## Facts

- The Internal Revenue Service (IRS) questioned whether C.E. Hobbs Foundation for Religious Training and Education, Inc. (the Foundation), a § 501(c)(3) tax-exempt organization claiming church status, qualified as a church and whether its activities generated taxable liability or private inurement.
- Local criminal investigations and media reports suggested the Foundation was not operated for religious purposes, that profits may have inured to private individuals, and that assets may have been transferred to a trust controlled by individuals associated with the Foundation.
- On May 7, 1990, the IRS issued a statutory notice initiating a church tax inquiry under 26 U.S.C. § 7611, stating reasons to believe the Foundation might not be tax-exempt or might be liable for tax.
- The IRS articulated two inquiry purposes: (1) determining whether the Foundation operated exclusively for religious purposes and (2) determining whether Foundation property benefited private individuals.
- The IRS issued two summonses: one to the Foundation for organizational and internal financial records, and one to Washington Trust Bank as a third-party recordkeeper for the Foundation’s bank records.
- An IRS revenue agent testified that each category of requested documents was tied to the inquiry’s purposes and needed to evaluate church status, taxable income, and potential inurement.

## Issues

1. Whether the IRS showed the Foundation-requested materials were “necessary” under 26 U.S.C. § 7611(b)(1) to determine church status and/or tax liability, requiring enforcement of the church-directed summons.
2. Whether § 7611(b)(1)’s “necessary” limitation applies to an IRS summons served on a third-party recordkeeper for bank records.

## Decision

- The Ninth Circuit reversed the district court’s denial of enforcement and remanded with instructions to enforce both summonses.
- The court held the district court clearly erred in concluding the IRS failed to satisfy § 7611(b)(1)’s “necessary” requirement as to the Foundation summons.
- The court held the district court erred as a matter of law by applying § 7611(b)(1)’s “necessary” limitation to the bank summons directed to a third-party recordkeeper.
- The court concluded the IRS complied with § 7611’s initiation and notice requirements for a church tax inquiry.

## Legal Principles

- Under 26 U.S.C. § 7611(b)(1), “necessary” does not require the IRS to prove each demanded document is indispensable; it requires a practical showing that the requested categories are reasonably required to determine church status and/or tax liability.
- In assessing summons enforcement in a church inquiry, courts should not impose an impossibly strict necessity standard that would prevent effective tax investigation; the IRS must provide a reasoned explanation connecting the requests to the statutory purposes.
- Section 7611(b)(1)’s heightened limitation governs examinations of “church records” and “religious activities” as defined by the statute and does not automatically extend to summonses served on neutral third-party recordkeepers for bank records.
- When § 7611’s procedural prerequisites (including required authorization and notice) are satisfied and the IRS explains the need for requested categories of documents, enforcement is warranted.

## Conclusion

The Ninth Circuit required enforcement of IRS summonses issued during a church tax inquiry, construing § 7611’s “necessary” requirement as a workable investigative standard and holding that the statute’s heightened limitation on examining church records does not restrict third-party bank summonses.


United States v. C.E. Hobbs Found. for Religious Training & Educ., Inc., 7 F.3d 169 (9th Cir. 1993)