The Grassley Investigation: an overview

I’ve cached a copy of the staff memo to Senator Grassley (R-IA), written by Theresa Pattara and Sean Barnett, locally [PDF] and I would encourage all interested parties to have a look at it. Here’s my quick overview:

The inquiry dealt directly with some narrow questions pertaining to tax law and “media-based ministries,” namely

1. Benny Hinn Ministries
2. Joyce Meyer Ministries
3. Creflo and Taffi Dollar/World Changers Church International
4. Randy and Paula White/Without Walls International Church
5. Kenneth Copeland Ministries
6. Eddie Long/New Birth Missionary Baptist Church

And questions regarding their tax status and the appropriateness of tax-free compensation, including but not limited to

• Housing allowances; these are under current law explicitly tax-exempt compensation for pastors, and have been subject to interpretations that seem very much at variance with the original intent of the governing law
• “Love offerings;” this is a term that is used differently by different people, but in the Grassley staff report always refers to an untaxed transfer of money to ministers. It is also apparently treated as a tax loophole under some circumstances.
• Companies owned by ministries that would be taxable if they were not church-owned

There are also some broader issues, including but not limited to

• Whether churches should file the IRS Form 990
• How donors can make well-informed giving decisions
• Conflict of interest in churches
• The legal definition of a church for tax purposes

It’s important to keep these distinctions clear; the staff report goes back and forth between broad issues and narrow issues, but it becomes clear that no sweeping changes were seriously being considered, so only the narrow issues are really of interest.

Two of the six ministries responded to Senator Grassley’s inquiries: Benny Hinn Ministries and Joyce Meyer Ministries. The histories of two of the other ministries (Eddie Long and the Whites) have become complicated due to unrelated scandals and business issues. Also, the relationship between Benny Hinn and Paula White merits mention and not much else [link].

The inquiry ended with more a whimper than with a bang. Senator Grassley asked the Evangelical Council for Financial Accountability (ECFA) to form an independent commission to make recommendations to him. He made it clear that he wants the community to correct various practices itself under threat of legislation [link]. The reaction to this request etc. has mostly been greeted with disdain [link, link, link] and only occasionally seen as a shot across the bow, wake-up call, whatever [link]. Of these only the Nonprofit Quarterly article notes the important political reality that Grassley is not currently as powerful a Senator as he was in say 2006 and so may be biding his time.

Meyer joined the ECFA and got a top rating from them [link], making her the big winner in this story (about which more later). It isn’t clear to me at present what Hinn did apart from cooperating with the inquiry.

For the record and up front let me say that I think churches currently benefit from advantages they had at say mid-century that they will not have fifty years from now, among them the housing allowance, that if they were new law today would not pass Constitutional tests they would face in the current political climate. I really do think because there’s so much money in the hands of so many large ministries, and because of the questionable things they’ve done with that money, they will eventually forfeit at least some of the current tax-exempt status churches have today. And finally: I think churches should have to file the IRS Form 990, primarily because of the disclosure it requires about executive compensation, conflict of interest, and politicking.  But more on all those things later.

IRS Form 990-EZ

About three years ago Senator Charles Grassley (R-IA) opened an review of “media-based ministries” and their tax status and asked six prominent ministries for financial details. Last month he concluded his review and released a report. It’s 61 pages long and I’ve read about half of it; it’s some of the most fascinating stuff I’ve ever read.

The top page for the review  is here; the report I’m referring to is here.

One of the results most Baptists would have heard about is this: the Evangelical Council for Financial Accountability (ECFA) is forming a commission to respond to issues Grassley raised. Michael Foust/The Baptist Press covered it [link], interpreting it as potentially having “a major impact on the tax status of churches and pastors nationwide” and included quotes from among others Dan Busby, head of the ECFA. Here is one of the bullets, regarding IRS Form 990:

Whether churches should be required to file the highly detailed IRS Form 990 that other nonprofits must file. The ECFA historically has opposed forcing churches to file the form, arguing it would lead to an “excessive entanglement” between the church and state.

Busby said many small churches — if forced to complete the form — “would probably have to engage professional assistance and pay several thousands of dollars.”

I would encourage dispassionate readers to consider the fact that Busby is the head of an organization that helps ministries (broadly defined) present their financial results in ways other than through the Form 990, and so doing may have a vested interest in continuing the status quo rather than having churches file the Form 990.

Very broadly speaking Form 990 is the counterpart to the 1040 Form that individuals file each year with their income tax returns. The difference being that it is filed by nonprofits, so it is a disclosure form, required to maintain their tax-exempt status. Churches are explicitly exempt, not only from paying taxes, but also from filing Form 990.

Form 990, like the 1040, comes in several flavors, including a four-page “EZ” short form [PDF]. It describes money flowing in and out of a non-profit in a given year, along with net assets, balance sheet, executive compensation, and some status qualifying questions regarding things like political contributions. I would encourage readers to take a look at the EZ form I’ve linked above and make up their own minds regarding whether it is “highly detailed” as Mr Busby claims, and imagine for themselves whether their local small church would need to spend “several thousands of dollars” to fill in the information it requires.

The staff report is a godsend for a blogger like me, and I’m looking forward to digging into it. I’m surprised it hasn’t gotten more attention.