United States v. C.E. Hobbs Foundation for Religious Training and Education, Inc.

The C.E. Hobbs Foundation for Religious Training and Education, Inc. (foundation) (defendant) enjoyed tax-exempt status as a religious organization. The foundation gained notoriety after a series of criminal investigations and news reports. Warrants and news reports alleged that the foundation enjoyed lavish, nightclubesque furnishings, threw days-long parties, and encouraged sexual activity between adults and minors. The foundation also faced allegations that it was funneling organizational money to private individuals. The Internal Revenue Service (IRS) (plaintiff) initiated a church tax inquiry into the foundation pursuant to § 7611 of the Internal Revenue Code (code). The IRS stated two purposes for its investigation: (1) to determine whether the foundation was operating exclusively for religious purposes and (2) to determine whether the foundation was using its property to benefit private individuals. As part of the inquiry, the IRS issued summonses both to the foundation and its bank for accounting ledgers, asset records, organizational records, and financial records. The foundation made a motion with the district court to quash the summonses. An IRS agent testified about how each requested document would aid the investigation. The district court ruled in favor of the foundation, finding that the IRS did not show that the documents were necessary for the investigation as required by § 7611.