Tuesday, February 3, 2009

Should the LDS / Mormon Church Lose Its Tax-Exempt Status Over In-Kind Prop 8 Donations?

This write-up comes in the wake of a comment made on this previous post regarding the LDS Church’s recent statement correcting erroneous news reports by various mainstream media tyrants.

*Note: All opinions shared in this article are just that, opinions, my opinions. Any reference to the Church is merely my understanding and any mistake or misrepresentation is mine and not representative of or reflected on the Church. For official Church policy, doctrine, or statements, please visit the LDS Newsroom, LDS.org, or contact LDS Church Headquarters in Salt Lake City directly.

Tax Exempt Status
Alllllrighty then, let’s talk tax-exempt status. Mind you, I am no tax expert, but I can research and read, and I’m sure the IRS is as good a place as any to get to the bottom of this tax-exempt status debate involving the LDS Church.

The most debated clause in the 501(c)(3), especially in the case of the LDS Church’s in-kind donations to defending marriage, is the designation of a tax-exempt organization having “no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office” (frwebgate.gov).

First, let’s establish the fact that the 501(c)(3) does not have a definitive monetary substantiality test by which to weigh the lobbying contributions of churches. Furthermore, “there is no statutory or regulatory definition of the amount of legislative activity that would constitute a ‘substantial part’ of an organization’s activities” (stblaw.com).

There are, however, two cases which have set precedents to which judges refer when scrutinizing the lobbying activities of a tax-exempt entity/organization/charity (in this case, a church).

In Seasongood v. Commissioner, the ruling “held that attempts to influence legislation that constituted five percent of total activities were not substantial.” This case, however, provides “limited guidance because the court’s view of what set of activities were to be measured is no longer supported by the weight of precedent. Moreover, it is not clear how the court arrived at the five percent figure” (IRS.gov).

In Haswell v. United States, “the Court of Claims cited percentage figures in support of its determination that an organization’s lobbying activities were substantial. (The amount of the organization’s expenditures for lobbying activities ranged from 16.6 percent to 20.5 percent of total expenditures during the four years at issue.) While the court stated that a percentage test is only one measure of substantiality (and not, by itself, determinative), it held that these percentages were a strong indication that the organization’s purposes were no longer consistent with charity.” (IRS.gov).

Okay, so what we have discovered so far is that if a church’s lobbying activities make up only 1% - 15% (to be safe) of its overall activity, its tax-exempt status is safe. As a general rule, then, looking to the Haswell precedent, any amount of activity falling at the 16% mark or above would be considered “a substantial part.” If, as was the case in Haswell v. United States, we were to judge based on “total expenditures during [time] at issue,” the LDS Church’s total in-kind donations would have had to have been in the hundreds of millions (if not billions) of dollars considering first an annual gross income of $6 billion (in 1997 - Deseret News Archive) and second, the colossal expenditures necessary to operate a worldwide church, remembering the hundreds of land acquisitions and building projects they sign and complete throughout the world each year (temples and chapels, renovations, remodels, etc.) and multiple charitable projects such as the Perpetual Education Fund and world-wide disaster relief response. Given this knowledge, $190,000 does not even come close to signifying “a substantial part” based solely on a monetary inspection of lobby-related activities.

So what else is there? If we do not base the Church’s continued access to tax-exempt status purely on their non-monetary, in-kind donations to the promotion of moral principles through the adoption of legislation, then truly, what other measurement will the IRS employ to determine this matter?

“Churches… are evaluated by the “less precise ‘substantial activity test’” that is “based upon all relevant facts and circumstances”—in other words, the IRS has no openly available standard that it must follow and can therefore do whatever it wants. There may be a more codified procedure in the future, or there may not be. It may be more or less restrictive. The IRS has free reign, since all 501(c)(3) status churches have already agreed that no substantial part of their activity will be “carrying on propaganda” (propagating information) about anything” (Servants News).

=========

“The IRS has used other factors to determine substantiality:

Time spent by employees and volunteers;

Money spent in relation to the organization’s entire budget;

The amount of publicity the organization assigns to the activity;

Continuous or intermittent nature of the activity.”

