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January 7, 2011

National Commission to Examine Church Financial Practices

ECFA will lead independent inquiry at Sen. Grassley’s request

Examine Church Financial Practices

Editor's Update (12/8/11): The Commission on Accountability and Policy for Religious Organizations is now taking public comments on the various issues it is studying.
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Editor's Update (4/27/2011): The ECFA has announced the initial members of its commission. The list includes several clergy, as well as Richard Hammar, senior editor of Church Law & Tax Report and Church Finance Today.
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Sen. Charles Grassley, R-Iowa, has asked the Evangelical Council for Financial Accountability to head an independent commission that will obtain feedback about the financial practices and oversight of churches and religious groups nationwide.

The goal is to help determine best practices and changes that encourage compliance with federal tax laws and maintain financial integrity within the religious community while avoiding new laws mandating such behavior. But those involved say it’s too early to tell how the commission’s work will affect any changes—or whether it can prevent any new laws—and how long it will take.

In a press conference called this morning in Washington, D.C., ECFA leaders outlined requests made by Grassley, who yesterday released his final report of a three-year inquiry into the financial activities of six high-profile media ministries. The issues to be explored “could potentially affect every house of worship and every member of the clergy in America,” said Michael Batts, an ECFA board member who will chair the special commission.

Grassley’s office contacted the ECFA three weeks ago to indicate its report of the six ministries—in which only two fully cooperated with investigators and no ministry received a penalty—was imminent.

In the course of its investigation, Grassley’s office uncovered what it believes to be eight areas of concern related to financial practices and oversight for churches and religious groups. The newly formed Commission on Accountability and Policy for Religious Organizations, funded entirely by the ECFA, will examine:

1. A proposal that the IRS establish an advisory committee for churches and religious organizations.

2. Whether churches should file the Form 990, the same highly-detailed annual information return that other nonprofits must file.

3. Whether the income tax exclusion for housing allowances paid to clergy should be limited in some manner.

4. Whether the current prohibition against political campaign intervention by churches and other 501©(3) charities should be repealed or modified.

5. Whether the law should impose an excise tax (penalty) on nonprofit organizations that engage in excess benefit transactions.

6. Whether the current IRS audit protection for church leaders should be repealed.

7. Whether the "rebuttable presumption" of reasonableness for transactions between nonprofit organizations and their leaders should be eliminated.

8. Whether legislation is needed to remove uncertainty about the taxability of "love offerings" paid by church attendees to ministers through a church.

In a prepared statement, Grassley said he wants improved accountability and good governance so that tax-exempt groups can operate in a way that maintains public confidence. “The staff review sets the stage for a comprehensive discussion among churches and religious organizations,” Grassley said in the statement. “I look forward to helping facilitate this dialogue and fostering an environment for self-reform within the community.”

It’s the ECFA’s belief that “the heart of Christian leaders across America, whether in the local church or other organizations, is to obey the law,” said Dan Busby, president of the ECFA, during this morning’s press conference.

Opening up communication, and possibly identifying ways churches and other groups can improve their financial practices can help avoid federal legislation down the road. “The Senator has told us that he believes legislation should be the last resort,” Busby said.

Formed in 1979, the ECFA provides a stamp of approval on the financial statements of more than 1,400 evangelical ministries, nonprofits, denominations, churches, and educational institutions, representing a combined $13 billion in annual contributions made by more than 40 million donors. Busby said it’s his belief that improper practices “are not pervasive in the sector.”

(Editor's Note: Both Busby and Batts serve as Editorial Advisors for Christianity Today International's Church Law & Tax Report and Church Finance Today publications and websites).

In a “Staff Memo to Grassley” from Senate Finance Committee staff members that details their conclusions of the three-year investigation into the six media ministries, it appears they agree. “While the majority of churches and religious organizations operate with policies and procedures that make them accountable to their members, it is the small minority [who] don’t that are subject to scrutiny by the members and the public, including the press,” the memo said. “These outliers present tax policy issues for consideration.”

