When Does the Clergy-Penitent Privilege Apply?

A court recently made a significant ruling.

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Confidential and Privileged Communications

Church Law and Tax 1992-11-01 Recent Developments

Taxation – Church Property

Richard R. Hammar, J.D., LL.M., CPA

• In a clearly erroneous decision, the Supreme Court of Arkansas ruled that statements made by a church member to his pastor were not covered by the “clergy-penitent privilege.” A church member sexually molested three boys. The boys and their families were also members of the church. The molester invited one of the boys to his home to “try on some Boy Scout uniforms,” and molested him while assisting him in trying on the uniforms. Another boy was molested by the same person in the sound room at the church. In each case, the molestation consisted of touching the boys’ genitals, either directly or through their clothing. The parents of two of the boys informed their pastor of the molestation. The pastor promptly pulled the molester out of a choir rehearsal and asked him to come to his office. The pastor confronted the individual with the allegations, and the molester admitted that they were true. The molester was later prosecuted criminally. His confession to the pastor was introduced in evidence over his objection that it was protected from disclosure by the clergy-penitent privilege. On the basis of this and other evidence, he was convicted on three counts of molestation and was sentenced to 13 years in a state penitentiary. The molester appealed his conviction, arguing that the trial court erred in allowing the pastor to testify regarding their conversation in his office. The molester pointed out that he was a member of the church; that he had counseled with the pastor on numerous occasions in the past, and the pastor had assured him that their conversations were private; and, that his confession was made in confidence. The Arkansas Supreme Court ruled that the clergy-penitent privilege did not apply to the molester’s confession, and that there was no basis to reverse the conviction. The court began by quoting the Arkansas clergy-penitent privilege, which specifies:

A communication is “confidential” if made privately and not intended for further disclosure except to other persons present in furtherance of the purpose of the communication.

General Rule of Privilege. A person has a privilege to refuse to disclose and to prevent another from disclosing a confidential communication by the person to a clergyman in his professional character as a spiritual adviser.

Who May Claim the Privilege. The privilege may be claimed by the person, by his guardian or conservator, or by his personal representative if he is deceased. The person who was the clergyman at the time of the communication is presumed to have authority to claim the privilege but only on behalf of the communicant.

The court then observed:

[The pastor] testified regarding the doctrines of his church: confession is not a tenet of his church and keeping evidence of a crime confidential is within the discretion of the pastor. His own practice was to keep confidential that information gained in a counseling relationship. Although he had had counseling sessions with [the molester] on prior occasions, he had not counseled with [him] for several months before the conversation at issue and considered this particular conversation “disciplinary in nature.” Further the pastor did not tell the molester that the conversation was confidential, nor did the molester ask that it be kept confidential …. We find it significant, in this case, that the pastor sought out the molester to confront him with the allegations of sexual abuse conveyed to him by the parents of two of the victims. Although the pastor had counseled with the molester on previous occasions … the pastor did not consider this to be a counseling session at all, but disciplinary in nature. The attendant circumstances support the trial court’s decision that this was an accusatory situation initiated by the pastor that did not encompass spiritual counseling, thereby precluding the molester from excluding the pastor’s testimony at trial …. The molester’s communication was not made to the pastor in his professional character as a spiritual adviser ….

Two Justices issued a dissenting opinion, and it is their analysis that is correct (rather than the court’s majority). The dissenters began their opinion by emphasizing the obvious fact that under the Arkansas clergy-penitent privilege (quoted above) the privilege clearly belongs to the person who seeks a pastor’s counsel (and not to the pastor). The court erred in focusing on the pastor’s expectations of confidentiality rather than the molester’s. Further, a communication is confidential if made privately and not intended for further disclosure. In this regard, the dissenters observed:

The entire relationship between [the pastor] and his church and [the molester] came about due to the molester’s felt need for counseling with respect to his sexual inclinations. The pastor testified that he had informed the molester that what he said to him in their counseling sessions would not be disclosed, and it is undisputed that the pastor had not informed the molester he felt the counseling sessions had ended.

