Senator Charles Grassley, the former ranking Republican on the Senate Finance Committee, has completed a five-year investigation of religious financial fraud that uncovered weaknesses in the United States tax code which allow churches to become tax shelters. The investigation revealed how televangelists exploit love offerings and housing allowances as nontaxable income and operate companies from their churches. Unfortunately two mistakes crippled the investigation:
- No subpoenas were issued and this resulted in an incomplete investigation.
- Questionable activities by televangelists Benny Hinn and Joyce Meyer were overlooked after they cooperated in the investigation.
In response to these mistakes Christian Headlines is calling for the IRS to audit the six TV ministries and complete the investigation. Christian Headlines is also endorsing legislative proposals from the Senate and supporting whistleblower protections for nonprofit organizations. And lastly, Christian Headlines is recommending that the Evangelical Council for Financial Accountability (ECFA) adopt compensation limits and revise its membership application to obtain additional information regarding church nondisclosure agreements and self dealing.
IRS Should Complete the Investigation by Performing Audits
Senate Finance Committee attorney Lynda Simmons authored four reports describing questionable activities uncovered in the ministries of Kenneth and Gloria Copeland, Creflo and Taffi Dollar, Eddie Long, and Paula and Randy White. These reports list companies and questionable integrated auxiliaries that televangelists have operated from church properties. When someone operates both a nonprofit organization and for-profit corporation and these entities do business with each other, it can be illegal to excessively profit from these self dealing transactions. 1
An IRS audit should examine at least seven issues:
- Did church employees provide free labor for the televangelists’ companies?
- Did these companies obtain free office space from the churches or did they pay rent? If more than $1,000 was paid in rent during the year, a 990-T form for unrelated business income should have been filed with the IRS. No 990-T forms were listed as sources in the Senate reports. An IRS audit would determine if any of these forms were required and if they were filed.
- Did the churches purchase products and services from these companies? If so, did the churches pay for these products and services at fair market value? For example, if Paula White Enterprises sold Paula Whites’ books to Without Walls International Church at full retail price rather than wholesale, then an illegal transaction took place and Paula White received excessive compensation from the transaction.
- Did Long receive any income from New Birth Missionary Baptist Church (NBMBC) besides a love offering? Did attendees of NBMBC receive tax receipts for giving to love offerings taken for Long? 2
- Is Kenneth Copeland operating secret foreign bank accounts? Copeland did not provide to the Senate Finance Committee any information about money collected at conventions held in Fiji, Nigeria, and Singapore. 3
- Did Creflo Dollar pay a gift tax when he gave almost $1 million to Kenneth and Gloria Copeland? 4
- Did each televangelist reimburse their church for use of the church-owned jet when used for personal trips?
List of companies that appear to have operated from churches based on official published documents:
- The companies Paula White Enterprises Inc. 5 and Kabb Enterprises Inc. 6 have shared the same address as Without Walls International Church.
- Since 2010 World Flight, LLC has shared the same address as Creflo Dollar’s World Changers Church International (WCCI). World Flight could be a shell corporation so the IRS should determine its purpose. No property is listed in World Flight’s name in Fulton County, Georgia. No phone number is listed for this corporation at Yellowpages.com and no planes are listed in its name at Landings.com. 7
- World Heir, Inc., a holding company for Dollar’s GulfStream jet 8, and Creflo Dollar Enterprises, LLC have shared the same address as WCCI. 9
- Bell-Aire Aviation, LLC and Eddie Long’s New Birth Missionary Baptist Church (NBMBC) shared the same address from 2001 to 2008. 10
- New Birth EP, LLC 11 shared the same address as NBMBC from 2006 to 2008,
- New Birth Senior Housing I, LLC has operated from NBMBC since 2005. In 2008 the Georgia-based corporation was shut down and the corporation was re-registered in Ohio. The corporation appears to be part of an elaborate scheme to hide ownership by going through multiple layers of registrations. According to the Articles of Incorporation, “The sole member of New Birth Senior Housing I, LLC (the “Company”) shall be New Birth Development, Inc., an Ohio nonprofit corporation, which is organized and operated exclusively for charitable and religious purposes. The sole member of New Birth Development, Inc., is New Birth Church Holdings, Inc., an Ohio corporation which is organized and operated exclusively for charitable and religious purposes. The sole member of New Birth Church Holdings, Inc. is New Birth Missionary Baptist Church of Lithonia, Georgia, a Georgia nonprofit corporation which is a church that is exempt from federal income taxation pursuant to section 501(c)(3) of the Internal Revenue Code of 1986.” 12
- New Birth Design Group, LLC 13 and Partners of Harvest Foods, Inc. 14 have shared the same address as NBMBC since 2005.
