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Petitioner was formed to spread the religious teachings of its founder through a broadcasting and publishing ministry. In addition to its broadcasting and publishing efforts, petitioner regularly conducts religious services at two locations where followers of petitioner's founder congregate. Petitioner requested a ruling that it was a nonprivate foundation as a church within the meaning of
*1341 OPINION
In 1965, the Internal Revenue Service issued a ruling letter which recognized that petitioner is exempt from Federal income tax as an organization described *1342 in
This proceeding was submitted fully stipulated under Rule*78 122. Pursuant to Rule 217, the parties filed the administrative record along with a joint original and a supplemental stipulation as to its contents. 2
The Foundation of Human Understanding (petitioner) was established in 1961 by Roy Masters as the organizational vehicle whereby his doctrine concerning meditation, salvation, emotional self-control, and man's relation to God could be spread to the world. Roy Masters has summarized his beliefs, which are based upon Judeo-Christian principles, as follows: "man is a fallen being, and hence is subject to his emotions. Through meditation and faith in Christ, it is possible for man to gain control of his emotions, to become self-disciplined, and hence a disciple of Christ." In this regard, Roy Masters has developed a particular form of meditation that is used by his followers.
On January 15, 1963, Roy Masters, Ann Masters, his wife, *79 and Patrick C. Shields executed articles of association whereby petitioner became a nonprofit, unincorporated association organized for religious purposes under the laws of California. On May 27, 1963, petitioner was incorporated *1343 under the nonprofit corporation law of California. The original directors were Roy Masters, Ann Masters, and John Brill. The articles of incorporation stated that the purposes for which petitioner was formed were "the promulgation of the religious, charitable, scientific, literary and educational aspects of mind over matter and spiritual health known as psychocatalysis."
On March 31, 1964, petitioner filed Form 1023, Exemption Application, requesting recognition of exemption from Federal income tax under
On August 17, 1970, petitioner filed with the IRS Form 4653, Notification Concerning Foundation Status, on which petitioner gave notice that it was not a private foundation. An organization filing Form 4653 is required to indicate the basis for its nonprivate*80 foundation status. Petitioner indicated that it was a nonprivate foundation because it was a church under
*1344 On May 15, 1972, the purpose clause of the articles of incorporation of petitioner was amended to indicate that petitioner was a church. Counsel for petitioner mailed the amendment to the articles of incorporation to the District Director of Internal Revenue. Thereupon, counsel for petitioner notified petitioner that "The Foundation is now a church."
As a result of the advice of counsel, petitioner believed that all steps necessary to change the nature of its exemption to that of a church had been completed. Accordingly, petitioner did not file information returns for the years 1973 through 1978. Ultimately, representatives of the IRS informed petitioner that it was not recognized as a church and that a formal application for such recognition would be necessary. Consequently, in 1979 petitioner prepared and filed Forms 990, Return of Organization Exempt from Income Tax, for the years 1973 through 1978 and requested a ruling that it was a church.
Although no formal application for a ruling that it qualified as a church*82 for Federal tax purposes appears in the record, the record clearly demonstrates that petitioner's request for church status was placed under consideration by the District Director. On August 14, 1979, petitioner complied with the request of the District Director for additional information upon which to base a determination of exempt status.
On September 12, 1979, petitioner again amended its articles of incorporation to include a charitable dedication provision and to amend its purposes and powers to read as follows:
(a) Purposes of the corporation:
The sole purpose for which this church is formed is the promulgation of the religious, charitable, scientific, and literary and educational aspects of the theological concepts upon which this church was founded and is organized and operated exclusively for religious purposes within the meaning of
(b) Powers of the corporation:
The general power of this church is to engage in any activity which is in furtherance of the above-stated specific purpose.
Petitioner's application was subsequently referred to the Exempt Organizations Division of the IRS National Office. *1345 On January*83 14, 1980, Roy Masters participated in a meeting in Washington, D.C., with IRS representatives regarding petitioner's exemption application. On March 13, 1980, the Commissioner issued an adverse determination letter denying petitioner's application to have its exemption classification modified to that of a church under
On February 10, 1981, petitioner commenced an action in U.S. District Court for the Central District of California seeking declaratory relief from the adverse determination of the Commissioner. By agreement with the Assistant U.S. Attorney, the Department of Justice, and the Office of the Chief Counsel of the IRS, petitioner agreed to dismiss the District Court suit without prejudice and requested a rehearing on its church status with the Exempt Organizations Division of the IRS National Office. On November 12, 1982, the Commissioner issued an adverse determination letter pursuant to the rehearing in which the Commissioner again refused to modify the nonprivate foundation status from that of a publicly supported organization described in
At about the time petitioner was formed, Roy Masters, using his own resources, began purchasing radio air time to present a program entitled "A Moment of Truth" during which he preached concerning his doctrine. Masters also began conducting discussion and teaching groups to educate people about his doctrine and meditation technique. After petitioner was incorporated, it continued to purchase radio air time to broadcast the pre-recorded "A Moment of Truth" on various radio stations. Petitioner also began purchasing radio air time for a live show in Los Angeles hosted by Roy Masters using a call-in format whereby listeners telephone Masters with their questions, concerns, and problems, and he responds with counseling in keeping with his doctrine and teachings. At one point these radio shows, including taped replays of the live call-in show, were broadcast 5 or 6 days a week over more than a dozen stations from New England to Hawaii. The programs are *1346 also broadcast every night on Satellite Radio Network by local cable television*85 in many communities throughout the country. The estimated listening audience for these programs is approximately 2 million with a regular following of 30,000.
