Oregon Retreat Center Battles the IRS

CHRISTIANITY TODAY/October 3, 1986

The agency seeks more than $1 million in a case that could affect other nonprofit ministries.

The Shiloh Retreat Center occupies 90 acres of meadow and timberland in the foothills of the Oregon Cascades, 20 miles southeast of Eugene. In the book Organized Miracles, sociologist James T. Richardson described the area as “beautiful fir-tree covered land interspersed with open meadows, and watered by a beautiful stream.”

But the trees are disappearing. In the last few years, more than 50 acres have been hewn to raise money for Shiloh’s long-standing legal battle with the Internal Revenue Service (IRS). Since 1980, the tax-exempt Shiloh Retreat Center has paid more than $65,000 in attorneys’ fees, and it still owes $45,000.

For all practical purposes, the IRS is challenging an organization that no longer exists. Shiloh was incorporated in 1969 as Shiloh Youth Revival Centers, part of what came to be known as the Jesus people movement. Court documents chronicle its rise in less than a decade from a “small group of penniless hippies” to a “multi-million dollar nationwide network of religious communes.”

By 1977, Shiloh was established in more than 30 states, Canada, and the Virgin Islands, with income that year surpassing $3 million. But in 1978 things began to fall apart. Thousands of wandering youths who had been Shiloh’s primary recruits were re-entering mainstream society. And the organization’s internal schisms began taking a toll.

“From the beginning, the Jesus people thought they were living in the last days,” said Joe Peterson, administrator of the Shiloh Retreat Center. “We never thought we’d be living on earth in 1976. And when we were, it put a strain on the imagination of many in the movement.” Shiloh’s experiment in Christian communal living ended by mid-1979. Today only the retreat center remains.

Problems With The Irs

The organization’s integrity was never an issue with the IRS. At a trial in May before the United States Tax Court, IRS attorney Larry Johnson said, “One can’t help but have both curiosity and respect for the organization.… There’s little doubt [Shiloh] accomplished many good works and affected the lives of many people.” However, the IRS contends that income earned by Shiloh members in 1977 and 1978 and paid directly to the Shiloh organization should have been taxed. Shiloh contends its outside work projects were an integral part of its rehabilitative ministry.

Richardson, a sociology professor at the University of Nevada in Reno, testified as an expert witness for Shiloh at the tax court trial. His 1979 book, Organized Miracles, is a detailed sociological analysis of the Shiloh organization. In it, he wrote that Shiloh’s leaders “could be successes at about any endeavor they chose.”

Evangelism was the primary purpose of Shiloh Youth Revival Centers. The organization reached out to the thousands of disenfranchised young men and women of the Vietnam War era. An estimated 100,000, many of them drug addicts, became Christians through Shiloh’s ministry. To help maintain the Christian community in which they lived, members sold goods and services, especially menial labor.

Without prior knowledge of canning, they built a cannery, learned to can, and became licensed canners. They hired skilled craftsmen for construction projects, worked with them, and then went on to form their own contruction company, which was licensed to do outside projects.

Shiloh’s Oregon commune grew much of its own food. It had its own medical clinic and fleet of vehicles, including a twin-engine airplane with ground mechanics to service it. Most of the outside work done by members was unskilled labor, such as painting, planting trees, picking apples, and landscaping. Local farmers sometimes requested Shiloh’s entire available work force. Richardson wrote: “They successfully supplanted migrant laborers, partially because the young Jesus people are such hard workers.”

Perhaps they worked too hard. It is the work done outside the Shiloh community in 1977 and 1978 that the IRS has deemed objectionable. The federal agency contends this work was not “substantially related” to the purposes for which Shiloh was declared tax-exempt and that the income is therefore taxable. According to the IRS, Shiloh workers had an unfair competitive advantage over other laborers in the free market. It contends Shiloh owes the government well over $1 million, including interest. If the IRS wins, it will take possession of the retreat center property.

Defining Religious Activity

In an interview, sociologist Richardson said such a development would be “unbelievably ironic.… This group did not go out begging and distributing literature in airports. Instead, they worked very hard to build up a base of assets, and now it may have to hand whatever’s left over to the IRS. In terms of social policy, this is ludicrous.

“Because of the way the [tax] regulations are written,” Richardson said, “the IRS has more to say about what is and what is not religion than anyone else in society.”

Sociology professor David Bromley, of Virginia Commonwealth University, observed that government agencies like the IRS have “this kind of clout” because the U.S. Supreme Court has never clearly defined religion. Bromley and Richardson maintain that income used to maintain a tax-exempt organization should be exempt from taxes.

An IRS spokesman told CT that tax regulations are based on laws passed by Congress and that people who wish to challenge them should work through congressional representatives. Shiloh’s case, however, does not rest on changing the IRS rules. Shiloh acknowledges that work performed by its members brought in funds. But it argues that the work was therapeutic, and therefore closely related to its religious purpose.

Psychologist Margaret Heldring, an expert witness at the tax court trial, testified that the work projects were “necessary to achieve the objective of rehabilitation for the youth entering the centers.” She said Shiloh’s emphasis on work “generated an important sense of self-efficacy [believing oneself to be capable].”

Shiloh’s attorneys emphasized that members were not compensated directly. Instead, payment was made to the Shiloh organization. Last year in a similar case, the tax court ruled that such income is taxable only if workers’ acceptance in the organization is conditioned upon their working. Shiloh accepted everyone, whether or not they worked.

Those close to the case say its outcome could set precedents that would affect other Christian organizations. Said Peterson, the retreat center’s administrator: “If Shiloh loses, all nonprofit organizations and the people they help lose too.”

The decision of the U.S. Tax Court is expected next spring. In the meantime, Peterson is concerned about preserving Shiloh’s timberland. “There is precious little forest left,” he laments, fearing that “nobody will want to go for a retreat to a stump ranch in Oregon.”

By Randy Frame.

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