The dissenters continued:

The majority opinion concludes that, because [the pastor] called [the molester] to his office in a “confrontational” manner, the pastor had stepped out of what [the clergy-penitent privilege] calls “his professional character as a spiritual adviser.” Why? Suppose that when the pastor interrupted choir practice to call the molester into his office the molester had reason to expect what he said to his confessor, who had counseled him on the very type of problem about which he then asked, would not honor the relationship and the promise of confidentiality? The majority opinion gives utterly no reason for concluding so. Again, the problem with the majority opinion is that it deals with the pastor’s expectations rather than those of the molester, and it is the molester’s expectations that count under the [privilege] …. “The priest-penitent privilege recognizes the human need to disclose to a spiritual counselor, in total and absolute confidence, what are believed to be flawed acts or thoughts and to receive priestly consolation and guidance in return.” The majority opinion contradicts these considerations, apparently holding there can be no confidence in communications with a clergyperson unless he or she decides the matter is one which warrants privacy. This conclusion is intolerable in view of the language of the [privilege], the policy underlying it, and the facts of this case.

What is the impact of this ruling on other clergy? The most significant aspect of this case is the fact that the applicability of the clergy-penitent privilege can be assured if the pastor simply asks a person during a counseling session whether he or she intends for the conversation to be privileged and confidential. If the counselees responds affirmatively, then there is little doubt that the courts will conclude that the privilege applies. Clergy should bear this point in mind in the course of their counseling. If, during a conversation with a member (wherever it may occur), it appears to a minister that the other person may intend for the conversation to be confidential and privileged, the minister should confirm this understanding verbally. If the minister is ever called to testify in court concerning the conversation, this verbal confirmation should resolve most questions regarding the applicability of the clergy-penitent privilege. Magar v. State, 826 S.W.2d 221 (Ark. 1992).

Minimum Wage Law and Private Schools

A court concluded that the minimum wage law applied to a church-run school.

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Employment Practices, Fair Labor Standards Acts, Schools

Church Law and Tax 1991-11-01 Recent Developments

Employee Relations

Richard R. Hammar, J.D., LL.M., CPA

• A federal appeals court concluded that the federal minimum wage law applied to the staff of a church-operated school. A church in Little Rock, Arkansas, operates an elementary and secondary school that utilizes a self-study program that teaches all subjects from a biblical point of view. The school is an integral part of the church. Each class has a supervisor who is assisted by a classroom “monitor.” Both work with the children but do not conduct formal classroom instruction. Supervisors grade papers, answer students’ questions, conduct prayer, and counsel the students. Monitors perform duties equivalent to teachers’ aides in the public schools. The school requires that all supervisors and monitors be “born again” Christians. Supervisors receive compensation of $125 per week ($3.29 per hour for a 38-hour week), while monitors receive $100 per week ($2.63 per hour for a 38-hour week). The Department of Labor charged the church with violating the federal minimum wage law (Fair Labor Standards Act), and sought back wages of some $23,000 for 18 current and former supervisors and monitors. A federal district court upheld the government’s position, and the church appealed. A federal appeals court agreed that the federal minimum wage law applied to the school’s employees, and it upheld the award of back pay. It emphasized that the minimum wage law specifically applies to church-operated school employees, and it rejected the suggestion that the supervisors and monitors were exempt from coverage on the ground that they are “ministers.” The court relied heavily on another federal appeals court ruling in Dole v. Shenandoah Baptist Church (discussed in detail in previous issues of this newsletter). DeArment v. Harvey, 932 F.2d 721 (8th Cir. 1991).

Fair Labor Standards Act

© Copyright 1991, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m42 m43 c0691

Legal Developments

Donors’ Restrictions in Church Property Deeds

The Arkansas Supreme Court ruled that such restrictions are legally enforceable.

