## Facts

- Schoger Foundation was incorporated in Illinois in 1978 as a not-for-profit corporation and applied for recognition as a § 501(c)(3) organization.
- Its articles stated purposes including promoting religious, educational, and charitable aims and operating a religious retreat facility; the original articles lacked a dissolution clause directing assets to exempt purposes.
- After IRS inquiries, the Foundation indicated it would amend its articles to provide that, upon dissolution, assets would be distributed to other exempt organizations.
- The IRS issued a final adverse ruling (Nov. 8, 1979) denying § 501(c)(3) recognition; the Foundation petitioned the Tax Court for declaratory judgment under I.R.C. § 7428.
- The case was submitted on a stipulated administrative record under Tax Court Rules 122 and 217, and the record’s representations were treated as true for purposes of decision.
- The Foundation owned and operated a lodge in the Colorado mountains marketed to Christian families as a place to rest and participate in recreational and religious activities; none of the activities were scheduled or mandatory.
- Guests were not charged a fixed rate; instead, a donation card suggested that average daily lodging and meal costs were $20 per person and requested contributions to support continued operations.
- Operating funds came largely from guest “donations” tied to the suggested daily amount and from private donations.

## Issues

1. Whether the Foundation was operated exclusively for religious or other exempt purposes within the meaning of I.R.C. § 501(c)(3), as required for exemption under § 501(a).
2. Whether, in substance, the Foundation’s retreat operations constituted a primarily nonexempt commercial activity despite religious language in its governing documents and materials.

## Decision

- The Tax Court sustained the Commissioner’s adverse determination and entered decision for the respondent.
- The court held the Foundation did not qualify for § 501(c)(3) exemption because it failed to show its primary purpose and operations were religious or otherwise exempt.
- Even assuming organizational document defects could be cured by amendment, the Foundation failed the operational test independently.

## Legal Principles

- An organization is “operated exclusively” for § 501(c)(3) purposes only if it is primarily engaged in activities that accomplish exempt purposes; more than an insubstantial nonexempt purpose defeats exemption.
- The operational test examines actual activities and how the organization functions in practice, not merely stated purposes in organizing documents or promotional language.
- A commerciality analysis may be applied to determine whether an organization’s activities resemble ordinary commercial operations, including how services are provided and how revenues are generated.
- A “suggested donation” closely tied to the cost of lodging and meals may be treated as functioning like a fee for services when evaluating whether operations are commercial.
- Religious elements that are incidental, optional, or unstructured may be insufficient to establish that a facility’s primary purpose is religious.

## Conclusion

The Tax Court upheld denial of § 501(c)(3) recognition because the Foundation’s retreat facility operated primarily as a lodging-and-meals enterprise with only incidental, nonmandatory religious activity, and its cost-based “donation” practices supported a finding of a nonexempt commercial primary purpose.


Schoger Found. v. Comm’r, 76 T.C. 380 (1981)