Internal Revenue Service
Rev. Rul. 64-276
1964-2 C.B. 399
The exemptions provided by sections 4057(a), 4221(a)(5), and 4294(a) of the Internal Revenue Code of 1954, relating to `nonprofit educational organizations,' are applicable to sales of taxable articles and the furnishing of taxable communication services and transportation services and facilities to (1) a church for use exclusively in the operation of its Sunday school or similar type of school which meets the requirements of faculty, curriculum, and enrolled student body set forth by the statute, and (2) a Bible association for use exclusively in the conducting of Bible courses, including correspondence courses, which meet the requirements of faculty, curriculum, and enrolled student body so as to constitute a school activity of a religious organization. In either case, it is immaterial that the curriculum is wholly or largely religious rather than secular in nature.
Rev. Rul. 64-276
Advice has been requested whether certain activities of churches or other religious organizations described in the examples below constitute the operation of schools for purposes of the exemptions from the retailers excise taxes, the manufacturers excise taxes, and the taxes on communication services and transportation of persons by air, provided by sections 4057(a), 4221(a)(5), and 4294(a), respectively, of the Internal Revenue Code of 1954.
Example 1 .-Churches of various denominations operate educational schools or classes consisting entirely of religious instruction. In many instances, the purpose of such schools or classes is to provide separate or additional religious instruction for children who also attend public or parochial schools. Illustrative of the type of educational activity involved in this example is a Sunday school operated by a church as part of its educational activities for the instruction of children and adults. The minister of the church serves as dean of the school and is assisted by other church employees. The faculty is composed of volunteer teachers and helpers. A complete curriculum of religious subjects is provided for each age group of students. An application form is used for enrollment in the school. There is no tuition fee, but each student is asked to make contributions to the Sunday school in specially provided envelopes. All classes are held regularly in the church building for one hour each Sunday. In addition, certain classes meet regularly for two hours on another day of the week. Schools of other churches or denominations may vary as to the days of the week on which classes are held or as to the particular persons who serve as teachers. However, all schools of this type are operated for similar purposes and in a similar manner.
Example 2 .-A Bible association conducts, among other activities, a program of Bible memory and Bible study courses for children, young people, and adults. In the city in which the association has its headquarters, those persons enrolled in the courses meet regularly with so-called `hearer-instructors' to recite and to receive instruction in the Scriptures. In addition, the association provides correspondence courses throughout the United States which include the same curriculum of Bible study offered in the headquarters location. In supervising and maintaining these correspondence courses, the association appoints permanent hearer-instructors in various areas throughout the country who meet with the enrolled students every week for the purpose of carrying out the directions and following through with each stated course as prescribed. The association also conducts annual summer conferences in certain areas, which people attend for day-to-day study of the Scriptures. The association has been granted an exemption from Federal income tax as a religious organization under the provisions of section 501(a) of the Code.
Sections 4057(a) and 4221(a)(5) of the Code provide that, under regulations prescribed by the Secretary of the Treasury or his delegate, no retailers excise taxes or manufacturers excise taxes shall be imposed with respect to the sale of taxable articles to a nonprofit educational organization for its exclusive use or, in the case of a tax imposed by section 4041, of the Code, with respect to the use by a nonprofit educational organization of any liquid as a fuel.
Section 4294(a) of the Code provides that, under regulations prescribed by the Secretary or his delegate, no tax shall be imposed under section 4251 or 4261 of the Code on any amount paid by a nonprofit educational organization for services or facilities furnished to such organization.
Under the provisions of sections 4057(b), 4221(d)(5), and 4294(b) of the Code, the term `nonprofit educational organization' means an educational organization which is exempt from income tax under section 501(a) of the Code and which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. The term also includes a school operated as an activity of an organization described in section 501(c)(3) of the Code which is exempt from income tax under 501(a) of the Code, if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.
The churches and the Bible association in the instant case come within the scope of the organizations described in section 501(c)(3) of the Code. Moreover, other than the requirements of faculty, curriculum, and regularly enrolled body of students, as set forth above, the statute imposes no limitation on the character of the schools for purposes of the exemptions. Accordingly, it is concluded that when an educational activity of a church or other religious organization has a regular faculty and curriculum and a regularly enrolled student body, it is a school activity of an exempt religious organization so as to be considered a `nonprofit educational organization' within the meaning of the statute, regardless of the fact that the curriculum is wholly or largely religious rather than secular in nature.
In view of the foregoing, it is held that the Sunday school described in example 1 is a `nonprofit educational organization' within the meaning of the pertinent provisions of the statute. Likewise, similar schools which are maintained by other churches or denominations and which meet the requirements of faculty, curriculum, and enrolled student body would also be `nonprofit educational organizations' for purposes of the exemptions.
It is further held that, in example 2 , the Bible courses, including the correspondence courses, constitute a school activity of the Bible association so as to come within the scope of the term `nonprofit educational organization' for purposes of the exemptions. However, the summer conferences conducted by the association, although educational in many respects and having some of the characteristics of a school, are deemed to implement the other activities of the association rather than constituting a `school' of the type contemplated by the statute.
Accordingly, the exemptions under sections 4057(a) and 4221(a)(5) of the Code apply to a retailer's or a manufacturer's sales of articles to the church in example 1 for use exclusively in the operation of its Sunday school and to the Bible association in example 2 for use exclusively in conducting its Bible courses. Furthermore, under the provisions of section 4294(a) of the Code, no communications or transportation tax is applicable to any amount paid by the church or the Bible association for services or facilities furnished to the church or the Bible association for use exclusively in the operation of the Sunday school or in the conduct of the Bible courses, respectively.
It should be noted that the exemptions do not apply to the sale of taxable articles or to the furnishing of taxable services or facilities to the church for use in its noneducational activities or to the Bible association for use in conducting the summer conferences or other activities not associated with the conduct of the Bible courses.