Petitioner has published several books and pamphlets written by Roy Masters. The following is a list of the books written by Roy Masters and published by petitioner, with the respective year of publication:
| Year | Title |
| 1964 | Secret of Life and Death |
| 1970 | Sex, Sin and Salvation (Solution) |
| 1975 | How to Control Your Emotions |
| 1977 | No One Has to Die |
| 1978 | How Your Mind Can Keep You Well |
| 1979 | Life Itself is Hypnosis! THE SATAN PRINCIPLE -- Self |
| Defense Lessons to Help You Cope with Everyday | |
| Pressure |
Petitioner published the following pamphlets: What You Should Know About Being Upset A Guide to True Peace: The Meditations of Three Ancient Mystics, or The Excellency of Inward and Spiritual Prayer -- Part 1 A Guide to True Peace: The Meditations of Three Ancient Mystics, or The Excellency of Inward and Spiritual Prayer -- Part 2 How to Meditate Correctly Stress and Suffering Understanding Meditation The Power of Words Man & Woman Relationship Part II Man & *86 Woman Relationship Part III Pride the Cause of Death Man - Woman Relations "1683"
Petitioner publishes a magazine, "The Iconoclast," with 5,200 subscribers and an estimated readership of 15,000. Each issue features writings described as follows:
*1347 [Iconoclast writings] focus on the role that illusions, false religious images, misplaced beliefs and disintegrating institutions play in our personal and inter-personal problems. * * * Once our illusions have been destroyed, the path to true religion is revealed.
More particularly, each issue contains an article by Masters, plus features that keep readers informed of petitioner's activities, as well as materials and services offered by petitioner.
Petitioner owns and operates a building in Los Angeles, which at one time housed its headquarters. The building displays the name "Foundation of Human Understanding" along with the following quote: "Where there is no insight, the people perish." The building contains facilities to record Roy Masters' radio programs and to duplicate tapes. The building also contains a meeting hall for followers*87 of petitioner to congregate, as well as office space.
Petitioner conducts "services" at its Los Angeles building 3 or 4 times a week. These services, which are open to the public, are conducted by one of the ministers of petitioner. The conducting minister is permitted to structure the service as he chooses, ranging from highly Scriptural exhortations to practical suggestions on overcoming sin, weakness, and depression. Afterwards, followers in the congregation are allowed to and regularly do share their recent experiences concerning the Scriptures, meditation, and God. Although ministers may discuss the meditation technique prescribed by Roy Masters, meditation is performed by petitioner's followers in solitude. Ministers have performed weddings; however, the beliefs of petitioner eschew other rites such as baptism and holy communion. Although petitioner does not require its followers to disavow membership in other churches or religious organizations, many of its followers look upon petitioner as their only church.
In October 1977, petitioner opened a school for children. Although general education is provided, classwork includes religious instruction based upon the beliefs*88 of petitioner. Petitioner also operates one or more thrift stores where donated articles are sold.
In 1979, petitioner applied for authority to transact business in the State of Oregon. In the same year, *1348 petitioner purchased 373 acres of land near Selma, Oregon, and constructed basic living quarters and facilities for milling wood, ranching, farming, teaching, and conducting seminars and meetings. This property, called the Tall Timber Ranch, is operated by petitioner as a retreat and meeting facility. Although the number of people who have lived or worked at the Tall Timber Ranch has varied, approximately 50 persons were present in August 1981.
In 1982, petitioner purchased a church building, which formerly belonged to a Seventh Day Adventist congregation, in Grants Pass, Oregon. Petitioner relocated its headquarters to Grants Pass while retaining its building in Los Angeles. Petitioner encouraged its followers to relocate to Oregon and some did so. In Oregon, followers of petitioner attend services in the Grants Pass church, take part in activities at the Tall Timber Ranch, and are able to associate with other followers on a daily basis. Attendance at services *89 at both Grants Pass and Los Angeles ranges from 50 to 350 people.