Integrated auxiliary abuses follow a similar pattern. A church files an assumed name certificate or DBA (doing business as) form and then operates a business through the church but doesn’t pay taxes on the income or file a 990-T because the business is a part of the church.
According to the Senate report, Kenneth Copeland’s Eagle Mountain International Church denied that it operated any integrated auxiliaries. However, the Senate obtained a list of 21 such auxiliaries based on assumed name certificates filed in Texas since 1979 of which two are currently active. One of the expired auxiliaries is Eagle Mountain Lake Development & Construction Corp. The Senate should have issued a subpoena to determine if this assumed name allowed the church to run a profitable tax-exempt business. 15
Benny Hinn and Joyce Meyer Escape Scrutiny
Excessive compensation is poor stewardship.
Over the last ten years Hinn has earned an estimated $20 million from World Healing Center Church (WHCC) and Clarion Call Marketing, a company that produces products to be sold through WHCC.
Hinn disclosed his income to the Senate but refuses to disclose his income to his donors. According to Hinn’s website, “the ministry’s Board of Directors believes that my total compensation is a private matter” and “my compensation (annual salary) is set by the members of Benny Hinn Ministries’ Board of Directors with the aid and counsel of Mercer and Company, one of the most respected executive compensation firms in America.” 16
Actually Mercer and Company and its parent company Marsh & McLennan have a bad reputation for supporting excessive compensation. 17 William M. Mercer and Company has gone through a series of name changes. In 2002 the company’s name changed to Mercer Human Resource Consulting and was shortened in 2007 to Mercer. 18
William M. Mercer and Company is cited in the special counsel report on the ULLICO / Global Crossing Investments scandal for approving excessively large salaries. 19 When Mary Schapiro, the CEO of the nonprofit Financial Industry Regulatory Authority, received almost $9 million when she left the organization, Amerivet Securities, a member of FINRA, recommended that Schapiro be sued to recover money lost in excessive compensation. Mercer Human Resource Consulting said the compensation was “reasonable”. 20
Besides the lavish income, Hinn also has an extravagent housing arrangement. In a letter to Grassley, Hinn’s attorney Miles Archer Woodlief writes that Hinn’s home at 35 Ritz Cove, Dana Point, California (which has previously been estimated to be worth $10 million) 21 has been reclassified as “a retreat for Pastor’s contemplation and study, Church-purposed entertaining, and for short-term overnight stays preceding or following travel.” 22 Hinn’s organization World Healing Center Church Inc. should lose its tax exempt status for building a $10 million retreat center for its president’s use.
Grassley could have verified Joyce Meyer Ministries statements regarding charitable activities but instead praised the ministry for joining ECFA.
On November 7, 2007, Joyce Meyer Ministries (JMM) responded to the Grassley investigation by issuing a press release describing an impressive list of charitable activities: “JMM provided more than 11 million meals in 2006, and built nearly 200 freshwater wells and churches in underdeveloped countries. The ministry fully funds and operates more than 50 orphanages around the world, and presents the Gospel to a potential audience of 3 billion people every day via its television program. 23
Critics of JMM are skeptical of these claims. Over past three years JMM has issued several press releases with different numbers of orphanages. Grassley could have asked Meyer for a list of addresses for all of the orphanages to verify that they exist.