Even if the majority of churches appear to comply, though, Grassley believes changes likely are in order. “Some members of the community, watchdogs for example, argue that there’s no way to prevent outliers from doing what they do—that the laws are inadequate, or if the laws address the extremes, no one is enforcing them,” said Jill Gerber, press secretary of the Senate Finance Committee, in an interview. “Every couple of decades, there is a controversy or concern about financial abuse. It appears necessary to at least have a conversation about what might be done to curb these extreme behaviors.”

In November 2007, Grassley contacted Randy and Paula White, Pastor Benny Hinn, David and Joyce Meyer, Bishop Eddie L. Long, Creflo and Taffi Dollar, and Kenneth and Gloria Copeland, alleging misuse of funds by those ministries and requesting their financial records. Meyer fully complied and also joined the ECFA as a member in March 2009; Hinn also fully cooperated with the investigation, according to Grassley’s office. Grassley’s staff attempted to gather information on the remaining four ministries through public information and third parties.
According to an Associated Press article on Thursday:

But four of the televangelists would not provide full information about their finances. Some questioned whether Grassley had the authority to conduct the investigation. Others accused him of violating their religious freedom. Grassley's staff said in the report that they did not issue subpoenas to further the investigation because witnesses feared retaliation if they spoke out publicly and the Finance Committee did not have the time or resources to enforce the subpoenas.

But the investigation uncovered numerous questions related to churches and ministries that merit follow-up, according to the 61-page memo. In particular, staff recommended closer examinations into:

• Why churches and ministries aren’t required to file the same detailed annual report—a Form 990—that other nonprofits must file about their finances.

• Housing allowance benefits, which aided lavish lifestyles led by the leaders of the six media ministries. Batts said the commission will evaluate what any possible limitations might mean for churches and clergy, including a possible financial limit based on salary levels. The housing allowance is a significant benefit to pastors, created to help churches compensate pastors since many congregations can only offer modest salaries and benefits packages (the majority of the country’s churches average less than 200 people in weekly attendance).

Batts said Grassley expressed interest in “preserving the basic concept” of the housing allowance and that Grassley would be willing to consider drafting legislation protecting it in some form. That would be a significant development, considering the constitutional challenge to the allowance currently underway in the Ninth Circuit Court of Appeals.

• Limitations into political campaign interventions by churches and nonprofits. Batts said the concern here is twofold: One, a belief by some church leaders that their freedoms of religion and speech are too limited by the current law; and two, that the administrative challenges faced by the IRS to enforce it are unwieldy, leading to questionable results despite the time and money spent.

The commission’s first task is to identify how to gather input, which will involve churches and groups of varying faiths and backgrounds, not just evangelical Christian congregations, Batts said. The first issue on Grassley’s list—the possible formation of an IRS committee dedicated to aiding churches and religious organizations—stems from a perceived distrust between churches and the government, but Batts said he’s confident church leaders will want to participate with his commission’s work. “We have no reason to believe we can’t get objective, candid input from folks involved in a variety of religious practices,” he said. “This is an independent commission. It’s independent of Senator Grassley and his staff. It’s not a government commission. We’re going to reach out.”

No deadline has been set for the commission’s work. “This should not be rushed. It needs to be done objectively. It needs to be done professionally,” Batts said. “And it needs to be done well.”

It’s also not yet clear how the work of the commission will be used. Batts said the commission needs to determine whether it will only compile feedback, or whether it also will provide analysis and recommendations.

Gerber, the Senate Finance Committee press secretary, said any combination of actions may come from the commission’s work, but it’s too early to speculate. In 2004, Grassley sought charitable reform, using a convened panel to assess proposals and develop new ones. Those efforts led to a combination of results, including changes to the Form 990 by the IRS, new best practices adopted by nonprofits, and new federal laws, Gerber said.

Batts said Grassley has indicated his desire to see this effort through. Grassley’s tenure as ranking member of the Senate Finance Committee is ending because of term limits, but he will continue to serve on that committee. Later this month, he will become the ranking member of the Senate Judiciary Committee. In both roles, he will continue to oversee the tax-exempt sector.