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Church Property

The Arkansas Supreme Court ruled that a donor's restrictions in a deed of property to a church are legally enforceable.

In 1944, a donor executed a deed conveying property to a local church. The deed contained the following clause: "This transfer or deed is made with the full understanding that should the property fail to be used for the Church of God, it is to be null and void and property to revert to [the donor] or heirs." Several years later, the church wanted to sell its property and relocate. It asked a local court to cancel the clause in question and confirm that the church owned absolute title to the property.

The trial court granted the church the relief it requested, noting that the donor's reserved interest in the property was void on the ground that it violated the "rule against perpetuities." An heir of the donor appealed the case to the state supreme court, which reversed the trial court's decision and ruled that the property would revert to the donor's heirs if the church sold it.

The court acknowledged that the "rule against perpetuities" is recognized in virtually every state, including Arkansas, and that "this longstanding rule prohibits the creation of future interests or estates which by possibility may not become vested within a life or lives in being at the time of the effective date of the instrument and 21 years thereafter."

The court concluded that this rule did not apply in this case since the donor had retained a "possibility of reverter" that vested in the donor as soon as the deed was executed and accordingly was not subject to the rule against perpetuities. The court observed: "[T]he rule against perpetuities is alive, well, and fully applicable to terminate interests where those interests do not vest within 21 years after some life in being at the time of the creation of the instrument. However, the rule has no application to reversionary interests, which remain in the transferor and heirs. Such is the interest retained by the transferor in this instance …."

This case is of fundamental importance to those churches that have received property (by either gift or purchase) by means of a deed containing similar restrictions. Many persons have donated or sold property to churches "so long as" the property is used for church purposes, or so long as the property is used as a church of a specified denominational affiliation.

These kinds of restrictions often provide that the property shall revert to the original owner (or the original owner's heirs) in the event the condition is breached. Accordingly, any attempt by such a church to sell its property or to disaffiliate from its denominational affiliation can result in the automatic reversion of the property to the original owner (or the owner's heirs).

Obviously, this result can have disastrous and completely unforeseen consequences to the church. It is prudent, therefore, for any a church to address the following considerations prior to a sale of its property:

Does the deed by which the church received title to the property contain any condition restricting sale?
If the deed does contain a restriction on sale, is it in a legally recognizable form and is it legally enforceable under state law? Only an attorney can answer this question.
If a legally enforceable restriction on sale does exist, is the previous owner (who imposed the restriction) willing to release it? If so, then an attorney should be enlisted to prepare an appropriate document releasing the restriction. If the previous owner is deceased, then only his or her legal heirs can release the restriction. Even if a church has no plans to sell its property, it would be prudent to discuss a release of such a restriction with the previous owner during his or her life, since a release of such a restriction becomes much more difficult after this person's death. Collins v. The Church of God of Prophecy, 800 S.W.2d 418 (Ark. 1990).

Legal Developments

Tax Exemption of Boarding School Dormitories

The Arkansas Supreme Court recently ruled on this issue.