(stblaw.com)

Please note that the first qualifier speaks of employees and volunteers, not members (who acted on an individual basis after being asked once, in a letter, by their president, and once in a satellite broadcast with members of the Quorum of the Twelve Apostles, to get involved). And if the amount of money allotted to compensate employees for their time spent on the promotion of Proposition 8 is any indication of how much time was actually spent, then I think we can safely say the LDS Church has not violated that qualification. With regard to money and Church budget, I think we’ve adequately dismissed any concern of violation there (remember $190,000 v. hundreds of millions, if not billions, of dollars). Publicity provided by the Church came in the form of one satellite broadcast to members of the Church in California, a website, and various YouTube videos. And only a couple of specific activities were continuous in nature (YouTube videos and website) from the time that the LDS Church joined the Protect Marriage coalition in June of 2008, until the vote on Nov. 4, 2008.

Now, if you hold up the roughly four and a half months of mild and intermittent lobbying for marriage engaged in during the year 2008 (speaking strictly of the Church here, not of its members) against its nearly 179 years of missionary work, proselytizing, disaster relief aid, and building of temples and meetinghouses, then again I would suggest that the Church has in no way violated its allowable lobbying by meeting or exceeding that highly debatable phrase “a substantial part.”

Mormon Missionaries Dnews Myanmar Cyclone Relief LDS, Mormon Church Issues Statement Regarding In-Kind Prop 8 Donations

Frankly, I find this whole debate rather comical as it is well know that the Church has a superb legal team not to mention the brilliant minds easily found among its very leadership: Dallin H. Oaks, member of the Quorum of the Twelve Apostles, former professor of law, President of Brigham Young University, and Utah Supreme Court Justice; Russell M. Nelson, member of the Quorum of the Twelve Apostles, “internationally renowned surgeon and medical researcher”; Quentin L. Cook, member of the Quorum of the Twelve Apostles, former “vice chairman of Sutter Health System….President and CEO of a California healthcare system….Business lawyer and managing partner of a S.F. Bay Area law firm.” And the list could go on. (LDS Newsroom – Leader Biographies). These people are not dumb. They are business and legal savvy. And besides knowing the law, they also don’t break the law!

To wrap up this discussion, let’s not forget what was written of the LDS Church by Time Magazine in 1997:

“And as long as corporate rankings are being bandied about, the church would make any list of the most admired: for straight dealing, company spirit, contributions to charity (even the non-Mormon kind) and a fiscal probity among its powerful leaders that would satisfy any shareholder group, if there were one.” (Deseret News Archive)

Now, barring the possibility of top-level extortion, blackmail, or bribery of IRS officials (which is never an impossibility in this morally tepid climate we live in), I think it’s safe to say that the LDS Church will successfully retain its tax-exempt status.

~Pearl

*Note: All opinions shared in this article are just that, opinions, my opinions. Any reference to the Church is merely my understanding and any mistake or misrepresentation is mine and not representative of or reflected on the Church. For official Church policy, doctrine, or statements, please visit the LDS Newsroom, LDS.org, or contact LDS Church Headquarters in Salt Lake City directly.

10 comments:

emissary said...

This is an excellent analysis. I am glad to read something that stands for the church instead of against it. There are many who are launching huge conspiracy theories and saying the Mormon church is all about money and control. Thank you for being a different kind of voice.

Pearl said...

Thanks Emissary. I agree that voices of dissension and derision are commonplace on the web with regard to this issue of tax-exemption and the LDS Church. While doing research for this post, it was amazing how many countless websites there were demanding a repeal of the Church's tax-exempt status. The fact is, they are innocent and have conducted themselves in a law-abiding manner.

Meg said...

I know I didn't understand what "in-kind" donations means. In-kind are goods and/or services, rather than cash donations.

It is important to note that the expenditures were NOT cash donations made TO the Yes on 8 campaign, but rather were expenditures to maintain a website, pay for church leaders to travel to meet with the coalition, produce commercials and videos, etc.

Regardless, HAD the Church donated cash, they were not endorsing a party or a candidate, and the amount donated would be less than two-hundredths of a percent (0.019%) of the amount of cash and materials donated to humanitarian aid since 1985, which totals $1,010,700,000 (over $1B). Taking a stance on a moral issue, even if it is a public policy issue, is well within the realm of a church.

