Twin Oaks Community, Inc. v. Commissioner

Twin Oaks Community, Inc. (Twin Oaks) (plaintiff) was a religious organization that owned a large property in Virginia on which it established a community based on the book Walden Two by behavioral psychologist B.F. Skinner. The Twin Oaks community incorporated communal living and work structures. Members engaged in farming for commercial purposes and the community’s domestic needs. Members also engaged in several other trades and businesses. Earnings from the businesses were paid into a community treasury maintained by Twin Oaks and used to meet the needs of the members, including food, housing, and medical care. Twin Oaks considered itself a religious or apostolic association that was exempt under § 501(d) of the Internal Revenue Code (code) and filed income tax returns on Form 1065 (U.S. Partnership Return of Income). Twin Oaks also issued a Schedule K-1 for each member of the community. Section 501(d) defined a religious or apostolic association as an organization with a common treasury or community treasury, which could engage in business for the common benefit of its members, but only if the members included in their gross income their entire pro rata shares, distributed or not, of the organization’s taxable income. The commissioner of internal revenue (commissioner) (defendant) determined that Twin Oaks did not qualify for the § 501(d) exemption. Twin Oaks challenged the determination in the United States Tax Court. The commissioner agreed that Twin Oaks engaged in business for the common benefit of its members and that Twin Oaks’ members included in their gross income as dividends their entire pro rata share of Twin Oaks’ taxable income, regardless of whether such income was distributed to them. The commissioner argued, however, that Twin Oaks did not maintain a common treasury or community treasury because its members did not take a vow of poverty and irrevocably contribute all their property to Twin Oaks.