheld the IRS’s denial of § 501(c)(3) recognition because the church pooled members’ income and used the funds to pay members’ living expenses, and the church did not substantiate that these benefits were reasonable compensation for identifiable services; as a result, the court found private inurement and a failure to operate exclusively for exempt purposes serving a public interest.


New Life Tabernacle v. Commissioner, 44 T.C.M. 309 (1982)