LGBT political advocate Fred Karger has threatened to file a complaint against the “Mormon Church,” otherwise known as The Church of Jesus Christ of Latter-day Saints, with the IRS once he uncovers the Church’s “vast business holdings and all of the secret political activities.”[1] He hopes to get the tax exempt status of the Church revoked.[2] To assist with this, he has launched a TV ad campaign and has put up a new Website looking for tips and documents that will support his cause.
So, as I understand it, once he finds evidence of a crime—because he is sure there has been a crime, he will act on it and report the Church to the IRS, which he is sure will revoke the Church’s tax exempt status.
This sounds a lot like when he accused the Church of election fraud in 2008. The Church filed some of its reports with the State of California using the wrong forms. They gave the State the correct amount of in-kind donations, but in the last two weeks of the election failed to put it on the daily form that is required.
To be clear, they told the State the correct number, but just put in on the wrong form, which had a different due date.[3]
Even though the state law in question specifically states it doesn’t deal with election fraud[4]; even though the Church corrected the paperwork and paid their fine for late notification; even though the State of California recognized that the instructions were not clear so they changed them after this incident, it didn’t stop Fred Karger from crying fraud. In an article in the Huffington Post he claimed,
“The FPPC prosecuted the Church, and after an 18 month investigation, found the Mormon Church guilty on 13 counts of election fraud. The Church plead guilty and paid a fine.”[5]
This isn’t even possible because the FPPC does not deal with election fraud and specificially says so on its Website.[6] To put it another way, if it involves the FPPC, it isn’t election fraud. If it were election fraud, it would go to Investigative Services in the Secretary of State’s office, which it didn’t in this case.
For a more in depth discussion on this, see http://www.mormonnewsroom.org/article/background-information-on-the-fppcs-enforcement-process
If you want more discussion on Prop 8 and Mormons, see http://en.fairmormon.org/Mormonism_and_politics/California_Proposition_8
Since that time Fred Karger seems to be looking for other avenues to punish the Church. This Mormon tips ad campaign seems to be his new project.
In reading the comment section of articles about Fred’s new project, I have seen quite a bit of confusion from others regarding politics and a church’s tax exempt status.
So let’s review the information about politics and all tax exempt organizations including churches.
All tax exempt organizations, including churches, are allowed to be politically active.
For those that missed it, let me repeat that. All tax exempt organizations, including churches, are allowed to be politically active.
Some tax exempt organizations even have political lobbying as one of their main activities. Think of organizations like the Sierra Club, the NRA, Planned Parenthood, AARP, GLAD, National Association for Transgender Rights, and even Americans United for the Separation of Church and State. Lobbying is a big part of their purpose for existing. Can you imagine the uproar if the NRA or Sierra Club were not allowed to be politically involved?
So long as they qualify under the IRS substantial part test, it is legal to be political. The substantial part test maintains an organization cannot spend a substantial part of its total budget on political activities. While it is unclear what “substantial part” means, most organizations use a 20% rule of thumb.[7] The Church of Jesus Christ of Latter-day Saints is an international organization with millions of members. Given the Church’s low level of political involvement, even Barry Lynn, executive director of Americans United for the Separation of Church and State, the leading advocacy organization on the issue, does not see any risk of the LDS Church violating this rule.[8]
What churches and other 501(c)3 organizations are not allowed to do is engage in political campaigning for a particular candidate.[9] There has been some recent controversy on this. More on that later. First let’s talk about the tax exempt nature of churches.
The Supreme Court debated this issue in 1970. In Walz v. Tax Commission of the City of New York, the Supreme Court ruled 7-1 the tax exemption for churches is fair because tax exemption is a benefit not solely given to religious groups, but includes groups like schools and nonprofits. They made the following findings:
- The First Amendment tolerates neither governmentally established religion nor governmental interference with religion. Pp. 667-672.
- The legislative purpose of tax exemptions is not aimed at establishing, sponsoring, or supporting religion. Pp. 672-674.
- The tax exemption creates only a minimal and remote involvement between church and state, far less than taxation of churches would entail, and it restricts the fiscal relationship between them, thus tending to complement and reinforce the desired separation insulating each from the other. Pp. 674-676.