“(He) told us clearly and directly recently that he has every intention to follow up on these issues,” Batts said.

Matt Branaugh is director of editorial for Christianity Today International's Church Management Team.

Related Tags: church, churches, compensation, finance, housing allowances, IRS, Richard Hammar, tax

Comments

As a German I find it astonishing that ministers of bigger church congregations can conceal their income that consists of sallaries, allowances, gifts and royalties. The approval of independent accounting offices do not necessarily increase the desired transparency.

When Rick Warren's housing allowance was at risk, Congress and the President acted with great haste to preserve his $80,000.00 a year tax free ministerial housing allowance benefit.

The Grassely report indicates that they are well aware of the constitutional problems with the ministerial housing allowance and its "obscene" use by "ministers".

Despite having years and years of controversy regarding such things, the report reflects an unwillingness to ACT to cure its constitutional flaws and abuses.

And so televangelists can claim millions in tax free benefits and basketball "ministers" can tag along for thousands in tax free benefits.

Time to get behind the FFRF suit challenging IRC 107 and make sure Congress ACTS to cure the problems inherent in IRC 107.

I have been researching church accounting practices, and stumbled onto this page. I saw the post claiming Rick Warren had a $80,000.00 a year housing allowance. I found this on other sites as well. I thought I would figure out what that would be on a monthly basis. I found this to be funny... just divide by 12....

Housing Allowance is the lowest of: 1) what you actually spent,2) what the ruling board approved or 3) fair rental value plus utilities. My housing allowance is $15,300 which is board approved, the fair rental value is $15,900 and in 2010 I spent a little over $20,000. I will claim on my taxes a housing allowance of $15,300, the lowest of the three.
Most clergy do not have $80,000 housing allowances nor do they live in houses with that fair rental value.
Removal of this tax break will not balance the federal budget, but the financial implications for small churches and their Pastors could be significant.

Oh goody. Just what we need. More.Government.Intervention.

We should be very concerned about a proposal that the IRS establish an advisory committee for churches and religious organizations. One day this nation will look back and ask, "Why didn't we step in and preserve the freedoms we took for granted?"

Yes, there are people who abuse the system-BUT there are thousands of pastors who are toiling in their sphere of influence that don't have an $80,000 housing allowance, don't live a lavish lifestyle and often don't receive compensation that equals minimum wage for the hours that they invest weekly.

How about you target the congressmen who are abusing their rights to paid expenses at the expense of the taxpayer and leave our nation's pastor alone.

Oh now I get it; we no longer answer to God as we live honest and reverent lives as humble pastors; but we must
answer to your committees. You decide how much we are allowed to have. I understand you are already telling us
what we can and cannot preach. What next? Permission
to have Prayer Service?
Maranatha, even so, Come Lord Jesus!!

While I'm normally against government intervention, I would welcome this type of inquiry.

Church's that have nothing to hide, hide nothing.
(Paraphrasing a Dr. Phil Quote. I'm sure there is an equivalent in the Bible)

If nut jobs want to give all there money to a guy that tells them they are all going to hell, than that is their choice.

What Grassley meant when he said "he wants improved accountability and good governance so that tax-exempt groups can operate in a way that maintains public confidence" Was that if you are going to give your money away to someone after we tax it, than we (government) should get some of it too.

It it wrong that some preachers, evangelist, cult leaders and ministers take the money and live a very good life style? Yes. But no one force you to go and give them your money and you don't have to go. Don't judge them, someone else is going to do that : )

Tell the government to stick it and find some other way to pay for their fiscal mismanagement....

And all this time the Republicans were supposedly about small government.

I'm sickened by how a few take advantage of non-profit status to live large on the backs of their flock. Yet... is it the government's business to fix this? As long as no one is forced to donate to the fat cat pastors, what's the constitutional issue here?

