## Facts

- People of God Community was a California nonprofit corporation formed in 1977 (with roots in an earlier unincorporated community) that operated as a Christian religious organization with two congregations.
- The organization pursued religious purposes consistent with historic Christian creeds and sought to model early Christian communal life.
- Ministers served as religious leaders and held governing roles within the organization.
- The organization compensated ministers using predetermined percentage shares of gross tithes and offerings (and, as described in the record, minister compensation could vary with organizational cash flow and personal expense needs).
- The community also made interest-free loans to members (approximately $75 to $3,000), often without written agreements, including for housing-related needs.
- The IRS determined the organization did not qualify for exemption under I.R.C. § 501(c)(3); the organization sought declaratory relief in the Tax Court under I.R.C. § 7428 on a stipulated administrative record.

## Issues

1. Whether the organization qualified for exemption under I.R.C. § 501(c)(3), including whether it was operated exclusively for exempt purposes and whether any part of its net earnings inured to the benefit of private individuals.
2. If exempt under § 501(c)(3), whether the organization qualified as a “church” for purposes of I.R.C. §§ 170(b)(1)(A)(i) and 509.

## Decision

- The Tax Court entered decision for the Commissioner.
- The court held the organization did not qualify under § 501(c)(3) because part of its net earnings inured to the benefit of private individuals.
- Because exemption was denied on inurement grounds, the court did not reach the separate “church” classification issue under §§ 170 and 509.

## Legal Principles

- To qualify under I.R.C. § 501(c)(3), an organization must be organized and operated exclusively for exempt purposes and must satisfy the statutory prohibition that no part of net earnings inure to the benefit of any private shareholder or individual.
- A compensation arrangement that allocates predetermined percentage shares of gross charitable receipts (such as tithes and offerings) to insiders may constitute prohibited private inurement, even when the organization is religious in character.
- Financial practices that confer individualized economic benefits (such as interest-free loans funded by organizational resources) may support an inference that earnings are being diverted to private persons, particularly when combined with an insider-favoring compensation structure.
- Religious purpose and activities do not cure a failure to meet the non-inurement requirement; compliance with § 501(c)(3)’s operational limits is mandatory.

## Conclusion

The Tax Court denied § 501(c)(3) exemption because the organization’s structure diverted organizational income to insiders through minister compensation set as fixed percentages of gross tithes and offerings, constituting prohibited private inurement; consequently, the court did not decide whether the organization qualified as a “church” for related tax provisions.


People of God Cmty. v. Comm’r, 75 T.C. 127 (1980)