Knowing that its illegal activity cannot be maintained in a conventional tax-exempt religious (IRC § 501(c)(3)) organization, because the public policy doctrine will not tolerate it, a religious trust tried to sidestep this application of the law by placing its practice of polygamy in an exempt apostolic (IRC § 501(d)) entity but that was not successful due to an implicit application of the common-law standards for charitable organizations (Priv. Ltr. Rul. 201310047).
An organization formed as a religious trust exists to preserve and advance certain doctrines and goals. The rules by which it is guided are found in its holy books. Membership in this organization is confined to adherents of this religion. Its membership admission policy is intended to limit residents in its facilities to individuals who subscribe to the doctrines, beliefs, and practices of the organization.
The trust requires consecration or unconditional dedication to it by its members of their properties, time, talents, money, and materials. Its members consecrate their real property to it by deeds of conveyance.
Members live in the facilities of this community and they work in the businesses operated by the organization. The trust operates 18 businesses, most of which engage in components of the housing industry. Other businesses include software development, mobile technology equipment service and repair, animal husbandry, furniture manufacturing and sales, and clothing. Four companies manage the trust’s agricultural concerns, utility needs, member labor, and the medical needs of members. All but one of these businesses are organized in single-member limited liability companies (disregarded entities). The other one is a trust; it manages the other businesses.
The trust maintains a common treasury in which profits generated by these businesses are deposited and from which the expenses of the organization are paid. The trust instrument provides that, each year, members must include in their gross income their pro rata share of the trust’s taxable income, whether or not distributed.
All of this organization’s officers, religious leaders, and members are members of the above religion. This religion follows the beliefs and practices that were originally the beliefs and practices of a church (Church). When the Church departed from many of these beliefs, practices, and teachings, some individuals separated from the Church and established this religion.
These beliefs and practices include polygamy. The trust advised the IRS that it has a religious belief, known as “celestial marriage,” which includes a plurality of wives. This form of marriage was described as a “private religious relationship” between consenting parties of legal age that is not recognized as a marriage by state authorities. The trust said that it does not allow its members to seek multiple marriage certificates from state authorities; thus, it asserted that celestial marriage does not constitute bigamy under state law.
Tax exemption is provided for religious or apostolic organizations, where they have a common treasury (IRC § 501(d)). These entities may engage in business for the common benefit of the members; the members must include in their gross income their pro rata shares, whether or not distributed, of the taxable income of the association.
In the administration of the federal tax laws, the marital status of individuals as determined under state law is recognized by the IRS (Rev. Rul. 58-66).
The US Supreme Court upheld the constitutionality of a law stating that plural marriage is not allowed (Reynolds v. United States (1879)). A long line of court decisions upholds this principle. The Court has also held that an organization that engages in practices that violate public policy cannot be tax-exempt as a charitable, including religious, entity (Bob Jones University v. United States (1982)). An apostolic organization, it has been held, is required to have a religious character (Kleinsassar v. United States (9th Cir. 1983)).
The IRS ruled that this trust meets “certain requirements” of the federal tax law for exempt apostolic organizations (namely, the technical requirements of IRC § 501(d)). This includes the fact that its members live in the community facilities and work in the organization’s businesses, along with the consecration of assets, maintenance of a community treasury, and the requirement that members must include their share of trust income in their gross income.
The IRS added, however, that this type of exempt organization must also be religious. The agency noted that the trust instrument shows that the entity was formed to preserve and advance certain religious practices and doctrines. One of these practices is polygamy.
The IRS noted that applicable state law provides that proof of informal (or common-law) marriage is shown when a man and a woman agreed to be married, then live together as husband and wife in the state, and represent themselves to the public as married. State criminal law provides that an individual commits bigamy if he or she is legally married and then marries another person other than his or her spouse. Thus, for federal income tax purposes, the IRS considered polygamous marriage as bigamy and therefore illegal under applicable state law.
The IRS observed that “[m]oreover, the legality of polygamy has been litigated in federal and state courts for one hundred and thirty years.” These courts have consistently held that polygamy is contrary to federal public policy and that even the constitutional protection for freedom of religion does not prevent a state from proscribing it.
The trust was seen by the government as “affirm[ing]” the practice of polygamy through its concept of celestial marriage. These marriage proceedings, wrote the IRS, “appear to” create common-law marriages as defined by state law. “When undertaken with multiple partners,” the IRS added, these “proceedings and subsequent actions appear to constitute bigamy and violate [the] state penal code.” Thus, the IRS concluded, the trust is “promoting illegal acts” under state law. The absence of state-issued certificates for its proceedings was said to not affect their recognition as common-law marriages.
The practice of polygamy is also contrary to federal public policy. The IRS stated that, because the trust advocates and engages in activities that “contravene state laws and state and federal public policy, [the trust] cannot be a valid religious trust.” Thus, the IRS held that it cannot be recognized as an exempt religious or apostolic association.
The trust was also said to fail to meet the “common law standards for charitable organizations.” The agency noted that, “[a]lthough section 501(d) does not require explicit proof of charitable purposes, as does section 501(c), courts have found an implicit requirement.” The IRS concluded that this trust is not exempt from federal income tax under IRC § 501(a) as an organization described in IRC § 501(d) because it does not “meet the common law standards of charity that an institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy.” [6.2(a), 10.7]
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