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Schools

Church Law and Tax 1991-09-01 Recent Developments

Taxation – Church Property

Richard R. Hammar, J.D., LL.M., CPA

• The Arkansas Supreme Court ruled that dwellings located on the grounds of a church-operated boarding school were not exempt from state property taxes. The Arkansas Conference of the Seventh Day Adventists operates a boarding school consisting of grades 9 through 12. Most of the students are members of the Seventh Day Adventist Church. The campus consists of a boys’ dormitory, a girls’ dormitory, a gymnasium, a maintenance building, a box factory, a duplex, and 12 single family dwellings that are rented to faculty and staff. A county tax commission determined that the 12 dwellings were not exempt from property taxation, and the Conference appealed. The Conference noted that state law exempts from taxation “school buildings and apparatus” and “grounds used exclusively for school purposes.” The Conference claimed that the 12 dwellings qualified for exemption under these provisions since they were located on school property, and were used for counseling and spiritual guidance of the students in addition to serving as the residences of faculty members. The Conference contended that one of the school’s goals is to provide “mental and spiritual guidance” to the students, and that this purpose was directly fulfilled by having the dwellings on campus and readily accessible to the students. Therefore, the Conference argued that the dwellings should be treated like the dormitories, which are exempt from taxation. The tax commission maintained that the dwellings rented to faculty and staff are in direct competition with other owners of rental properties and therefore the dwellings should be taxed. A trial court agreed with the tax commission that the dwellings were not exempt, and the case was appealed to the state supreme court. The supreme court agreed that the dwellings were taxable. The court observed that the exemption of school properties applies only to those properties that are used exclusively for school purposes, and that even this exemption is to be interpreted narrowly. The court conceded that the dwellings were used for counseling of students, and occasional student parties. However, the court observed that “no residences are used for conducting classes” and the counseling activities are not “regularly scheduled obligations.” Accordingly, the court could not agree that the dwellings were used exclusively for exempt purposes. The court added that “another factor to consider is that the residential dwellings compete with other property owners in the area,” whose properties are not exempt. Based on these considerations, the court concluded that “the primary use of the dwellings is for residential purposes and the incidental use is for school purposes.” Arkansas Conference Association of Seventh Day Adventists, Inc. v. Board of Equalization, 800 S.W.2d 426 (Ark. 1990).

Property Taxes

Legal Developments

Freedom of Religion – Part 1

Church Law and Tax 1990-05-01 Recent Developments Freedom of Religion Richard R. Hammar, J.D., LL.M.,

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Freedom of Religion, Schools

Church Law and Tax 1990-05-01 Recent Developments

Freedom of Religion

Richard R. Hammar, J.D., LL.M., CPA

• A federal court in Arkansas outlawed Bible classes that had been taught in a city’s public schools for 51 years. The schools gave elementary grade children the opportunity to learn about the Bible. Bible classes were taught during regular school hours in the school building, by volunteers not acting on behalf of any church. No course credit was given for the classes, and attendance was voluntary. Nearly 96% of all students attended the Bible classes. The parents of one child filed a lawsuit in federal court, alleging that the program violated the first amendment’s “nonestablishment of religion” clause. The court began its opinion by observing that, according to Supreme Court pronouncements, “any government involvement with religion, to be constitutional, must have a secular purpose, its principal or primary effect must be one that neither advances nor inhibits religion, and it must not foster an excessive governmental entanglement with religion.” A state practice that violates any of these requirements is invalid. The court concluded that the Bible study program violated all three requirements. It referred to lessons and songs that endorsed Christian dogma, and quoted one of the Bible teachers who stated in class that “Jesus is our gateway to Heaven. He laid down his life for us so that we could go to Heaven. He is our shepherd and he wants us all to be one big flock of sheep.” Such evidence, the court concluded, clearly demonstrated that the program had a religious purpose, and that it advanced religion. The court acknowledged that purely “secular” Bible study programs in public schools have been upheld as lawful by other federal courts, and it indicated a willingness to review a modified Bible study program in this case. It noted that the United States Supreme Court has ruled that “Bible study, when presented objectively as part of a secular program of education, may … be effected consistently with the first amendment.” Doe v. Human, 725 F. Supp. 1503 (W.D. Ark. 1989).

