A religious organization faces hurdles in obtaining tax exemption due to its use of a controlled substance, Ayahuasca.
The Ayahuasca Church of Healing, an Iowa-based religious group, has been at the center of a five-year legal battle after the IRS denied its request for tax-exempt status. The primary issue? The church’s ceremonies incorporate Ayahuasca tea, which contains DMT, a substance regulated under the Controlled Substances Act (CSA).
The Core of the Dispute
Ayahuasca, a hallucinogenic brew, is central to the church’s practices. Although religious organizations can seek exemptions for controlled substances, the church applied for tax-exempt status in 2019 without obtaining the necessary CSA exemption. The IRS repeatedly questioned the church about its exemption status during the review process but ultimately denied the application, citing illegal activities.
Why Tax-Exempt Status Was Denied
To qualify under Code Sec. 501(c)(3), organizations must operate exclusively for tax-exempt purposes. Since Ayahuasca use is illegal without DEA approval, the IRS determined the church’s primary activities violated federal law. The church argued this decision infringed on its religious freedoms, but the courts disagreed.
Legal Challenges
The church filed claims under the Religious Freedom Restoration Act (RFRA), arguing that the IRS’ denial harmed its reputation and charitable mission. The District Court rejected these claims, stating the church lacked legal standing because its core activity—Ayahuasca ceremonies—remained illegal.
On appeal, the D.C. Circuit Court upheld this decision, affirming that tax-exempt status cannot override federal law. The church’s subsequent petition for rehearing was countered by the IRS, which reiterated that only the DEA or a federal court could grant CSA exemptions—not the IRS.
What This Means for Religious Organizations
This case underscores the legal complexities faced by religious groups that use controlled substances in their practices. Without proper exemptions, such organizations risk losing the benefits of tax-exempt status.
Effective Compliance Is Key
Religious organizations must navigate both IRS requirements and federal laws. For groups seeking exemptions for controlled substances, obtaining DEA approval is a critical first step. The IRS is clear: tax-exempt status will not apply to organizations engaging in activities deemed illegal under federal law.
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