Perhaps the IRS should audit Dream Building Inc.(operates under the name St. Louis Dream Center) which is another nonprofit organization operated by Dave and Joyce Meyer. From 2007 to 2009 this charity reported over $5,670,000 in revenue but lists zero employees and zero government grants on the 990s even though it is involved in a USDA sponsored Summer Food Service Program. 24 A 2003 article in the St Louis Business Journal reported that the St Louis Dream Center is a homeless services center with 40 staff. 25
Review of Media-Based Ministries
Senate Finance Committee attorneys Theresa Pattara and Sean Barnett authored a 61-page “Review of Media-Based Ministries” describing how church exemptions are being exploited and offered legislative proposals to correct these problems. Here is a select list of quotes from the review that illustrate questionable activities.
- According to a report in the L.A. Times, televangelist Paul F. Crouch, president of Trinity Broadcasting Network, makes a habit of ordaining the network’s station managers and department heads as ministers so that they could deduct 100% of their housing costs as a “parsonage allowance.” 26
- Committee staff first became aware of potential abuses in the classification of the ministers when the Volunteers of America (VoA) responded to your March 24, 2005, letter. In its response, VoA explained that it is an ecumenical Christian church and is classified as a church or a convention or association of churches. After receiving this response, a VoA insider met with Committee staff. The insider provided a list of almost 200 employees who were designated as “ministers” for tax purposes. 27
- Because churches do not even have to notify the IRS when they form, anyone can set up an entity to receive donations, claim church status when asked, and then shut down quickly. This is easier than ever to do today through the internet. Two of the entities referred to the Committee for investigation were a mail order church and a website set up by a woman practicing voodoo. Both were referred to the Committee because of solicitation concerns. 28
- Larry L. McSwain, a professor at Mercer University’s McAfee School of Theology, warns that “one of the practices of many churches, especially non-denominational and African-American ones, is to provide a love offering from the members to their pastor in place of salary. This technique is, for some, a way of avoiding the reporting of income.” 29
Christian Headlines recommends that Congress pass whistleblower protections and approve suggestions included in the recent “Review of Media-Based Ministries” that would penalize religious organizations that abuse their tax-exempt status with excessive compensation and fraudulent self dealing.
Senator Grassley requested that Dan Busby, the president of ECFA, chair a commission to examine a list of issues and possible solutions the Senate investigators identified. However, the following endorsements from Christian Headlines go beyond the Senate proposals to be considered by the commission. The Senate review does not call for whistleblower protections or a mandate that the 990-T form be made available to the public by the IRS.
Televangelists are using confidentiality agreements and threats of lawsuits to prevent employees from revealing fraud.
From the Senate report on Eagle Mountain Church / Kenneth Copeland Ministries:
Former employees were sincerely afraid to provide statements for fear of being sued since they signed confidentiality agreements. Employees were contacted by EMIC/KCM attorneys after the initiation of the Committee investigation and reminded that they signed a confidentiality agreement agreeing not to disclose any information concerning EMIC/KCM. One former employee stated the following, “The Copelands employ guerrilla tactics to keep their employees silent. We are flat out told and threatened that if we talk, God will blight our finances, strike our families down, and pretty much afflict us with everything evil and unholy. Rather, God will allow Satan to do those things to us because we have stepped out from under His umbrella of protection, by “touching God’s anointed Prophet”. Further, employees are encouraged to shun and treat badly anyone who dares speak out.” 30
From the Senate report on Without Walls International Church:
Several former WWIC staff members wanted to speak with Committee staff but were afraid of being sued by the church. Staff is aware of at least one former employee who received a letter from WWIC’s attorneys reminding them of the confidentiality agreement. 31
Congress should pass new legislation that includes strong whistleblower protections. The law should clearly state that confidentiality agreements do not exempt people from giving testimony in a criminal investigation. Also, the IRS should be empowered to revoke the tax-exempt status for nonprofit organizations that intimidate whistleblowers.
Require new churches to register with the IRS
Currently the United States government does not have a right to know when churches are being formed to solicit donations because churches are exempt from filing the Form 1023 Application for Recognition of Tax-Exemption. This exemption should be abolished.
Require churches to file the 990
Churches in the United States are not required to disclose their finances to the public or even their members unless it is required in their bylaws. The following information included in 990s would be helpful for donors to know:
- Total Revenue
- Total Expenses
- Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and Independent Contractors
- Travel Expenses (How much did the church / ministry spend on its jet?)
