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Now there are varieties of gifts, but the same Spirit. And there are varieties of ministries, and the same Lord. There are varieties of effects, but the same God who works all things in all persons. But to each one is given the manifestation of the Spirit for the common good.
(1Co 12:4-7 NASB)

and to another the distinguishing of spirits, (1Co 12:10 NASB)

Distinguishing of Spirits

An excellent example of this gift is given to us in Acts Chapter 5. The church age is at it’s infancy and the believers came together to care for one another

And the congregation of those who believed were of one heart and soul; and not one of them claimed that anything belonging to him was his own, but all things were common property to them.
(Act 4:32 NASB)

But there was one couple, Ananias and Sapphira, who due to Satan’s temptation became greedy and lied about the price they received for their property. Peter, led by the Holy Spirit, was quick to discern their hearts and passed judgment on their actions.

But a man named Ananias, with his wife Sapphira, sold a piece of property, and kept back some of the price for himself, with his wife’s full knowledge, and bringing a portion of it, he laid it at the apostles’ feet. But Peter said, “Ananias, why has Satan filled your heart to lie to the Holy Spirit and to keep back some of the price of the land? “While it remained unsold, did it not remain your own? And after it was sold, was it not under your control? Why is it that you have conceived this deed in your heart? You have not lied to men but to God.” And as he heard these words, Ananias fell down and breathed his last; and great fear came over all who heard of it. The young men got up and covered him up, and after carrying him out, they buried him. Now there elapsed an interval of about three hours, and his wife came in, not knowing what had happened. And Peter responded to her, “Tell me whether you sold the land for such and such a price?” And she said, “Yes, that was the price.” Then Peter said to her, “Why is it that you have agreed together to put the Spirit of the Lord to the test? Behold, the feet of those who have buried your husband are at the door, and they will carry you out as well.” And immediately she fell at his feet and breathed her last, and the young men came in and found her dead, and they carried her out and buried her beside her husband.
(Act 5:1-10 NASB)

Some people feel that God was too harsh on them. They question why these two had to die just for lying. But there is more than just lying going on here, you have conspiracy - they agreed together, you have deception - Satan filled their heart to lie to the Holy Spirit, and you have greed - they kept back some of the price for themselves. But still, was death really warranted in this case? Why does God not judge people who are guilty of the same or worse sins as He did Ananias and Sapphira?

What you have to keep in mind is that the church body was just forming. This event happened right after Pentecost, during the infancy of the church. Just as you would discipline an infant differently than you would a child, and a child differently than you would a teenager, God had to set the boundaries early, just as He did with Israel when they were first forming as a nation.

If you read the Old Testament you will find that God’s judgments were swifter immediately after giving Israel the law and that He was more patient with them as they grew both in size and maturity. His judgments aren’t any harsher however, God is just more forbearing as we grow from infants into maturity. He doesn’t overlook sin.

For the wages of sin is death, but the free gift of God is eternal life in Christ Jesus our Lord. (Rom 6:23 NASB)

If the Holy Spirit had not given Peter the gift of discernment then Ananias and Sapphira would have gotten away with their lie which could have had severe consequences. Others in the church may have learned about their deception and either attempted to follow suit or act out their own judgment upon the couple. Letting this act go unpunished could have caused a dissension in the church and hindered it’s formation and growth from the very start. Always know that God is much wiser than we are. He knows the future and knows better than we the effects that would have come from this, and He is always, always just in His judgments.

So, the distinguishing of spirits is the supernatural power to distinguish between true and false prophets, or to discern the real and internal qualifications of any person for an office, or to discover the inward workings of the mind by the Holy Ghost, as Peter did those of Ananias. As with all the spiritual gifts, this gift is not given for the purpose of judgment, or boasting, but rather for the betterment of the church body.

But to each one is given the manifestation of the Spirit for the common good.(1Co 12:7 NASB)