Charitable Contributions – Part 2

Church Law and Tax 1989-11-01 Recent Developments Charitable Contributions Richard R. Hammar, J.D., LL.M., CPA

Church Law and Tax 1989-11-01 Recent Developments

Charitable Contributions

Can a donor revoke a contribution to a church on the basis of “undue influence”? Yes, concluded a federal appeals court. An heiress to a large family fortune began attending a church in Massachusetts. Over the next few years, she became intimately involved with the church and many of its related ministries, and made three large contributions to the church. The first contribution (stock in the family business worth $1 million) was made because of her belief that the gift would “cure” the severe headaches experienced by the pastor’s wife. After making the gift, the pastor allegedly informed the donor that his wife had been “cured” when in fact she continued to suffer from migraine headaches. Because of this event, the donor came to believe that large gifts could “affect events on earth.” Later, when advised by church officials that a particular missionary was being kept a prisoner in Rumania and that “they’re probably pulling out his fingernails by now,” the donor informed the pastor that she intended to make a $5 million gift to the church to bring about the missionary’s release. In fact, church officials knew that the missionary had been released several days earlier, but this information was not disclosed to the donor. She was simply told that her gift had “worked a miracle.” The donor also made a $500,000 gift to the church in an attempt to resolve her marital difficulties. Eventually, the donor was taken by concerned family members to religious “deprogrammers” who persuaded her to terminate her association with the church. She then sued the church, demanding a return of her gifts on the ground that they had all been the product of “undue influence” and accordingly were void. The federal appeals court, applying Massachusetts law, observed that gifts to charity can be revoked on the basis of undue influence, and that undue influence involves three elements: (1) a person who is susceptible to being influenced, (2) deception or improper influence is exerted, and (3) submission to the “overmastering effect of such unlawful conduct.” The court stressed that “it generally takes less to establish undue influence when a confidential relation exists between the parties.” Such a confidential relationship, the court concluded, existed between the donor and the pastor. The court found the following factors to be relevant in determining whether undue influence occurred: (1) the donor’s age, and mental and physical health; (2) “disproportionate gifts made under unusual circumstances”; (3) inexperience with financial matters; (4) attempts by the recipient of the funds to “isolate the donor from her former friends and relatives”; (5) whether or not the donor acted with or without “independent and disinterested advice.” The court rejected the donor’s claim that the $1 million gift had been the result of undue influence, since general statements by the pastor and other church officials that large gifts would “do great works” were “too amorphous to show undue influence.” However, the court found that the $5 million and $500,000 gifts were the result of undue influence and ordered them cancelled. The court observed that all three elements of undue influence were present. First, the donor was susceptible to undue influence. Second, the pastor had knowingly deceived her into believing that the missionary was in great danger when he knew that the missionary had been released from Rumania several days earlier. Third, the donor clearly “submitted” to the pastor’s misrepresentation. The court also noted that had the donor had been told that her $1 million gift had not cured the headaches of the pastor’s wife, she “might not have made the second gift at all.” Further, the $5 million and $500,000 gifts were not based on any independent advice, and had been concealed from family members (because the donor had been advised by church officials that her family was “evil and was to be trusted”). Finally, the court rejected the church’s claim that the constitutional guaranty of religious freedom “shields the solicitation of funds by a religious organization from attack since the gifts are sacrosanct.” The court quoted with approval the United States Supreme Court’s admonition that “nothing we have said is intended even remotely to imply that under the cloak of religion persons may, with impunity, commit frauds upon the public.” The court noted that the guaranty of religious freedom “does not allow purely secular statements of fact to be shielded from legal action merely because they are made by officials of a religious organization.” It concluded that “those who run [the church] may freely exercise their religion, but they cannot use the cloak of religion to exert undue influence of a non-religious nature with impunity. The $5 million gift and $500,000 gift might have had their seeds in the religious beliefs of [the church] but they were both nurtured and brought to fruition by misstatements and distortions of facts that had no basis either in the religious tenets of [the church] or [its] religious beliefs.” In re The Bible Speaks, 869 F.2d 628 (1st Cir. 1989).

Related Topics:

Case Demonstrates Legal Risks in Providing Negative References to Other Employers

An employee of a church-affiliated college was terminated for not returning a paycheck that had

An employee of a church-affiliated college was terminated for not returning a paycheck that had been inadvertently issued to him for a time period in which he had performed no services. The employee applied for work at a local business as a security guard. A company supervisor called the college's personnel department for a reference. A supervisor in the personnel department responded to the reference request with laughter, and then advised the caller that the former employee "has a problem of dishonesty concerning money." Because of this negative reference, the company decided not to hire the individual.

He later sued the college for slander and "interference with business relations." A jury awarded $150,000 in damages, and the college appealed. The state appeals court agreed that there was enough evidence to support a verdict against the college. However, it held that the former employee could recover no more than $20,000 in damages because of a state "charitable immunity" law specifying that "it shall not constitute a defense to any cause of action based on tort brought against a corporation … that said corporation … is or at the time the cause of action arose was a charity; provided, that if the tort was committed in the course of any activity carried on to accomplish directly the charitable purposes of such corporation … liability in any such cause of action shall not exceed the sum of twenty thousand dollars."