© Copyright 1990, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m47 c0390

Legal Developments

Freedom of Religion – Part 1

Church Law and Tax 1989-09-01 Recent Developments Freedom of Religion Richard R. Hammar, J.D., LL.M.,

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Schools

Church Law and Tax 1989-09-01 Recent Developments

Freedom of Religion

Richard R. Hammar, J.D., LL.M., CPA

• Two federal appeals courts addressed the issue of the right of Christian student groups to meet on public high school campuses for Bible study and prayer prior to the start of the school day. One court concluded that such groups have a legal right to meet on public school property, and the other court ruled that they do not. The United States Court of Appeals for the Eight Circuit (which includes the states of Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) concluded that Christian student groups have a legal right to meet on a public high school campus for Bible study and prayer prior to the start of the school day. The group in question (comprised of students at a Nebraska public high school) had argued that their school’s refusal to allow them to meet on school property violated the constitutional guaranty of religious freedom and the federal “Equal Access Act.” The Equal Access Act prohibits public high schools from denying any group access to school facilities during “noninstructional” hours on account of the religious content of the group’s speech if the school has established a “limited open forum” by making the same facilities available to “one or more noncurriculum related student groups.” The Christian group argued that the school had created a limited open forum by permitting several “noncurriculum related groups” to meet on school property (including the chess club, a junior Rotary Club, and a scuba diving club), and accordingly the school could not deny the Christian group access to the same facilities during noninstructional hours. School officials argued that they had not created a limited open forum, since all of the clubs that met on school property were curriculum related. They pointed out that the chess club was related to logic (though no logic courses were taught at the school), the junior Rotary Club was related to sociology, and the scuba diving club was related to physical education. The federal appeals court rejected the school’s claim that the Equal Access Act did not apply since all of the student clubs were curriculum related: “Allowing such a broad interpretation of ‘curriculum-related’ would make the Equal Access Act meaningless. A school’s administration could simply declare that it maintains a closed forum and choose which student clubs it wanted to allow by tying the purposes of those student clubs to some broadly defined educational goal. At the same time the administration could arbitrarily deny access to school facilities to any unfavored student club on the basis of its speech content. This is exactly the result that Congress sought to prohibit by enacting the Equal Access Act. A public secondary school cannot simply declare that it maintains a closed forum and then discriminate against a particular student group on the basis of the content of the speech of that group.” The court concluded that “many of the student clubs [at the high school in question], including the chess club, are non-curriculum-related” and therefore the school had established a limited open forum and “the Equal Access Act forbids discrimination against [the Christian student group] on the basis of its religious content.” The court also rejected the school’s claim that the Equal Access Act violated the constitution. The court noted that the United States Supreme Court had ruled in 1981 that a public university could not deny a Christian student group access to university facilities that were available to other student groups. This ruling, concluded the appeals court, demonstrated the validity of the Equal Access Act. The court rejected the school’s argument that the Supreme Court’s ruling should be limited to university students on account of the greater impressionability and immaturity of high school students. It noted that “Congress considered the difference in the maturity level of secondary students and university students before passing the Equal Access Act. We accept Congress’ fact-finding.” The ruling is controlling in the eighth federal judicial circuit (which includes the states of Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, South Dakota)—unless reversed or modified by the same court in a later decision, or by the United States Supreme Court. Mergens v. Board of Education of Westside Community Schools, 867 F.2d 1076 (8th Cir. 1989).

© Copyright 1989, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m47 c0589

Legal Developments

Schools – Part 3

Church Law and Tax 1989-01-01 Recent Developments Schools Richard R. Hammar, J.D., LL.M., CPA •

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Schools

Church Law and Tax 1989-01-01 Recent Developments

Schools

Richard R. Hammar, J.D., LL.M., CPA

• A federal appeals court rejected the contention of homeschoolers in Arkansas that a state law regulating homeschooling violated their constitutional right to religious freedom. The court concluded that the state had a “compelling interest” in the education of its citizens, and that such an interest outweighed the alleged religious convictions of homeschooling parents, provided that the state employed “the least restrictive means” of accomplishing its compelling interest. The court observed that the only restriction imposed by the state of Arkansas on homeschoolers was the requirement that their children take standardized achievement tests periodically. This limitation, concluded the court, was far less burdensome than other state-imposed limitations that had been upheld by the courts in other states, and was clearly the “least restrictive means” of assuring that the state’s compelling interest in the education of its citizens was being accomplished. The court quoted from a 1976 decision of the United States Supreme Court: “This Court has repeatedly stressed that while parents have a constitutional right to send their children to private schools and a constitutional right to select private schools that offer specialized instruction, they have no constitutional right to provide their children with private school education unfettered by reasonable government regulation …. Indeed, [this Court] has expressly acknowledged `the power of the State reasonably to regulate all schools, to inspect, supervise and examine them, their teachers and pupils,'” Murphy v. State of Arkansas, 852 F.2d 1039 (8th Cir. 1988).