- Settlement Expenses (How much did the church or ministry spend to settle a lawsuit? Investigators suspect that Benny Hinn has spent millions of dollars of donor money settling lawsuits.)
- Investments (Does the church or ministry have large investments while begging for money? Trinity Broadcasting Network reported $309,823,491 invested in 2008.) 32
- Did the organization file a 990-T? (This would disclose that the church or ministry earned more than $1,000 in unrelated business income.)
- Program Services (How much did the organization spend on its mission?)
- Identification of Related Tax-Exempt Organizations (Sometimes criminals transfer assets from the parent organization to affiliates as a means of hiding income.)
- Depreciation (Is the organization buying expensive items that lose value quickly? This is poor stewardship. Joyce Meyer Ministries reported $30,877,925 in accumulated depreciation in its 2009 financial statement.) 33
Amend the 990 to require explanation of nontaxable benefits
In 2008 at least 22 employees at The Inspirational Network received nontaxable benefits. Televangelist David Cerullo received $331,881 in nontaxable benefits on top of a base salary of $1,024,741. Was this benefit in the form of a clergy housing allowance? Is Cerullo receiving honorariums described as gifts? 34
Make the 990-T available to the public
Congress should require the IRS to make the 990-T form for unrelated business income available to the public through the Foundation Center, Guidestar, and the National Center for Charitable Statistics. The IRS already makes the 990 form available to the public.
Place limits on the Clergy Housing Allowance
When Congress passed the Clergy Housing Allowance, it was intended as tax relief for small, often rural churches that struggled financially to provide housing for clergy. Congress never intended for the housing allowance to be used by millionaries with large mansions. Televangelist Ed Young of Fellowship Church in Grapevine, Texas, receives a housing allowance of $240,000 for his $1.5 million home. 35 Televangelists Randy and Paula White received housing allowances of $713,779 in 2005 and $883,120 in 2006. 36
One possible solution is to limit the clergy housing allowance to the average amount of income spent annually on a home. According to the Review, “the U.S. Bureau of Labor Statistics reports that the average housing expenditure for all households in the United States in 2007 was $16,920.38″ 37 If a church or ministry wants to provide a housing supplement higher than the clergy housing allowance, this additional money would be taxable.
Establish real penalties for churches and ministries that engage in excessive compensation
The following ideas were suggested in the “Review of Media-Based Ministries.”
Section 4958 of the tax code is poorly worded so that managers can escape penalties by claiming they didn’t know a transaction provided excessive compensation. The Review says, “By penalizing only knowing participants, the current rules create an incentive for managers to remain ignorant.” 38 The current rules should be changed to adopt a “Reason to Know Standard.”
Replace “Rebuttable Presumption” with “Minimum Standards for Due Diligence” in Section 4958. 39 This change would make it easier for the IRS to penalize board members for allowing excessive benefits.
Section 7611 prevents churches from paying an excise tax when they willingly break the law by providing excessive compensation to employees. The Section 7611 protections for churches should be dropped. 40
Require churches to have voting members
In recent years some televangelists have developed zero member churches. This has obvious advantages for the televangelists. They can’t be fired by the congregation because the congregation has no voting rights. As an example, if Eddie Long is found guilty of sexual assault, his congregation cannot fire him. Also, the congregation has no oversight on how the donations are spent.
From the Certificate of Incorporation for Creflo Dollar’s World Changers Church International:
The qualifications for members and the manner of their admission are: pursuant to Georgia Statues, the corporation hereby elects to have no members.” 41
From the Certificate of Incorporation for Eddie Long’s New Birth Missionary Baptist Church:
“The corporation elects to have no members. Any action which would otherwise require a vote of members shall require only a vote of the members of the Board of Directors, and no meeting or vote of members shall be required for this Corporation, any provision of the Certificate of Incorporation of this Corporation or the Bylaws of the corporation to the contrary notwithstanding.” 42
For tax exemption purposes the Congress or IRS should adopt a definition of “church” to include a minimal number of voting members for the purpose of excluding fraudulent corporation soles and zero member organizations from being recognized as churches.
