Federal Income Tax Laws and 501(c)(3) Tax-Exempt Status

Income tax laws exist in the United States at both the federal and state level, except that seven states (including Nevada) have no state income tax. This page addresses federal income tax law.

Federal tax law, as enacted by Congress, is set forth in Title 26 of the United States Code, and is called the Internal Revenue Code. Title 26 is divided into a number of Subtitles.

Income taxes are imposed in Subtitle A, including personal income tax and corporate income tax. Subtitle A specifies what items and sources of income must be included in "gross income", and what expenses can be "deducted" from gross income to arrive at "taxable income".

Subtitle A also defines tax exempt organizations.

Myths and facts about 501(c)(3) tax exempt status for churches

Most people have heard of 501(c)(3) and know it has something to do with nonprofits and tax-deductible donations.

501 is the section number within Subtitle A of Title 26. 501(c)(3) is a specific paragraph within section 501. We'll look at it in a moment.

It is widely and correctly known that nonprofit, charitable organizations which have 501(c)(3) tax exempt status have two major benefits under the Internal Revenue Code:

• 501(c)(3) nonprofits don't have to pay income taxes on income related to the organization's charitable purposes.

• Donations made to 501(c)(3) nonprofits are tax-deductible on the donor's income tax return.

It is also widely but incorrectly believed that creating a 501(c)(3) nonprofit requires getting permission from the IRS. Specifically, the following two statements are widely but incorrectly believed to be true for all nonprofits, including churches. However, they are false for churches.

• In order to obtain 501(c)(3) tax exempt status, a nonprofit must apply to the IRS for recognition of its 501(c)(3) status, which must then be determined and granted by the IRS.
  [This is false for churches.]

• When a donor contributes to a nonprofit organization, the donation is not tax deductible (on the donor's tax return) unless the organization has had its 501(c)(3) tax exempt status determined by the IRS, and the organization is consequently listed in the massive IRS Publication 78 (which lists charities to which tax-deductable donations can be made).
  [This is false for churches.]

And the law makes it clear that both of the above statements are false for churches.

It's pointless to speculate. Let's look directly at the law.

What do the following words mean?

Well, since section 501 appears within Subtitle A, Income Taxes, it means exemption from income taxation (which is imposed within Subtitle A).

Who is exempt from income taxation?

We are concerned here with subsection (c), i.e. 501(c). We don't care about subsection (d) or section 401(a). In other words, an organization described in subsection 501(c) is exempt from income taxation.

However, it says,

Both sections 502 and 503 are irrelevant to churches. Section 502 prohibits a non-charity profitable business from claiming nonprofit status simply because all its profits go to other tax-exempt organizations. Section 503 prohibits certain transactions, none of which is applicable to a 501(c)(3) organization.

Note that subsection 501(a) says nothing about the IRS making a determination of tax exempt status.

So, according to subsection 501(a), if a church is described in section 501(c), then it is income tax exempt. Now, section 501(c) consists of a long list of some 28 different kinds of nonprofit organizations. Here is what it says at the top, before the list begins:

Thus, subsection 501(c) is referring back to subsection 501(a). So the law is consistent within itself.

Note that the top of subsection 501(c) says nothing about the IRS making a determination of tax exempt status.

Now let's skip the first two [501(c)(1) and 501(c)(2)] and look at the famous paragraph itself, 501(c)(3):

Section 501(c)(3) imposes four requirements that an organization must meet:

• Requirement 1. Organized as a corporation (or other acceptable form):

  Corporations, and any community chest, fund, or foundation

• Requirement 2. Purposes are exclusively among those named:

  organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals

• Requirement 3. Nonprofit organization:

  no part of the net earnings of which inures to the benefit of any private shareholder or individual

• Requirement 4. No substantial political activity:

  no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation..., and which does not participate in, or intervene in ..., any political campaign on behalf of (or in opposition to) any candidate for public office.

Most churches meet these four requirements. Holy Realm of Surrendered Service meets all four requirements.

Note that 501(c)(3) says nothing about the IRS making a determination of 501(c)(3) tax exempt status.

508 and the Mandatory Exception for Churches

Where does the law talk about the IRS making a determination of tax exempt status? Well, it's not in section 501. It's in section 508.

Who is "the Secretary"? That is the Secretary of the Treasury, who oversees the IRS, or his designee. In practical reality, it means the IRS.

This subsection specifically refers to section 501(c)(3). It says:

In other words, unless the organization has applied to the IRS for recognition of its 501(c)(3) status.

Item "(2)" applies to organizations whose application to the IRS is late.

However, 508 provides for exceptions to this requirement of applying to the IRS for recognition of 501(c)(3) status.