I didn't see anyone complaining when Rev. Wright endorsed B. Obama from the pulpit. If anyone should have their tax-exempt status yanked, it's the church that allowed that.

Pearl said...

Thanks Meg. I appreciate your contribution to this discussion; especially considering those are all very important points that you make. Hopefully as more people talk about the truth of this issue, fewer people will continue to falsely accuse and malign the Church.

sploooshi said...

It's like what it says in the good book, that those who dig a hole for others to fall in will have their trap backfire on them

Rickety said...

That is a lot of research, well done. The Church is obviously in no danger from the IRS but I wouldn't trust California government from all that I have read. I'm glad I don't live there.

Euripides said...

What great research and analysis! Thanks for digging this up for us.

Chairm said...

Very thorough, Pearl.

The SSMers tried the same stuff when they lost on the 2000 vote, too.

Now, let's turn the tables on the No side. What did their organizations report, during the campaign, and what are they now adding?

There were some very big contributions near the closing days from just a handful of sources.

The Pomegranate Apple said...

how do we find out that information?

Chairm said...

Pomegranate Apple, see the website for the Secretary of State of California. The contribution information is available with the election results.

http://cal-access.sos.ca.gov/Campaign/Measures/Detail.aspx?id=1302602&session=2007

Contributors who gave more than $500,000 supplied a total of &10,900,000 to the No side, as reported 17-Nov-2008.

Here is a short list of those contributors, in order of the size of contribution reported around the time of the election:

LOS ANGELES GAY & LESBIAN SERVICES CENTER

CALIFORNIA TEACHERS' ASSOCIATION ISSUES PAC

DAVID MALTZ

ROBERT W. WILSON

DAVID BOHNETT

BRUCE BASTIAN

JON STRYKER

FRED EYCHANER

WILLIAMSON CAPITAL, LP

CENTER ADVOCACY PROJECT ISSUES PAC

21 (STEPHEN BING)

WILLIAM RESNICK

Note: More than the NO side, the Yes side contributions came in smaller sizes. Of the 12 biggest contributors listed above, 7 gave more than $1 million -- as reported by 17-Nov-2008.

* * *

If we want to look at something more closely comparable with the Mormon church's update, then checkout the $100k to 500k range.

Here both sides received about the same dollar amount from almost the same number of contributors ($4,375,000 from 18 Yes contributors; and $4,452,000 from 20 No contributors) -- again, as of 17-Nov-2008.

Here is a list of the No contributors in this range:

HUMAN RIGHTS CAMPAIGN

DEMOCRATIC STATE CENTRAL COMMITTEE OF CALIFORNIA

GILL ACTION FUND

JAMES C. HORMEL

THE SAN FRANCISCO FOUNDATION

CA STATE COUNCIL OF SERVICE EMPLOYEES

POLITICAL ACTION ISSUES, DEFENSE & ADVOCACY

CALIFORNIA STATE COUNCIL OF SERVICE

EMPLOYEES POLITICAL ACTION ISSUES

PACIFIC GAS AND ELECTRIC COMPANY

FRED EYCHANER

ESMOND V. HARMSWORTH

NATIONAL GAY & LESBIAN TASK FORCE ACTION FUND

NATIONAL GAY & LESBIAN TASK FORCE, INC.

EQUALITY CALIFORNIA (SPONSOR)

GAY & LESBIAN ALLIANCE AGAINST DEFAMATION (GLAAD) *

DAVID RING *

TIM GILL *

DAVID C. BOHNETT *

RAY & DAGMAR DOLBY *

SUSAN ORR *

ROBERT HAAS *

* Note: Of the 20 No conbributors in this category, 7 had reported less than what the Mormon Church has reported in its update.

* * *

Now, anyone interested in turning the tables, just for illustration purposes, of course.

I in no way condone or encourage the use of the public info to "blacklist" nor to harrass small contributors to the No side. That would be an abuse of the information, I believe.

On the other hand, if there are instances of large discrepancies between what the biggest No contributors reported in 17-Nov-2008 and what they have updated, then, discussion of that difference would further illustrate the point that was made in the original blogpost at the top of this discussion.