Community Worship Fellowship loses 501(c)(3) status after funds benefited insiders
Community Worship Fellowship v. United States, No. 19-352, 2025 BL 380420 (Fed. Cl. Oct. 23, 2025), Court Opinion
The Court of Federal Claims upheld the IRS revocation of Community Worship Fellowship’s 501(c)(3) and church status for 2013 to 2016 because net earnings inured to insiders, and there was no genuine dispute of material fact.
Holding
The court issued summary judgment in favor of the government, confirming that the IRS properly revoked Community Worship Fellowship’s tax-exempt status under section 501(c)(3) and its church designation for the relevant period.
The court reviewed the case de novo, presuming the IRS's factual findings to be correct, and identified a clear private benefit to members of the founding family.
Why It Matters
Confirms that any private inurement, even if small, defeats 501(c)(3) status.
Reinforces that compensation set and controlled by insiders without independent safeguards can be treated as inurement.
Clarifies that an entity cannot qualify as a church for tax purposes if it does not meet 501(c)(3) requirements.
Shows how courts handle section 7428 revocation challenges with de novo review and burden on the organization.
Timeline
1998: Community Worship Fellowship (CWF) incorporated in Oregon and recognized as exempt under section 501(c)(3) and as a church.
September 2016: The IRS issued a church tax inquiry and a church tax examination notice; CWF did not respond and was selected for audit.
December 2018: IRS issued a final revocation letter, effective August 2012, covering tax years 2013 to 2016.
November 2018: Oregon corporation dissolved; a new Hawaii corporation was formed with the same name.
March 2019: CWF filed a declaratory judgment action in the Court of Federal Claims.
August 2025: Oral argument on the government’s motion for summary judgment.
October 23, 2025: Decision granting summary judgment for the government.
Key Facts
Revenue consisted of member tithes and offerings.
Net deposits for 2013 to 2016 were about $1,093,560; spending was about $1,083,688.
About $950,000 was paid by check to individuals. About $933,000, or 98 percent, went to members of the Goddard family.
About $784,000 in checks went to Lester and Laura Goddard.
Only two formal employees existed, both family members. There were no written employment contracts, no conflict-of-interest policy, and compensation lacked contemporaneous support.
Credit card charges and checks covered personal items and activities, including handbags, jewelry, furs, fragrances, cruises, flights, resort stays, Disneyland, Hawaii, Paris, golf, dining, and home improvements.
CWF also paid personal credit card balances and issued gifts, loans, reimbursements, and benevolence payments to family members without documented criteria, terms, or needs.
Leadership and financial control rested with the founding family, and documentation of church-related purpose was largely absent.
Depositions included admissions that several expenditures were personal.
Statutory or Regulatory Framework
Section 501(c)(3) requires that no part of an organization’s net earnings inure to the benefit of private individuals and that the organization operate exclusively for exempt purposes. Treasury Regulation section 1.501(c)(3)-1 imposes organizational and operational tests and bars inurement. Declaratory judgment jurisdiction for revocation disputes arises under section 7428, which authorizes the court to make a declaration regarding qualification and revocation. Courts in this posture apply de novo review, while presuming IRS factual findings correct until rebutted with evidence.
Arguments
Plaintiff argued:
IRS characterization was selective and ignored religious activities and small-church practices.
Salaries to ministers and ordinary operating costs are not private inurement.
Retreats, benevolence, and reimbursements were part of religious operations.
First Amendment concerns counseled resolving disputes in favor of religious autonomy.
Government argued:
The record showed undisputed private inurement to insiders through family-controlled salaries, personal spending, gifts, loans, reimbursements, credit card payments, and home improvements.
CWF failed the operational test, and the “no inurement” rule is absolute.
Without 501(c)(3) status, CWF could not qualify as a church.
No genuine dispute of material fact existed, and summary judgment was proper.
Court’s Reasoning
Applied de novo review under section 7428 with a presumption of correctness for IRS fact findings, which CWF did not rebut with competent evidence.
Identified large flows of funds to insiders and family dominance over governance and financial controls.
Noted lack of contemporaneous documentation supporting compensation, services performed, or exempt purpose for major disbursements.
Found credit card charges and checks for travel, luxury goods, entertainment, home improvements, and personal debts to be private inurement.
Held that labeling payments as compensation, reimbursements, loans, or benevolence did not control without credible records, criteria, or terms.
Determined that admissions by leadership confirmed the personal nature of key expenditures.
Concluded that any inurement defeats the exemption, so balancing charitable activities against private benefits was unnecessary.
Explained that church classification is narrower than religious organization status and is unavailable where 501(c)(3) status fails.
The First Amendment objections were rejected because the review addressed the financial operation, not the religious belief.
Forward-Looking Implications
Organizations with concentrated family control face heightened risk if compensation and disbursements lack independent approval mechanisms and written policies.
Benevolence, loans, and reimbursements require documented criteria, approvals, terms, and records that tie payments to exempt purposes.
Retreats, travel, and hospitality need contemporaneous agendas and support showing nexus to exempt activities.
Section 7428 challenges will turn on the administrative record and admissible new evidence. Assertions without documentation are unlikely to overcome the presumption of correctness.
Church claims cannot salvage exemption where inurement already defeats section 501(c)(3).
Result
Summary judgment for the United States. The court declared the IRS revocation of CWF’s 501(c)(3) and church status for 2013 to 2016 correct.
The Takeaway
Control without documentation is a liability. Where insiders dominate governance and recordkeeping is thin, payments that look personal will be treated as inurement, and exemption will not survive.
List of Citations
26 U.S.C. § 501(c)(3). Operative exemption statute and inurement prohibition.
Treas. Reg. § 1.501(c)(3)-1. Organizational and operational tests applied to activities and inurement.
26 U.S.C. § 7428. Declaratory judgment jurisdiction for initial qualification and revocation disputes.
New Dynamics Foundation v. United States, 70 Fed. Cl. 782. De novo review framework under section 7428.
Foundation of Human Understanding v. United States, 614 F.3d 1383. The church definition is narrower and requires an underlying exemption.
Bubbling Well Church of Universal Love v. Commissioner, 670 F.2d 104. Family control and unsupported compensation as inurement.
Church of Scientology of California v. Commissioner, 823 F.2d 1310. Any inurement defeats exemption.
Easter House v. United States, 12 Cl. Ct. 476. Undocumented loans to insiders as inurement.
Church of Visible Intelligence That Governs The Universe v. United States, 4 Cl. Ct. 55. Inurement and church analysis principles.