- Freedom from taxation for two centuries has not led to an established church or religion, and, on the contrary, has helped to guarantee the free exercise of all forms of religious belief. Pp. 676-680.[10]
Chief Justice Burger even addressed the common complaint that churches should only be tax exempt as they feed the poor and do other good works. He wrote:
We find it unnecessary to justify the tax exemption on the social welfare services or “good works” that some churches perform for parishioners and others — family counseling, aid to the elderly and the infirm, and to children. Churches vary substantially in the scope of such services; programs expand or contract according to resources and need. As public-sponsored programs enlarge, private aid from the church sector may diminish. The extent of social services may vary, depending on whether the church serves an urban or rural, a rich or poor constituency. To give emphasis to so variable an aspect of the work of religious bodies would introduce an element of governmental evaluation and standards as to the worth of particular social welfare programs, thus producing a kind of continuing day-to-day relationship which the policy of neutrality seeks to minimize. Hence, the use of a social welfare yardstick as a significant element to qualify for tax exemption could conceivably give rise to confrontations that could escalate to constitutional dimensions.[11]
Now let’s look at the restrictions. As I already said, churches and other tax exempt organizations may not campaign for a particular candidate. But, the ban on churches supporting candidates is not as old as, and is less settled than, the tax exempt status of churches. In 1954, then Senator Lyndon B. Johnson of Texas put forward a new law that made it so tax exempt organizations could not support specific political candidates. This not only affected churches, but all 501(c)3 non-profit organizations. There have been several recently who have lobbied for a repeal of this law claiming it violates the first amendment. Many believe that it was put forward in retaliation for the support a non-religious non-profit organization that gave support to Johnson’s political opponent.[12] There has been some recent discussion as to whether the law is constitutional, but it has already survived several court challenges and is unlikely to change.
To summarize:
All non-profit organizations including churches are allowed to be politically involved. Under current law, the only two restrictions they have are:
- They can’t publicly support a political candidate.
- They can’t spend a substantial part of their budget on politics. This is currently interpreted to mean spending more than 20% of their total budget. Total budget includes everything they do.
Other than those two restrictions, they are free to support or oppose any political cause they please. This can be national, state, or local politics and is not limited to items of a religious nature.
Finally, there is one more claim that Mr. Fred Karger makes on his Website that we need to address. He states:
The Mormon Church’s business holdings, estimated to be nearly $1 trillion, are run as tax free enterprises owned outright by the Church. Thus the Mormon Church does not likely pay any federal, state or local taxes on its profits from all its holdings.
This is simply false. In 1991 April General conference, Gordon B. Hinckley said the following:
I repeat, the combined income from all of these business interests is relatively small and would not keep the Church going for longer than a very brief period. I add, also, that these commercial properties are tax-paying entities who meet their tax obligations under the laws of the areas where they are located.
Again, all such commercial properties are taxed under the government entities where they are located. Not only do they pay property taxes, but also income taxes on any profits. So it is with all of the commercial operations of the Church.[13]
To summarize:
- Churches can legally be involved in elections and political issues involving gay marriage, marijuana use, euthanasia, housing, gun control, missile defense, global warming, taxes, zoning changes, school bonds, or any other issues they desire. Demands for revoking tax exempt status shows a lack of understanding of the law.
- Churches, under the Johnson Amendment law, may not campaign for a particular candidate. There is controversy over the legality of this law, but it has been upheld in more than one court decision.
- The Supreme Court has ruled that churches are not to be judged for tax exemption based on feeding the poor or doing other good works. That would create a situation of government monitoring churches, create excessive entanglement, and would violate the constitution.
- The Church of Jesus Christ of Latter-day Saints pays taxes on all of its commercial properties such as Deseret Book, Bonneville International Corporation, and Utah Property Management Associates. This includes property taxes and income taxes.
- Fred Karger, the person heading up this campaign to strip the Church of its tax exempt status by soliciting questionably obtained documents, does not have a good track record for understanding the law, or representing what it means.
There is no risk of The Church of Jesus Christ of Latter-day Saints (aka The Mormon Church) losing tax exempt status no matter what political cause it may engage in. Political speech is all constitutionally protected. This issue has already gone to the Supreme Court and they have ruled on it. This recent campaign by Fred Karger is nothing more than Don Quixote attacking windmills.