So we need to look at subsection (c):

In other words, unlike most 501(c)(3) nonprofits, churches do not have to apply to the IRS for recognition of their 501(c)(3) status. Churches have a mandatory exception from this requirement.

IRS Forms and Publications SAY that churches are excepted.

The form used by nonprofit organizations to apply to the IRS for determination of their 501(c)(3) status is Form 1023.

Like every IRS form, Form 1023 has instructions:

And on page 2 of the instructions, it clearly states that churches are not required to file Form 1023 in order to be 501(c)(3) organizations:

IRS Publication 1828 is entitled, "Tax Guide for Churches and Religious Organizations".

On page 3, Publication 1828 clearly indicates that churches can be 501(c)(3) without needing to apply for IRS determination of their tax-exempt status:

Opting AGAINST applying for IRS determination

Now, let's consider the matter of IRS determination of 501(c)(3) nonprofit status.

Holy Realm of Surrendered Service is a church. Therefore, under section 508(c) it is entitled to the mandatory exception for churches from the requirement of applying to the IRS for recognition of its 501(c)(3) nonprofit status.

Holy Realm of Surrendered Service elects to utilize this mandatory exception and not to apply to the IRS for recognition of its 501(c)(3) nonprofit status.

Why not apply to the IRS for recognition?

The answer is quite simple, if not blatantly obvious, and is best stated in the form of a couple of questions:

• If you had the option of either (1) getting automatic nonprofit, tax-exempt status, or (2) asking the IRS to determine whether or not you had that status, which choice would you make?

• If you had the option of getting involved with the IRS or legally staying away from the IRS, what would you do?

As explained on our page entitled The Greatest Fraud in History, the IRS is a criminal organization and a powerful agent of the "evil financial powers". The IRS is engaged in a campaign of terror against the American public. The IRS routinely ruins lives, families and businesses. The IRS is in the business of inflicting human suffering. The IRS is a hideous embodiment of the devil itself.

Holy Realm of Surrendered Service is just the opposite. It's a church dedicated to eliminating human suffering. The last thing this church is going to do is to optionally elect to be in a position where an embodiment of the devil is making decisions regarding its financial and legal affairs.

Simply put, we don't trust the devil. We don't trust the IRS.

Holy Realm of Surrendered Service meets the four requirements of 501(c)(3) and, as a church, has a mandatory exception from applying to the IRS for recognition of its 501(c)(3) nonprofit status.

Holy Realm of Surrendered Service is a 501(c)(3) tax-exempt organization.

Tax-deductibility of contributions

Tax exempt status is a tax matter for a nonprofit organization, and it is governed by section 501, as discussed above.

Tax deductibility of charitable contributions is a tax matter for the donor, and it is governed by section 170. Section 170 is among a bunch of sections addressing the subject of itemized deductions:

Section 170 gives the general rule in subsection (a)(1), which then refers to subsection (c). Subsection (c) then describes the same four requirements given in section 501(c)(3). Here are all the relevant parts of 170:

Holy Realm of Surrendered Service meets all four of the requirements at 170(c)(2), and hence is an organization to which tax-deductible contributions can be made under 170(a)(1).

Concerning the verification of deductions by the Secretary (i.e. by the IRS), this relates to confirming that the taxpayer actually made the contribution, and verification is generally based upon having a receipt for the contributions. Nothing in the "regulations prescribed by the Secretary" requires that the donation be made to an organization that applied to the IRS for determination of its 501(c)(3) status (see 26 CFR 1.170A-1).

We have already looked at IRS Publication 1828 (with the colorful blue cover). On page 4, Publication 1828 makes it clear that 501(c)(3) churches that have not applied for IRS determination of their tax-exempt status, and which are therefore not listed in IRS Publication 78 (a massive volume listing tens of thousands of 501(c)(3) organizations that have had their tax-exempt status determined by the IRS) can nonetheless receive tax-deductible donations.

Now let's look at IRS Publication 526 is entitled, "Charitable Contributions".

On page 2, Publication 526 tell us that churches do not have to apply to the IRS to be qualified to receive tax-deductible contributions. It also talks about the massive Publication 78, but clearly states that Publication 78 includes most (but not all) qualified organizations.

Holy Realm of Surrendered Service is a 501(c)(3) tax-exempt organization to which federally tax-deductible contributions can be made.

DCGYIF involves NO quid pro quo

Suppose your local, nonprofit classical music radio station is having a fundraising drive. They are playing music you like and announce that people who call in and donate during that hour will receive a CD with the music on it. You call in and donate $100 and then get the CD in the mail.

The CD is called a quid pro quo.

If the CD is worth $10, then you can only deduct $90 as a charitable contribution.