In 1981, petitioner had nine ordained ministers who were employed full time. The ministers included Roy Masters, his wife, Ann Masters, and his children, David Masters, Dianne Masters, and Michael Masters. In addition, there were five ministers in training. The ministerial training process is a 3-year apprenticeship under the personal tutelage of Roy Masters.
Petitioner paid the following compensation to its officers, directors, and trustees during the years 1975 through 1980:
| *2*Roy Masters | *2*Robert McQuain | *2*Arlyn Haun | Ann Masters | ||||
| Year | Salary | Parsonage | Salary | Parsonage | Salary | Parsonage | Salary |
| 1975 | $ 24,103 | $ 9,900 | $ 11,482 | $ 6,600 | $ 8,635 | $ 3,950 | $ 326 |
| 1976 | 30,350 | 10,650 | 12,036 | 4,650 | 4,680 | ||
| 1977 | 34,450 | 11,650 | 15,450 | 5,650 | 3,000 | ||
| 1978 | 39,000 | 13,000 | 19,500 | 6,500 | 13,000 | ||
| 1979 | 36,000 | 12,000 | 7,500 | 2,500 | 13,800 | ||
| 1980 | 36,000 | 12,000 | 13,800 |
Petitioner also paid the following compensation, presumably including salaries to ministers, along with parsonage allowances in the following amounts for the years 1975 through 1980: *1349
| Year | Amount |
| 1975 | $ 26,100 |
| 1976 | 33,459 |
| 1977 | 62,562 |
| 1978 | 89,099 |
| 1979 | 104,145 |
| 1980 | 150,815 |
*90 The following table shows the total receipts reported by petitioner for the years 1971 through 1980, the amounts of contributions received, proceeds from the sale of its religious publications, and school tuition:
| Sales of religious | School | |||
| Year | Total receipts | Contributions | publications | tuition |
| 1971 | $ 160,169 | $ 119,410 | $ 38,842 | |
| 1972 | 217,979 | 147,600 | 63,500 | |
| 1973 | 284,123 | 182,607 | 95,009 | |
| 1974 | 352,546 | 244,727 | 104,739 | |
| 1975 | 506,698 | 315,735 | 171,281 | |
| 1976 | 678,564 | 366,125 | 290,423 | |
| 1977 | 739,167 | 482,722 | 221,458 | |
| 1978 | 896,376 | 638,838 | 218,355 | $ 11,611 |
| 1979 | 1,064,014 | 668,600 | 297,962 | 41,424 |
| 1980 | 1,217,101 | 856,672 | 285,079 | 126,205 |
The figures given for receipts from sales of religious publications for the years 1979 and 1980 include receipts from the thrift stores operated by petitioner. For the years 1975 through 1978, thrift store receipts averaged more than $ 16,000.
During the years 1971 through 1980, contributions constituted 65.8 percent of petitioner's total receipts with the remainder derived from the sales of religious publications, school tuition, thrift store sales, interest, capital gains, and royalties. The record does not reveal what*91 percentage of the total contributions was made by followers who attended services of petitioner in Los Angeles and Grants Pass. The record also does not reveal whether tuition income for the years 1979 and 1980 in the amounts of $ 41,424 and $ 126,205, respectively, was derived solely from operating the school for children or whether those figures also include receipts from seminars and weekend retreats conducted by petitioner.
*1350 The percentage that petitioner's broadcasting expenditures bore to total expenditures for exempt purposes for the years 1975 through 1980 was as follows:
| Year | Percent |
| 1975 | 46 |
| 1976 | 45 |
| 1977 | 48 |
| 1978 | 45 |
| 1979 | 48 |
| 1980 | 49 |
In the adverse determination letter issued on November 12, 1982, the Commissioner denied the request of petitioner to be classified as a church as follows:
In determining whether a particular organization can be considered to be a "church" within the meaning of
The final adverse determination letter dated February 23, 1983, holds:
The primary purpose and function of your organization are to evangelize and promulgate your teachings and doctrines through a religious broadcasting service and a religious publications operation. While you are a religious and educational organization, you are not described*93 in
Petitioner has invoked our declaratory judgment jurisdiction under
In 1965, petitioner received an exemption from Federal income taxes as an organization described in
Petitioner, believing itself to be recognized as a church, ceased filing annual information returns. See sec. 6033(a)(2)(A)(i). Petitioner did not learn that it was not recognized by the IRS as a church until after 1978. Beginning in 1979 petitioner sought a ruling that its nonprivate foundation status was based upon a determination that it was a church within the meaning of