Government intrusion is growing quite alarming. Hopefully everyone can see where this is headed...

The issue is that churches are granted a tax exemption and some special privileges that other taxexempts don't have (the housing allowance for pastors). As a result, we the taxpayers are essentially subsidizing religion just like we subsidize many other charities, but with some extra percs that other charities don't get, which causes some concern. Certainly if we are going to give special privileges to churches not permitted to other tax exempt charities, we ought to be able to ensure that churches are at least as compliant with tax exempt status requirements as other charities are, and this can best be done through requiring the same kind of reporting required for other charities.

Why does it matter if a few megachurch ministers are essentially using their post as a way to profit themselves personally rather than as a way to further their charity--by claiming excessive housing allowances, living in multiple million-dollar residences and otherwise copying the lifestyles of megamillionaires? because that profit is at the expense of "we the people" who grant them the special privileges based on a claim of serving people rather than serving their lifestyle wants.

...JD) Are you kidding me? We tax the people who then give that money to their church and our "wonderful" government wants to tax that money again! We aren't paying a cent to their so called "luxurious" lifestyle. And who decides what is luxurious. Who job is it to say na you have to much, you need to give the government what you don't deserve. It is called freedom to do what you feel is good business. "We the people" do nothing and give nothing if we don't attend their congregations. None of our taxes are given to them. Definition of Subsidizing: 1.to furnish or aid with a subsidy.
2. to purchase the assistance of by the payment of a subsidy.
3. to secure the cooperation of by bribery; buy over. (Dictionary.com)
There is not a problem. The "Congressional" Representative is fabricating one to try and get more taxes and control for some shadow group in the background. This "democracy" is no longer crawling towards dictatorship/communism. We are falling head first!

I think all nonprofits, religious or not, should be required to abide by & complete the same tax requirements.

I worked as an unpaid volunteer /chief financial officer / treasurer / board member for the past 10 years, for a ministry that has never had a budget in their entire 40 years of existence. They did not understand the need for a budget. They spend the money as they deemed was appropriate and only a select group of their church (the invited ministry members) were allowed to attend the annual meeting in which the previous years' expenses are reviewed. Instead of saving for a project, they would buy on credit. It was preached to the congregation that living on credit was a sin, even though they did so - so many dishonest double standards. Even though they claimed they wanted new ideas & didn't want "yes-men", they constantly rejected recommendations to improve the process, & to put checks & balances into the system.

They are willfully ignorant of the ins & outs of the tax laws as covered in the resources of this publication. They were stuck in doing it the way they have always done it. And when the donations do not meet overhead, the pastor would send an emergency plea from the pulpit. This became a weekly exercise while the lack of funds was always blamed on "an attack by the devil." And they never took responsibility for their fiscal irresponsibility. Many tax laws were broken.

It is these types of ministries, regardless of size, that need governmental oversight, because they are incapable of doing it themselves.

If Senator Grassely want to do the right thing, why not go after all of those business that place their money in foregin country banks to avoid paying any taxes. I hope the young man who release the classified document deliver on his threat to list the names of individual who hold such accounts and pay no taxes. That will give Senator Grassely something ot investigate.

EVERYONE should be concerned over the government trying to "HELP". Didn't Ronald Reagan say something about when someone knocks on your door saying they are from the govt and want to help, RUN! Those TV ministries are extreme examples of possible abuse, but the majority of ministers are law abiding citizens. As far as the parsonage allowance somehow coming out of other taxpayers pockets, that is so false UNLESS you believe ALL you earn belongs to the government, which I think some think that. Let's fix all this by going to the Fair or Flat Tax@

Please keep in mind that, regardless of what kind of house he lives in, Rick Warren has experienced massive sales of his books. His income is not entirely based on donations from his congregation and I have heard that since his books hit the best-seller charts that he doesn't take a salary from the church anymore. He is also known for giving a very large portion of his income to charity. And, I would argue that his books were clearly about helping people grow in their relationship with God, not about making money. There is nothing wrong that in helping, he also grew an income.

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