This is explained on page 3 of IRS Publication 526:

Three questions arise:

1. Are Angelic Missions a quid pro quo?

2. Are grants a quid pro quo?

3. Are hearts a quid pro quo?

The answers are no, no and no.

Are Angelic Missions a quid pro quo?

No.

The concept of the quid pro quo is based upon something of tangible, material value coming back to the donor. While an Angel member donor does, without question, receive a spiritual benefit, the material flow is all going in the opposite direction—from donor to church and to society at large.

The purpose of The Legacy of the Angels is to eliminate human suffering on planet Earth. The entire motivation for a person to become an Angel member is so that he or she can contribute services that contribute directly to the elimination of human suffering. An Angelic Mission is the embodiment of the service that he or she contributes to reduce human suffering.

Suppose, for example, an Angel member's mission is dedicated to rehabilitating drug addicts. The operation of the mission by that member entails his or her going out into the community, reaching out to drug addicts, inspiring them to heal, inviting them into the rehabilitation program, operating the rehabilitation program, doing follow up to make sure graduates from the program have not turned back to drugs, etc.

The Legacy of the Angels provides spiritual inspiration and a church framework for Angel members to create and operate Angelic Missions. It provides a means for their Angelic Missions to join forces with, and to resonate with, other Angelic Missions, thereby attaining a much greater probability of achieving the goal of eliminating human suffering. Instead of striving alone, or in small groups, to eliminate human suffereing, the church elevates this to a global union of Angel members and their Angelic Missions, all working together to achieve this most worthy goal.

And the "spiritual inspiration and church framework" are provided free of charge. The "spiritual inspiration" is all over this web site, mostly in areas that are open to non-members. Membership if free, and members may utilize the "church framework" to create Angelic Missions without making a donation.

Angelic Missions are not a quid pro quo.

Are grants a quid pro quo?

No.

Grant funds may only be utilized for the purpose of operating the Angelic Mission they are paid to. Thus, in the case of the drug rehabilitation example, grant funds might enable the Angel member to quit her full-time job and instead to devote full-time to the missionary work.

Is the Angel member the recipient of the benefit arising from the grants?

No.

The benefit goes to the drug addicts thereby and to society at large.

The grants make it financially possible for the Angel member to work much harder in service of the church's broad humanitarian purpose to eliminate human suffering. And that additional work cancels out any "benefit" received by the member from the grants.

This is analogous to a woman giving, in Year 1, a donation to a hospital, and then, in Year 2, being offered an office job at the hospital.

Undoubtedly, making the donation in Year 1 increased her chances of being offered the job. But is that "increased likelihood of a job offer" a quid quo pro on her donation in Year 1?

When calculating her tax deduction in Year 1, must she subtract from her donation amount the present value of the possibility of getting the job in Year 2?

Certainly not.

Furthermore, even if such a present value could be determined (which it cannot), the salary she ultimately receives is in exchange for the office work.

Suppose that in Year 2, as a hospital employee, she makes an additional donation. For her Year 2 tax deduction, should she subtract her salary from the donation? No. Her salary is not a quid pro quo.

Likewise, grants enable Angel members to carry out missionary work in behalf of the church's broad humanitarian mission to eliminate human suffering.

Grants are not a quid pro quo.

Are hearts a quid pro quo?

No.

Hearts are merely an internal point system used by the church for the apportionment of grant funds (when available) to Angelic Missions. Hearts are neither property, nor can they be bought, sold or transferred. While they can be endeared to the donor's mission, they cannot be endeared to the donor.

Hearts do have a heart index involving dollars, but it does not refect any value or benefit coming back to the donor.

If the heart index were to be used to determine the "value" of something, it would be the value of the potential future service a member can do for the church and for society.

Consider a nonprofit philharmonic association that advertises the following donor levels:

Patrons and Benefactors receive a free dinner with celebrities, and we will assume that they subtract the value of the dinner from their tax deduction as a quid pro quo.

But what about the "service" a donor receives simply by being listed as a "Friend" or as a "Patron"?

Is the "value" for the "service" of being counted as a "Friend" to be determined by the above chart? In other words, shall the price for that "service" be $500?

If so, then the donor must subtract (as a quid pro quo) $500 from a donation of $500, resulting in a tax deduction of zero. This, of course, is ridiculous.

The above chart cannot be used as a basis for setting "values" for an intangible "service" such as this.

The same principle applies to hearts and the chart of heart index values. Having 500 hearts endeared to an Angelic Mission is no more a "service received by the donor" than being counted as a "Friend" of the Philharmonic.

If hearts were to have any "value", it would have to be based entirely upon the grants, and, as we have already shown, the grants are not a quid pro quo.

Hearts are not a quid pro quo.

