This article examines the decision in Community Worship Fellowship v. United States, No. 19-352 (Fed. Cl. Oct. 23, 2025), concerning the revocation of tax-exempt status under 26 U.S.C. § 501(c)(3). This case provides essential guidance for tax professionals regarding the absolute nature of the private inurement doctrine, particularly within organizations controlled primarily by family members.

Background and Procedural History

Community Worship Fellowship (CWF) was founded in 1998 by Lester Goddard and his family and incorporated in Oregon as a nonprofit corporation under 26 U.S.C. § 501(c)(3). CWF attested that it was “organized exclusively for … religious … purposes”, and its organizing documents prohibited net earnings from inuring to the benefit of officers or private persons. The organization received federal tax-exempt status, including classification as a "church" under 26 U.S.C. § 170(b)(1)(A)(i). CWF’s revenue was derived solely from tax-deductible tithes and offerings contributed by its members. CWF was governed by an uncompensated council of elders, which eventually included Laura Goddard (Lester’s wife), Ryan Goddard (Lester’s son), and extended relatives who joined the Goddard family through marriage.

More than a decade after receiving its exemption, the IRS began an inquiry in September 2016 due to concerns that CWF’s assets inured to the benefit of its pastors for personal use. After CWF failed to respond to the inquiry and a subsequent church tax examination notice, the IRS initiated an audit covering tax years 2013 through 2016.

In December 2018, the IRS issued a final letter revoking CWF’s 501(c)(3) status, effective August 2012. The revocation was based on three findings: (1) at least part of CWF’s earnings inured to the benefit of its members; (2) CWF operated for the benefit of private interests; and (3) CWF did not qualify as a church. The IRS noted that during the audit period, CWF’s membership consisted primarily of Lester Goddard and his immediate and extended family. Of the approximately $1,083,688 CWF spent over four years, $933,000 (98 percent of check disbursements) was traceable to the Goddard family, including payments to Berit Homes, Ryan Goddard’s for-profit construction business.

Taxpayer’s Request for Relief

CWF challenged the IRS’s revocation determination in the Court of Federal Claims (the court), asking the court to reverse the IRS’s decision and declare the organization tax exempt. CWF contended that the government relied on a "selective and misleading characterization" of its operations and misapplied the private inurement doctrine. CWF argued that finding technical deficiencies in documentation should not negate that its operations served "genuine public charitable and religious interests".

Jurisdiction and Standard of Review

The court has jurisdiction to hear challenges to IRS determinations concerning the qualification or continuing qualification of a tax-exempt organization under 26 U.S.C. §§ 7428(a)(1)(A), (a)(2). Jurisdiction is concurrent with the Tax Court and the D.C. District Court.

The standard of review applied to IRS revocation determinations in this court is de novo, meaning the court makes an independent declaration regarding tax status (citing Foundation of Human Understanding v. United States, 88 Fed. Cl. 203, 212 (2009), aff’d, 614 F.3d 1383 (Fed. Cir. 2010), and New Dynamics Foundation v. United States, 70 Fed. Cl. 782, 794 (2006)).

However, to reconcile the requirement that the taxpayer must exhaust administrative remedies (26 U.S.C. § 7428(b)(2)), the court applies a “presumption of correctness” to the facts found by the IRS (citing New Dynamics, 70 Fed. Cl. at 795, and Lima Surgical Associates, Inc. v. United States, 944 F.2d 885, 888 (Fed. Cir. 1991)). This presumption stands until the taxpayer comes forward with evidence to rebut the IRS’s facts (citing United States v. Janis, 428 U.S. 433, 440-42 (1976)). The taxpayer bears the burden of establishing its entitlement to tax-exempt status and proving the IRS determination was incorrect (citing Foundation of Human Understanding, 88 Fed. Cl. at 212-13, and Easter House v. United States, 12 Cl. Ct. 476, 482 (1987)). The court reviews the matter on the government’s motion for summary judgment.

Legal Analysis of the Operational Test and Private Inurement

To maintain status under 26 U.S.C. § 501(c)(3), an organization must meet the operational test (citing 26 C.F.R. § 1.501(c)(3)-1(a)(1)). The operational test requires that the organization operate “exclusively for one or more exempt purposes” and mandates that “no part of the net earnings” may inure to the benefit of any private shareholder or individual (citing 26 U.S.C. § 501(c)(3) and 26 C.F.R. § 1.501(c)(3)-1(c)(1), (2)). The term “no part” is absolute; the organization loses its tax-exempt status if “even a small percentage of income inures to a private individual” (citing Church of Scientology of California v. Commissioner, 823 F.2d 1310, 1316 (9th Cir. 1987); Founding Church of Scientology v. United States, 188 Ct. Cl. 490, 496-97 (1969); and Freedom Church of Revelation v. United States, 588 F. Supp. 693, 697-98 (D.D.C. 1984)).

Application of the Law to the Facts

The court found that CWF did not dispute the IRS’s relevant findings or calculations that at least some net earnings were disbursed to the Goddard family, constituting private inurement during the 2013 through 2016 tax years.