See also Personal injuries—on church property or during church activities, Brown v. St. Venantius School, 544 A.2d 842 (N.J. 1988)

Legal Developments

Court Concluded that a State Law Giving Members of Nonprofit Corporations the legal right to Inspect Corporate Records Could Not be Applied to the Church

Do members of an incorporated church have the legal authority to inspect the church's financial

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Church Records

Do members of an incorporated church have the legal authority to inspect the church's financial records over the objection of church "elders"?

That was the difficult issue before the Arkansas Supreme Court in a recent case. As part of what the court described as a dispute of "a longstanding, ongoing, and heated nature, certain members of a local Church of Christ congregation sought to obtain various financial records of the church as part of a concerted effort to oust the current church leadership.

When church elders rejected the members' request, the members proceeded to incorporate the church under a state nonprofit corporation law making the "books and records" of a corporation subject to inspection "by any member for any proper purpose at any reasonable time." Church elders continued to reject the members' request for inspection, whereupon the members asked a state court to recognize their legal right to inspection under state corporation law.

The elders countered by arguing that application of state corporation law would impermissibly interfere with the religious doctrine and practice of the church, contrary to the constitutional guaranty of religious freedom. Specifically, the elders argued that according to the church's "established doctrine," the New Testament "places within the hands of a select group of elders the sole responsibility for overseeing the affairs of the church," and that this authority is "evidenced by biblical admonitions to the flock to obey and submit to them that have rule over the flock."

The state supreme court agreed that "application of our state corporation law would almost certainly impinge upon the doctrine of the church" as described by the elders, and accordingly would violate the constitutional guaranty of religious freedom. The court relied in part on a 1952 decision of the United States Supreme Court in which the Court ruled that religious freedom includes the right of religious bodies "to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine."

The court concluded that if the application of a state law would conflict with the "doctrine, polity, or practice" of a church, then the law cannot be applied to the church without a showing of a "compelling state interest." No such showing was made in this case, the court concluded, and therefore the state law giving members of nonprofit corporations the legal right to inspect corporate records could not be applied to the church.

This decision should not be interpreted as giving the leaders of incorporated churches broad discretion in denying members' requests for inspection of church records. Note that the court based its ruling entirely upon its finding that the church's doctrine and practice required members to submit without reservation to the authority of elders in all matters of church administration. Obviously, this is a position that does not enjoy universal acceptance. Gipson v. Brown, 749 S.W.2d 297 (Ark. 1988).

Legal Developments

Court Affirmed an Arkansas Law That “The Bonding of a Church Construction Job is Mandatory”

The state of Arkansas has a unique law pertaining to the bonding of church construction

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Church Property, Contracts

The state of Arkansas has a unique law pertaining to the bonding of church construction projects. It provides that "no contract in any sum exceeding $1,000 providing for the repair, alteration, or erection of any building … shall be entered into by any church or religious organization … unless the contractor shall furnish to the party letting the contract a bond in a sum equal to the amount of the contract."

A state appeals court ruled that "the bonding of a church construction job is mandatory" under Arkansas law. General Electric Supply Co. v. Downtown Church of Christ, 746 S.W.2d 386 (Ark. App. 1988)

Legal Developments

Court Addressed Religious Organization’s Eligibility for Exemption from State Sales Taxes

The Arkansas Supreme Court addressed the issue of a religious organization's eligibility for exemption from

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Tax Exemption

The Arkansas Supreme Court addressed the issue of a religious organization's eligibility for exemption from state sales taxes. A religious organization operated a variety of retail businesses, including a restaurant, grocery store, two service stations, a clothing store, and an auto repair shop. Members of the organization performed services for these businesses without compensation other than the receipt of food, shelter, and clothing at no cost.

