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.
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.
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the current prohibition against political campaign intervention by churches and other 501(c)(3) charities should be repealed or modified.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."
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.
This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."
Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.