Industries

Helping clients meet their business challenges begins with an in-depth understanding of the industries in which they work. That’s why KPMG LLP established its industry-driven structure. In fact, KPMG LLP was the first of the Big Four firms to organize itself along the same industry lines as clients.

How We Work

We bring together passionate problem-solvers, innovative technologies, and full-service capabilities to create opportunity with every insight.

Learn more

Careers & Culture

What is culture? Culture is how we do things around here. It is the combination of a predominant mindset, actions (both big and small) that we all commit to every day, and the underlying processes, programs and systems supporting how work gets done.

Learn more

D.C. Circuit: IRS’s denial of tax-exempt status upheld

Taxpayer did not have standing to challenge the IRS’s denial of tax-exempt status

June 24, 2024

The U.S. Court of Appeals for the District of Columbia Circuit recently affirmed a decision of the D.C. District Court upholding the IRS’s denial of the taxpayer’s application for tax-exemption under section 501(c)(3) and holding that the taxpayer did not have standing to challenge the IRS’s denial of tax-exempt status on the grounds that it unfairly burdened their religious practices in violation of the Religious Freedom Restoration Act (RFRA).

The case is: Iowaska Church of Healing v. Commissioner, No. 23-5122 (D.C. Cir. June 21, 2024). Read the D.C. Circuit’s decision

Summary

The taxpayer, a church that uses Ayahuasca—a tea containing the hallucinogenic DMT regulated by the Drug Enforcement Administration (DEA) under the Controlled Substances Act (CSA)—in its religious ceremonies, argued that the IRS's decision to deny its application for tax-exemption under section 501(c)(3) was based on an incorrect assumption that their religious use of Ayahuasca was illegal. The taxpayer also argued that the denial of tax-exempt status unfairly burdened their religious practices in violation of the RFRA. The district court upheld the IRS’s denial, and the taxpayer appealed.

The D.C. Circuit affirmed the district court's upholding of the IRS’s denial of the taxpayer’s tax-exemption claim, agreeing that the taxpayer did not meet the requirements set forth under section 501(c)(3). The IRS had determined that the taxpayer’s primary activities, including the distribution and consumption of Ayahuasca, were illegal under federal law since the taxpayer had not secured a CSA exemption from the DEA. The D.C. Circuit noted that without this exemption, the activities involving Ayahuasca could not be considered in furtherance of an exempt purpose, thus failing the operational test required for tax-exempt status.

The D.C. Circuit also held that the taxpayer lacked standing to pursue its RFRA claim because it could not demonstrate that the IRS's actions had directly caused them injury that a favorable court decision could redress. Specifically, the cessation of their Ayahuasca ceremonies was due to the lack of a DEA exemption to legally use DMT, not the IRS’s denial of tax-exempt status. Consequently, the court dismissed the taxpayer's RFRA claim without prejudice.

For more information contact a KPMG tax professional:

Ruth Madrigal | ruthmadrigal@kpmg.com

Preston Quesenberry | pquesenberry@kpmg.com

Thank you!

Thank you for contacting KPMG. We will respond to you as soon as possible.

Contact KPMG

Use this form to submit general inquiries to KPMG. We will respond to you as soon as possible.

By submitting, you agree that KPMG LLP may process any personal information you provide pursuant to KPMG LLP's Privacy Statement.

An error occurred. Please contact customer support.

Job seekers

Visit our careers section or search our jobs database.

Submit RFP

Use the RFP submission form to detail the services KPMG can help assist you with.

Office locations

International hotline

You can confidentially report concerns to the KPMG International hotline

Press contacts

Do you need to speak with our Press Office? Here's how to get in touch.

Headline