What does the law say about quid pro quo?

Section 170 (which authorizes charitable deductions) is silent on the matter of a quid pro quo. The regulations under section 170 are also silent on quid pro quo.

In fact (according to our research), prior to 1993 there was no mention of quid pro quo anywhere in the entire Internal Revenue Code. We'll get to the 1993 addition below.

The IRS has traditionally relied upon the courts to define the quid pro quo rules in connection with tax deductions under section 170.

The American Bar Endowment case

Interestingly, it was the lawyers themselves who lost a 1986 case in this matter before the High Court. The case involved a lawyer-devised scheme wherein attorneys who made donations to a charity were able to buy various kinds of insurance at cheap premium rates.

The Supreme Court held that the effective "discount" (below market) that donor lawyers received on insurance rates comprised a quid pro quo.

Consider grants. What is

when that return is in the form of grants?

The grants are uncertain, and if paid, will be paid in the future.

There is no market for "grant futures".

Not even in Chicago!

Unlike the lawyers who could purchase insurance in the regular insurance market (and who got lower rates by contributing the bar-sponsored charity), nobody can purchase "grants futures" in any marketplace.

Grants are gifts. They can't be purchased.

There is no "market value" for the possibility of receiving future grants.

And while the heart index values might create the illusion of a "market value", there is no market for hearts either. Unlike the lawyers who could purchase their insurance elsewhere, hearts are not independently available.

Nor can hearts be purchased from the church. Hearts cannot be purchased because they are not property and therefore cannot be owned.

The Hernandez case

In 1989 the High Court decided another case concerning quid pro quo in connection with section 170 donations. The case involved the Church of Scientology.

The Church of Scientology provided "audit" sessions to members in which a member received what amounted to a counseling session for his or her own benefit. The audit sessions were advertised at specific prices, and the fees were claimed to be tax deductible donations. The question before the Supreme Court was whether the audit sessions were a quid pro quo.

The Scientologists asserted that the "benefits" received from the audit sessions were purely religious in nature, and were therefore deductible because of the First Amendment's two religious clauses (called the Establishment Clause and the Free Expression Claus).

They lost the case.

The High Court ruled the services received comprised a quid pro quo. The Court further ruled that imposing the quid pro quo on goods and services considered "purely religious" does not violate the First Amendment.

We have already explained why grants and hearts do not comprise

received by the donor. The tangible services are all flowing from (not to) the donor.

Nor, as we have explained, do the heart index values comprise

for any thing received by the donor.

Perhaps there are intangible religious benefits to DCGYIF donors, because the grants provide a mechanism, within the church, for donors to increase their levels of service to society.

Do these comprise

Yes.

Does our claim that of no quid pro quo thereby become, per Hernandez,

Perhaps there might be a remotely possible according to Hernandez, which was decided in 1989. But four years later, Congress explicitly said otherwise when they finally put something into the Internal Revenue Code about quid pro quo.

Section 6115

In 1993, section 6115 was added, which requires that nonprofits disclose estimated quid pro quo values to donors.

While 6115 does not directly address deductibility under section 170 (its definition of "quid pro quo" is limited in scope to section 6115, and therefore does not reach section 170), it nonetheless strongly suggests the intent of Congress on the matter.

Section 6115 makes it abundantly clear that when a quid pro quo exists, it must be possible to make

Furthermore, it must be possible to make this estimate in the same tax year when the donation occurs, because the entire purpose of 6115 is to require the nonprofit to disclose that estimate to the donor before April 15th of the following year.

Projected values of "grant futures" to be received (not by the donor by by an Angelic Mission) cannot possibly comprise any kind of

for the purpose of complying with the disclosure provision in 6115.

If such a "good faith estimate" disclosure were actually possible, and if it were (falsely) alleged that the grants comprised a quid pro quo, then, according to the "best case scenario" grant yields projected in this web site, the estimated grants would vastly exceed the donation amount.

This would force the donor to subtract a quid pro quo much larger than the donation, resulting in a negative tax deduction. Substantial taxable income to the donor could then occur as a consequence of making the donation. Such a concept is absurd.

Note: The above statement about "substantial taxable income" ignores the 861 evidence, presented our page, The Greatest Fraud in History.

Returning now to the "intangible religious benefits" discussion from Hernandez, we see that four years later, in 6115, Congress said:

DCGYIF grants provide a mechanism, within the church, through which donors can increase their levels of service to society. This is (at least for the donor),

And this intangible benefit to the donor is most certainly

There is no quid pro quo. Neither Angelic Missions, nor grants nor hearts comprise a quid quo pro.

The entire amount of an Angel member's capital donation to the AngelBase project, payable to Holy Realm of Surrendered Service, is tax deductible.

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