I do not recall an audit of a church during my career.
I have however practiced at the other end: helping religious organizations obtain tax-exempt status.
Terms are important here. Let us look at two: churches and religious organizations.
A church is the immediate mental image: a congregation; an established place to meet; a code of doctrine; procedures for ordaining ministers, and so forth. A more intuitive term would be “a house of worship,” and worship would include Christianity and other religions.
A religious association is a religiously-oriented entity other than a church.
The terminology is important be cause churches do not need to apply for and obtain tax-exempt status. As long as they meet basic Section 501(c) requirements, they are deemed to be tax-exempt – the term is “per se” – just by being a church. That said, it is not unusual for a church to formally apply for tax-exempt status. Why? To tie to bow, so to speak. Chances are the church will regularly and routinely seek tax-deductible donations. It might be helpful to assure donors that the IRS recognizes the church as qualifying to receive such donations.
Since a church does not need to request and obtain 501(c) status, it is also not required to file annual Forms 990. It can, of course, the same as it can also formally apply for exempt status. The church can decide.
A religious organization – not being a church – must apply for exempt status, file annual Forms 990, and all the paperwork we routinely associate with being tax-exempt.
Let’s return to the requirements, and then we will discuss a church that crossed the line.
There are five basic requirements under Section 501(c):
· The entity must be a corporation.
· The entity must be organized and operated exclusively for religious, educational, scientific, and other charitable purposes.
· Net earnings may not inure to the benefit of any private individual or shareholder.
· No substantial part of the organization’s activity may be attempting to influence legislation.
· The organization may not intervene in political campaigns.
These are the minimum hurdles. In practice there is some latitude (must be a corporation, for example, but the definition of corporation for this purpose is generous), but one must still keep the tires on the pavement.
The Community Worship Fellowship (CWF) was founded in 1998 by Lester Goddard and his family. The organizing documents with Oregon had all the magic words (“organized exclusively for …”), and it obtained tax-exempt status from the IRS. It was governed by an uncompensated council of elders.
There are two broad requirements in this area: what the paperwork says and what you actually do. So far, the paperwork seems normal.
However, it turned out that your name had to be “Goddard” (or related to) to be on the council of elders – the governing body of the church.
Bad start. They might want to address this as soon as possible.
After a decade the IRS began asking questions. There were reports that CWF assets were being used for personal benefit. The church blew off the initial inquiry. The IRS responded by auditing years 2013 through 2016.
COMMENT: Brilliant.
The IRS discovered the following:
· Lester Goddard determined his own salary and bonus.
· His salary and bonus were approved by the members, but most of the members were related to Lester.
· CWF credit cards showed purchases of Prada handbags, jewelry, perfume, and furs.
· CWF paid personal boat payments and private travel, including Disneyland and Hawaii.
· CWF paid for improvements (think a pool) at Lester’s home.
· CWF lent money to Lester and family. Let’s say CWF was … not rigorous … about the money being repaid.
In tax lingo, this money shuffle is called “private inurement.” In common conversation, we call it something else.
Meanwhile CWF moved its incorporation from Oregon to Hawaii. Why? I am not sure. The IRS – to the best of my knowledge – still reaches Hawaii.
In December 2018 the IRS revoked CWF’s exemption.
Problem: the IRS did not publicly disclose the revocation. How were donors to know?
In March 2019 CWF filed suit.
In October 2025 the Federal Court of Claims finally decided.
The reason for a six-year delay? There were 18 stays for additional discovery.
This is not a pretty story, and church exemptions is not an area the IRS likes to tread. Tax and constitutional law weave together closely, and even an IRS win might be construed as pyrrhic. There are more than 350,000 religious tax-exempt organizations, for example, but less than five lost their exemption in 2023. None of those five were churches.
Our case this time was Community Worship Fellowship v United States, No 19-352 (Fed Cl October 23, 2025).
