In response to the news stories about a whistleblower’s complaint to the IRS regarding the Church’s failure to properly pay taxes on investment returns in a fund managed by Ensign Peak Advisers, a good summary from an expert on the US tax law relative to religious organizations is written by Sam Brunson, a respected tax expert, in the post, “Some Thoughts About Ensign Peak Advisers and the Church” at By Common Consent. It’s a good example of clear-headed analysis rather than sensationalized claims. Yes, there could be real problems and a need to change how excess funds are deployed, though it’s not clear at the moment. In any case, I expect greater transparency in finances will result from this.
A key issue is whether the limited knowledge of the accuser is actually comprehensive and accurate regarding the alleged failure of to use funds from Ensign Peak Advisers for charitable purposes. If the investment returns have not been used for charitable purposes in recent years, as claimed (based on the whistleblower not knowing of such use), it seems like a serious problem. If the accuser is wrong, the allegations of tax fraud may be groundless, but the details may still be quite unsatisfying. I would be surprised if any clear requirements of the law were not met or if serious steps were not taken to meet them (it’s often hard to know just what tax law means — many of you are probably felons without knowing it!). Given the uncertainties in tax law, there’s also the risk that even if good faith efforts were taken, an adverse ruling could be made that would be extremely painful for the Church. I hope not, of course.
Update, Dec. 24, 2019:
Daniel Peterson in his “LDS, Inc.” series at Sic et Non (see especially “LDS, Inc., Part 17“) makes some valid observations, after having over the past few weeks shown us a series of tongue-in-cheek photos of purported General Authority mansions remarkably similar to the Vatican, Versailles, the famous Neuschwanstein Castle in Germany (the prototype Disney castle and alleged model for Elder Dieter F. Uchtdorf’s home) castle and other manors of the super wealthy to remind us, in his own way, of just how the Church’s funds are not being used: to enrich leaders of the Church. The Church teaches its members to save diligently to be prepared for future challenges. For the Church to have a substantial rainy day fund is hardly immoral, but rather wise. If it were being used to enrich leaders, that would be a different story. But to strengthen its future, ongoing ministry and its ability to do charitable work is a sound practice, even if the amount saved is more than I and others expected.
Peterson also points to some who are not shy about criticizing the Church who recognize that the Church does take great pains to manage money properly.
I greatly appreciated the perspective shared by Aaron Miller at Public Square (hat tip to Daniel Peterson). Miller teaches nonprofit management and ethics in the Romney Institute at BYU. In his article, “The $100 Billion ‘Mormon Church’ story: A Contextual Analysis,” he directly addresses the charges levied by the whistleblower. Here’s an excerpt (please read the whole article):
Are the Church’s reserve funds illegal or somehow evading taxes?
For tax purposes, as an integrated
auxiliary, the investment arm of the Church, Ensign Peak Advisors, is
under no obligation to make minimum distributions. The allegations
appear to stem from the whistleblower’s misunderstanding of tax law. For
unknown reasons, the whistleblower apparently didn’t hire an attorney
or a tax expert to help write this report.
One can only assume this is why so
many of the conclusions in the whistleblower report diverge from the
law. Not only does the whistleblower report misconstrue the definition
of “charitable,” but it also applies something called the commensurate
test (explained below) in a way never before applied by the IRS, and it
fails to give enough evidence to demonstrate that two alleged investment
disbursements were in fact improper.
For starters, the federal tax code
does not have a minimum disbursement requirement for what are called
“public charities,” a category of 501(c)(3) tax-exempt organizations.
Churches are public charities by default.
There is a requirement that all
501(c)(3) entities carry out charitable activities that are
“commensurate in scope with their resources.” This ostensibly means that
a charity cannot merely accumulate assets and remain a charity. The law
does not set a fixed threshold for this though, and the IRS instead
takes it on a case-by-case basis, applying the commensurate test very
rarely. But, even by the whistleblower’s own admission, each year the
Church is in fact spending $6 Billion a year on its tax-exempt
There is an interesting wrinkle in
this case, though, that the whistleblower’s claim relies on. Ensign Peak
Advisors, the legal entity where the LDS Church holds these
investments, is exempt as a separate 501(c)(3) Supporting Organization.
(Notably, the whistleblower also disputes this status, but without
directly addressing how Ensign fails to meet the legal definition. He
instead focuses on the “spirit” of the status.) As a Supporting
Organization, Ensign is an independent nonprofit. The whistleblower
claims that this requires Ensign to pass the commensurate test all on
its own – and not as part of the larger whole of the Church.
But according to the IRS’s own definition,
Ensign is also an “integrated auxiliary” managed by the Church, a legal
treatment that combines their activities in certain ways. This is a
critical detail that the whistleblower report only briefly mentions and
seems to misunderstand.
If the Church directly held
these investments, it would likely pass any legal tests without concern.
Does it make a legal difference if Ensign does the investing for the
Church as an integrated auxiliary? This difference—a relatively narrow
and technical one—has never been questioned by the IRS or a court, according to Sam Brunson, a Latter-day Saint and Loyola law professor who specializes in tax-exempt organizations.
After looking at the facts and
allegations involved, Peter J. Reilly, a non-Latter-day Saint CPA and
tax specialist, observed in Forbes
that “Ensign is not a private foundation. It is an integrated auxiliary
of a church. And there is nothing in the tax law that prevents churches
from accumulating wealth.” Reilly reached out to Paul Streckfus,
another tax expert who runs a trusted publication focusing on tax-exempt organizations. He too concluded that the “matter does not merit IRS attention.”
Based on Miller’s comments, the charges from the whistleblower may be irresponsible, though I also recognize that tax law can be murky and this matter could be more complex and painful than we would hope, even if Miller is 100% correct. At the moment, however, I think it’s fair to recognize that the sneering attacks of some anti-Mormon activists based on the whistleblower’s claims may be highly unreasonable.
Update, Dec. 27, 2019:
Much of the carefully-stoked furor over these stories arises from the alleged shameful greed of a Church that asks for tithing from all of its members, even the poor, when it has adequate reserves to cover its needs for several years without accepting any tithing at all. “How dare you,” etc.
In case you missed it, the Owner of the biggest stash of precious metals
on earth and the Owner of the greatest real estate portfolio ever seen
(including large tracts of prime real estate all over this planet and
countless others), most of which is, shockingly, completely untaxed and not even disclosed to relevant government agencies, didn’t stop a poor widow from quietly paying her
tithing when her money truly was not needed. He even held her up as an
There’s something strange about the principle of tithing that
isn’t about how much money God gets, but how much faith and commitment
His children develop. God could tell us to all just party and do our own
thing because He’s got the whole cosmos as collateral for anything He
needs, but in fact He wants us to sacrifice, to be frugal, to pay
tithing, and to put Him first — and, as a matter of sound financial
planning, when possible, to save diligently rather than go into debt.
That the Church should also follow such wise counsel should be no shocker. May we all strive to follow that example and save diligently.