This decision is significant for two reasons. First, it illustrates the legal risks that one assumes in providing negative references to other employers. This is particularly so when "opinions," as opposed to mere statement of facts, are expressed. Churches asked to give a reference on a former employee who did not perform satisfactorily should either not respond, or limit their response to statements of fact that can be verified with documents or testimony. In no case should opinions be expressed, since these are notoriously difficult to establish in a court of law. Because laws on these issues vary from state to state, it is also desirable for a church to check with its attorney before making a negative reference.

Second, the case illustrates the continuing effect of the doctrine of "charitable immunity." While this doctrine (which many years ago prevented charitable organizations from being sued for their negligence) has been rejected in many states, it is still recognized in a limited form in other states. The Massachusetts statute limiting awards against charitable organizations to $20,000 is an example of a modern-day limited charitable immunity law.

St. Clair v. Trustees of Boston University, 521 N.E.2d 1044 (Mass. App. 1988)

Words “So Help Me God” in the Oaths Administered to Jurors and Witnesses in a Criminal Trial Do Not Violate the Separation of Church and State

Do the words "so help me God" in the oaths administered to jurors and witnesses

Do the words "so help me God" in the oaths administered to jurors and witnesses in a criminal trial violate the constitutional principle of separation of church and state?

No, concluded the Supreme Judicial Court of Massachusetts. Such terminology is simply one example "of many permissible, secular references to the Almighty that run through our laws, our public rituals, and our ceremonies." Commonwealth v. Callahan, 519 N.E.2d 245 (Mass. 1988)

Court Ruled that a Proposed State Law Providing a Tax Deduction for Education Expenses Violated the State Constitution

The Massachusetts Supreme Court ruled that a proposed state law providing a tax deduction for

The Massachusetts Supreme Court ruled that a proposed state law providing a tax deduction for education expenses incurred in attending public or private primary and secondary schools violated the state constitution.

The court acknowledged that the United States Supreme Court in 1983 upheld a similar statute in Minnesota against the claim that it violated the nonestablishment of religion clause of the United States Constitution. However, the court concluded that the Massachusetts state constitution contained a more stringent clause that banned any "grant, appropriation or use of public money" for any private or religious school or institution. This ruling is one of a number of state court rulings in recent years that have used state constitutional provisions to condemn practices that the federal courts have said do not violate the nonestablishment of religion clause of the United States Constitution. Opinion of the Justices to the Senate, 514 N.E.2d 353 (Mass. 1987)

Related Topics:

Public School Impermissibly Violated Church School’s Religious Freedom

A federal court in Massachusetts ruled that a state law requiring private schools to be

A federal court in Massachusetts ruled that a state law requiring private schools to be "approved" by a public school committee impermissibly violated the religious freedom of a church school.

The court observed that "when, as here, there is a conflict between an individual's constitutional rights to the free exercise of their [sic] religious beliefs and the state's compelling interest in assuring that children are educated adequately, the government must show that it is using the least restrictive means possible to satisfy its interest."

The court concluded that reliance on standardized test scores and individual follow-up in appropriate cases "is a less restrictive, effective means of assuring that students are adequately educated." Since a less restrictive means of accomplishing the state's interest existed, the "approval" requirement was unconstitutional. New Life Baptist Church Academy v. East Longmeadow, 666 F. Supp. 293 (D. Mass. 1987)

Internal Revenue Service

Administration

Your chances of being audited by the IRS are highest (2.61%) in Nevada and lowest (0.47%) in Rhode Island, according to recently released IRS data. The five states with the highest audit risk are Nevada, Alaska, Utah, Wyoming, and California. The five states with the lowest risk are Rhode Island, Kentucky, Indiana, Massachusetts, and New Hampshire. The national average in 1986 was 1.1%, down from 2.3% in 1975. The IRS plans to audit 1.23% of all individual income tax returns in 1987, and 1.32% in 1988.

State’s Approval of Home School Program Does Not Violate Freedom of Religion

Parents wanting to educate their children at home suffered setbacks in two recent state court

Parents wanting to educate their children at home suffered setbacks in two recent state court decisions.

The Ohio Supreme Court ruled that a state law requiring parents to obtain the local public school superintendent's approval of a home education program did not violate parents' constitutional right of religious freedom. State v. Schmidt, 505 N.E.2d 627 (Ohio 1987).

In a similar case, the Supreme Judicial Court of Massachusetts ruled that guidelines adopted by the state for approval of home education programs did not violate the right of parents to freely exercise their religion. The court agreed that parents have a fundamental right to direct the education of their children, but concluded that "such a right is not absolute but must be reconciled with the substantial state interest in the education of its citizenry." Care and Protection of Charles, 504 N.E.2d 592 (Mass. 1987).

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay
caret-downclosefacebook-squarehamburgerinstagram-squarelinkedin-squarepauseplaytwitter-square