Compensation and Familial Control

While reasonable salaries for church officials do not constitute private inurement (citing Bubbling Well Church of Universal Love v. Commissioner, 670 F.2d 104, 105 (9th Cir. 1981)), the “compensation” label does not control the analysis. The IRS found that Lester and Laura Goddard controlled CWF’s finances. Lester Goddard determined his own salary and bonus, which he presented to members, most of whom were related to him, for approval. CWF had no written employment contracts or written policies/procedures for setting compensation for Lester or Ryan Goddard. CWF also failed to keep contemporaneous records documenting the daily duties or services performed in exchange for compensation.

The court noted that familial control over the organization, combined with self-determined compensation and a lack of evidence regarding work performed, created a potential for abuse and constituted private inurement (citing Bubbling Well, 670 F.2d at 105-06, and Family Trust of Massachusetts, Inc. v. United States, 892 F. Supp. 2d 149, 156-57 (D.D.C. 2012)). This finding alone—that the Goddard family members alone determined their compensation without explanation—was sufficient to conclude that the salaries constituted private inurement.

Disbursements for Personal Benefit

Lester and Laura Goddard had complete control over CWF’s finances, including its single bank account and exclusive authority over its credit card. The IRS found CWF disbursed other funds to its members for personal use, providing independent grounds for private inurement. CWF credit card statements showed charges for Prada handbags, $1,500 worth of jewelry, $1,050 worth of furs, and Chanel fragrances. CWF paid for the Goddards’ son’s private boat payments, which Lester Goddard admitted was a personal expense. CWF funds paid for domestic and international travel, including flights, cruises, resort stays, and trips to Disneyland, Hawaii, and Paris. CWF also paid for golf outings, spa visits, and event tickets. CWF did not maintain any records documenting the nature or purpose of these expenditures or alleged CWF retreats.

Furthermore, CWF funds paid for home improvements for family members, such as a playscape and pool slide at Lester and Laura Goddard’s home. The court cited Manning Association v. Commissioner, 93 T.C. 596, 608-10 (1989), noting that hosting church gatherings at a private residence does not transform home improvements into a church expense. These purchases of goods and services, absent evidence of a tax-exempt purpose, constituted private inurement.

Gifts, Loans, and Unexplained Payments

CWF utilized its revenue for other private financial benefits, including issuing checks labeled as “gifts”, paying off Lester and Laura Goddard’s personal credit card (nearly $14,000), and issuing checks totaling $85,400 for “taxes” or “loan for taxes” to Lester or Laura Goddard.

CWF also used revenue to "front money" for members as loans, but failed to record these loans, required repayments, purposes, or terms/conditions. Using a tax-exempt organization as a source of credit is a form of private inurement, regardless of whether the loans were repaid (citing Easter House, 12 Cl. Ct. at 487-89, and Founding Church of Scientology, 188 Ct. Cl. at 499).

Additionally, CWF provided “benevolence” payments primarily to Goddard family members experiencing financial challenges. CWF lacked any policy, procedure, application process, or documentation to show that these payments were made in an objective and nondiscriminatory manner in furtherance of an exempt purpose (citing Church in Boston v. Commissioner, 71 T.C. 102, 106-07 (1978)). The general failure to keep adequate records to determine the full nature of operations precludes the organization from meeting its burden to show operations do not inure to private benefit (citing Church of Gospel Ministry, Inc. v. United States, 640 F. Supp. 96, 98-99 (D.D.C. 1986)).

Taxpayer Concessions and Insufficient Rebuttal Evidence

Lester Goddard conceded during deposition that CWF improperly disbursed funds for numerous personal purposes, including Disneyland trips, trip expenses in Hawaii, purchases of fragrances and jewelry, and his son’s boat payments.

CWF’s supplemental affidavits did not create a genuine issue of material fact because a party cannot create an issue of fact by supplying an affidavit that contradicts prior specific deposition testimony with broad, conclusory statements, without explaining the contradiction (citing Sinskey v. Pharmacia Ophthalmics, Inc., 982 F.2d 494, 498 (Fed. Cir. 1992)). The affidavits failed to dispute the fact that at least some earnings were disbursed for private use.

Conclusion on Tax-Exempt and Church Status

The prohibition against private inurement is absolute and does not rely on balancing funds used for exempt purposes against funds used for non-exempt purposes (citing Founding Church of Scientology, 188 Ct. Cl. at 496-97). Because the record established that at least some of CWF’s net earnings inured to the benefit of private individuals, the government was entitled to summary judgment that the IRS correctly revoked CWF’s tax-exempt status under 26 U.S.C. § 501(c)(3).

Because an organization cannot qualify as a "church" for tax purposes unless it first qualifies for federal income tax exemption under Section 501(c)(3) (citing Foundation of Human Understanding, 614 F.3d at 1388, and Bubbling Well, 670 F.2d at 106 n.1), the court further concluded that the IRS also correctly revoked CWF’s church status.

The court granted the government’s motion for summary judgment.

Prepared with assistance from NotebookLM.