A corporation sole is an organization with only one officer. Criminals are establishing corporation soles, putting their assets in the organization and then claiming the organization is a church to avoid paying taxes. Andrew DeDominicis of Dallas, North Carolina, is under investigation for helping 163 people set up churches as corporation soles. 43
Define Tax-Exempt Limits for Love Offerings
Love offerings have become a lucrative method for religious leaders to collect tax-exempt income. In 2005 televangelist Morris Cerullo was indicted for not reporting $550,000 in income. The case was dismissed on a technicality because the grand jury wasn’t informed that the donor’s intent determines if the donation is income or a gift. 44
From the Senate review: The 2006 audited financial statements of Without Walls International Church state that Randy and Paula White “receive gifts and love offerings that are passed through the church.” And a church spokesperson for Eddie Long’s New Birth Missionary Baptist Church said that Long does not receive a salary from the church, but does take a “love offering.” 45 An Atlanta TV station obtained church records showing that Long received a love offering of over $1 million in 2010. 46
The tax code should be amended so that love offerings can no longer be used as a means of tax evasion.
ECFA Should Adopt Higher Standards
After Grassley requested that Busby head the commission, watchdog groups Ministry Watch and Trinity Foundation expressed skepticism of Busby and the ECFA. By taking a more aggressive stance against excessive compensation, ECFA could win over its critics. Also Busby could request that members of the watchdog organizations be part of the commission.
In 2009 the Chronicle of Philanthropy rated Franklin Graham as one of America’s highest paid nonprofit executives for his work with the Billy Graham Evangelistic Assocation and Samaritan’s Purse, both members of the ECFA. Busby soon released a statement saying, “ECFA standards are based on the principles of good governance, accountability, integrity and transparency, and do not place dollar limits on the compensation of its members’ leaders.” 47
Perhaps, because of the 2009 controversy, the ECFA is now open to including compensation limits in its standards. In an email, Busby says, “ECFA is currently considering possible modifications to its standards in the area of compensation. We may wait on completion of the Commission’s work to more fully address this area of the standards.” 48
Besides adding compensation limits, the ECFA should also consider asking the following questions to its members and prospective members:
- Does your ministry or church require its employees to sign a nondisclosure aggreement? (This could indicate that the organization has something to hide.)
- Does your ministry or church use off-duty police officers for security? (Some pastors have used police officers to investigate and intimidate church critics.)
- Do any for-profit entities operate from the same office as your ministry or church? If so, are both entities controlled by the same person? Does the for-profit entity pay rent and does the ministry or church file a 990-T?
- Does anyone in your ministry or church receive nontaxable income? If so, why is this compensation nontaxable?
- Does your ministry or church receive love offerings? If so, do the donors receive a receipt for their donation?
- Does your ministry or church pay employees in cash? (This could be used to avoid having a paper trail and the income might not be taxed.)
Three final suggestions for the ECFA:
- On the ECFA website disclose the income for executives of the member organizations. (JMM joined the ECFA in 2009 and discloses Dave Meyer’s income to the ECFA but not to JMM’s donors.)
- Disclose on the ECFA website whether or not the ministry or church has voting members.
- Permanently revoke membership status to any ministry or church that threatens or sues, or intimidates whistleblowers in an attempt to cover up for fraud.
P.S. This is the second article in a series about religious financial fraud. The next article will be about the techniques religious leaders use in cover-ups.
4 ibid, p. 24-28
21 Bob McKeown, ” A Preacher’s Life”, NBC Dateline, March 6, 2005
27 ibid, p. 15
28 ibid, p. 21
29 ibid, p. 45
32 Trinity Christian Center of Santa Ana, Return of Organization Exempt From Income Tax (Form 990) for 2008, p. 11 line 12
34 The Inspirational Network Inc., Return of Organization Exempt From Income Tax (Form 990) for 2008, p. 24
38 ibid, p. 37-38
39 ibid, p. 40-42
40 ibid, p. 34
48 Email between Dan Busby and Barry Bowen (Christian Headlines), February 22, 2011