A state agency determined that the organization's provision of food and clothing to its members, in exchange for their services, constituted "sales" subject to the state sales tax. A trial court upheld the assessment of the sales tax, and the organization appealed.

The state supreme court agreed that the transfers of food and clothing were sales subject to tax, since they were "transfers for valuable consideration." The court rejected the organization's argument that its constitutional right of religious freedom was being abridged, since "religious organizations entering the commercial and secular world necessarily do so with the understanding that they no longer enjoy the constitutional protections afforded religious organizations.

There are no shields once they cross the line that separates church and state. They are no longer considered a church or religious organization, because they are not acting like one …. The [organization] elected to operate retail businesses for profit and, having made that choice, it must abide by the same rules under which all secular businesses operate, including taxation." This reasoning is clearly flawed, since churches and religious organizations are perfectly free to engage in commercial endeavors without "loss of the constitutional protections afforded religious organizations"—so long as those endeavors are insubstantial.

The Internal Revenue Code recognizes this principle by preserving the exempt status of churches that are engaged in insubstantial commercial activities, while at the same time subjecting some of those activities to the tax on unrelated business income. To say that such churches have ceased to be churches, or that they have lost the constitutional protections afforded religious organizations, is incorrect. Tony & Susan Alamo Foundation v. Ragland, 746 S.W.2d 45 (Ark. 1988)

Legal Developments

Court Invalidated Will That Left All of a Decedent’s Assets to a Cult Leader

An Arkansas appeals court invalidated a will that left all of a decedent's assets to

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Wills, Trusts, and Estates

An Arkansas appeals court invalidated a will that left all of a decedent's assets to a cult leader.

The leader had convinced the decedent that he had supernatural powers, that he could transmigrate, did not have to eat or perform other bodily functions, and had the power to heal. He refrained from displaying his powers openly, however, because it would cause people to "focus on his miracles rather than upon his teachings."

The leader also warned the decedent that "bad things" would happen to her if she did not give more and more of her money to him. She began giving up to 75% of her earnings as a nurse to the leader, executed a will leaving her entire estate to him, and assigned several life insurance policies to him.

After her untimely death in an accident, a lawsuit was filed on behalf of her minor child seeking to invalidate the will and life insurance beneficiary designations on the basis of undue influence. The lawsuit alleged that the decedent had been so unduly influenced by the leader that her actions were not the product of her own free will and therefore should be invalidated.

The court agreed that the decedent had been unduly influenced by the cult leader, and accordingly invalidated the transfer of assets to him. It noted that the leader was a very skillful manipulator of emotionally immature and dependent persons, and that he "virtually enslaved" the decedent through manipulation of her mind and emotions. Carpenter v. Horace Mann Life Insurance Co., 730 S.W.2d 502 (Ark. App. 1987).

Legal Developments

Court Upheld Validity of a Will Leaving Large Portion to a Baptist University

The Arkansas Supreme Court upheld the validity of a will that left a large portion

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Charitable Contributions

The Arkansas Supreme Court upheld the validity of a will that left a large portion of an elderly widow's estate to a Baptist university.

The decedent's surviving heirs argued that the will was invalid since the decedent lacked mental capacity at the time the will was executed. To support their claim, the heirs alleged that at the time she executed her will the decedent was in a state of grief over the loss of her husband and was manifesting eccentric behavior. In addition, the heirs argued that the decedent had never expressed an interest in the university during her lifetime. Such evidence, concluded the court, fell far short of that required to establish mental incapacity. Baerlocker v. Highsmith, 730 S.W.2d 237 (Ark. 1987).