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January 27, 1981


The opinion of the court was delivered by: GREENE

This is an action under section 7428 of the Internal Revenue Code of 1954, 26 U.S.C. § 7428, in which plaintiff Incorporated Trustees of the Gospel Worker Society (Society) seeks a declaratory judgment that it is, as a religious organization, exempt from taxation under Code sections 501(a) and 501(c)(3). *fn1" Before the Court is defendant's motion for summary judgment. For the reasons stated below, the Court holds that plaintiff is no longer entitled to its tax exemption.


 In 1895, Reverend William Musselman, a Mennonite minister, founded the Gospel Worker Society in New Jersey. The Society was incorporated under the laws of Pennsylvania in 1906. Through the 1930's it maintained missions in various cities in Pennsylvania, Ohio, and New Jersey where its members engaged in public (evangelizing) efforts, such as distributing literature, conducting services, and holding street meetings. By the late 1930's the members consisted of about 80 ladies, who wore uniforms, received no pay for their work, and were maintained by the Society. During this period, the literature distributed by the Society and additional Sunday School materials were printed by the members at their own press, known as the Union Gospel Press. On November 6, 1937, the Internal Revenue Service granted an exemption from income taxation to the Society under section 101(c) of the 1936 Revenue Act (the present section 501(c)(3)), as an organization carrying on charitable, educational, religious, and missionary activities, including the care and maintenance of mission workers and the dissemination of religious literature to charitable, penal, and reform institutions. The exemption letter found that the Society's income was derived from gifts and the operation of the Gospel Press, and that this income was to be used to carry on the Society's religious, charitable, educational, and missionary work. This exemption was upheld in 1953 in a determination by the Internal Revenue Service.

 At present, Timothy T. Musselman, the grandson of the founder, is in charge of the Gospel Press. He is without formal church affiliation and his experience prior to joining the Press in 1958 was in the management of commercial plants. The Society membership now consists of 23 mostly elderly ladies, living in a home maintained by the organization at a cost of $ 500,000 a year. As of 1962, the last mission had closed down, all missionary activity of the Society had ceased due to the advancing age of the membership, and the only discernible activity of the Society, apart from the maintenance of the ladies, was the publication of religious literature through the Gospel Press. Only four of the members actually work in the Press (either on an hourly wage or for a salary) and their input into the content of its publications consists largely in the review of the copy for type and smooth reading as distinguished from matters of substance. The members of the Society have little or no other involvement with its publication activities. *fn2" Contributors to the publications, and those responsible for substantive editing, are not members of the Society and they do not belong to any particular denomination.

 The Gospel Press presently publishes a line of Sunday School materials, called the "Christian Life Series." The content of the series is dictated by general guidelines established by the Society and such guidelines are given to the outside contributors. The guidelines are not specific with regard to doctrine, and they do not require the authors to advance beliefs in any way unique to the Society. In fact, the materials follow the non-denominational International Sunday School Uniform Lesson Plan, a set of topics prepared by the National Council of Churches a practice also followed by a number of non-exempt commercial publishers of fundamentalist Christian literature. *fn3" The Gospel Press pays the Council a royalty of one percent for these topics, and the commercial publishers pay a similar royalty. The Press sells about 60 percent of its publications to Christian bookstores at a standard commercial discount *fn4" (again much as do the commercial publishers of Sunday School materials). These bookstores, which number approximately 1,000, resell the materials at list price to churches and individuals.

 Although some Gospel Press publications are published at a loss, the organization has shown increasing profits since the 1960's. Its accumulated surplus has grown from approximately 2 million dollars through the 1960's to over 5.3 million dollars in 1978. The salaries of the top officials of UGP have similarly increased: Mr. Musselman, for example, received $ 25,080 in 1970, and $ 103,387 in 1978.

 By a report of November 5, 1976, an IRS District Director in Ohio proposed to revoke plaintiff's tax exemption, on the grounds that the religious and charitable activities for which the exemption had been granted had virtually ceased, and that the operation of the publishing business at a substantial profit indicated the existence of a trade or business unrelated to plaintiff's exempt purposes. Plaintiff appealed this proposal to the Regional Commissioner in Cincinnati, who proposed agreement by plaintiff to status as a private foundation with unrelated business income. Plaintiff then appealed to the National Office, which determined on March 17, 1978, that plaintiff's exemption be revoked. On July 12, 1978, a final adverse determination was made to revoke the Society's exempt status effective as of July 1, 1963, and the Regional Commissioner demanded that plaintiff file federal income tax returns for all years beginning July 1, 1970. *fn5" The instant action followed. As indicated, it requests the Court to declare under Code section 7428 *fn6" that the Society still qualifies for an exemption under section 501(a) as a 501(c) (3) exempt organization, and that defendant's revocation of its exempt status was erroneous.


 Section 501(a) exempts from taxation organizations described in section 501(c) (3), that is,

Corporations ... organized and operated exclusively for religious, charitable ... or educational purposes ... no part of the net earnings of which inures to the benefit of any private shareholder or individual.

 Under the regulations, an organization is organized exclusively for exempt purposes if its articles of organization "limit the purposes of such organization to one or more exempt purposes" and "do not expressly empower the organization to engage, otherwise than as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes." 26 C.F.R. § 1.501(c)(3)-1(b). Plaintiff's Articles of Incorporation, as amended in 1960, clearly meet this test. *fn7"

 The question therefore becomes whether or not plaintiff meets the operational test set forth in the statute and the regulations. An organization is operated exclusively for exempt purposes

if it engages primarily in activities which accomplish one or more of such exempt purposes .... An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. 26 C.F.R. § 1.501(c)(3)-1(c)(1).

 The cases interpreting the operational test fall into two types of factual patterns. The first type involves an organization conducting religious activities which also carries on a trade or business for profit. The main inquiry in this type of situation is whether the profit-producing activity is merely incidental to and in furtherance of the religious activities and their exempt purpose. *fn8" Clearly, plaintiff does not fit this pattern. On the factual record of this case the Court finds that plaintiff's primary, if not sole, activity is the income-producing publishing ...

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