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[1] Quote from Fred’s recent Television commercial which is airing in Utah this month.
[2] http://www.sltrib.com/home/4690644-155/lgbt-activist-plans-ad-blitz-targeting
[3] http://www.mormonnewsroom.org/article/statement-regarding-fppc-settlement
[4] http://www.fppc.ca.gov/enforcement/file-a-complaint.html
[5] http://www.huffingtonpost.com/fred-karger/mormon-church-bleeding-me_b_8299882.html
[6] http://www.fppc.ca.gov/enforcement/file-a-complaint.html
[7] http://www.nolo.com/legal-encyclopedia/how-much-lobbying-can-nonprofit-do.html
[8] http://www.sfgate.com/bayarea/article/Tax-exempt-benefit-disputed-in-Prop-8-campaign-3183401.php
[9] https://www.nolo.com/legal-encyclopedia/limits-political-campaigning-501c3-nonprofits-29982.html
[10] https://www.law.cornell.edu/supremecourt/text/397/664
[11] https://www.law.cornell.edu/supremecourt/text/397/664 Page 674
[12] http://www.politifact.com/truth-o-meter/statements/2016/jul/22/donald-trump/donald-trump-correct-lyndon-johnson-passed-legisla/
[13] https://www.lds.org/general-conference/1991/04/the-state-of-the-church?lang=eng
Thanks heavens people like you have the patience to write articles like this one. It’s SO EASY to say half truths like this guy …what’s his name..Freddy Kruegger ? Anyway, THANK YOU for being a keeper of the real facts.
Seems like Karger, for his own peace of mind, should take up another hobby. Attacking the Church has always proven to be counter productive for the critics since the increased level of awareness brings more converts.
Articles like this are very helpful in explaining relatively complicated issues which are often reduced to sound bites or brief summaries of accusations of activists in news reports. This was very informative. Thanks.
Well stated. Some additional thoughts:
While there is no evidence that the LDS Church is violating any tax laws, I think there should be at least some level of sympathy for those that question it (I don’t think Karger deserves any, but many others do). The main benefit that religious institutions enjoy over other tax-exempt organizations is that they don’t have to report their income to the IRS (otherwise done on IRS form 990). Because there is no reporting, there is very little means of actually monitoring churches’ compliance with some of these rules. However, taxable subsidiaries do have to report their income along with paying their income taxes, so this veil of privacy only applies to the non-business operations churches. And if churches were to fail to use taxable subsidiaries for unrelated business activities, and therefore fail to report it, they would jeopardize the tax exemption for the entire organization. As a simple matter of risk aversion, then, churches have very strong incentives to make sure that they properly report their business income. If Karger’s accusations had any merit, then it would mean that the LDS Church would not only guilty of tax fraud, but would also have very poor business judgment. And if the Church had such poor business judgment, then we probably wouldn’t really have much concern about them having much profit on which to be taxed.
As a matter of policy, I think it’s certainly legitimate to begin to question whether tax exemptions, and special statuses for religious institutions, should continue. While the religious tax exemptions have been upheld under the first amendment, I don’t think we have tested any arguments that the constitution would require that churches remain tax-exempt. That’s something that could change, if there was enough political demand for it, and there are very good arguments for both sides (especially in light of some of the concerns regarding televangelists and others that are receiving much personal gain from these tax exemptions) .
The area in which I think we are more likely to see change, and the one which I think is logically more important, is the personal tax deduction for charitable contributions. Proposals have already been made which could either expand or reduce the applicability of this deduction. Currently, you have to itemize your deductions in order to get any benefit, and only 25% of taxpayers itemize on their individual income tax returns, which means that most people’s potential tax benefits for donations to their church are only theoretical. Eliminating this deduction would eliminate any basis for arguments that the government is subsidizing church revenues, but it would also require the complete elimination of deductions for contributions to any charity, not just churches. This would reduce the funding of all nonprofit organizations, shifting the burden of supporting the public away from the nonprofit sector and towards government organizations.
@Jason Hirst: It is untrue that churches don’t have to report their income to the IRS, which closely monitors all nonprofit organizations, including churches. I believe the church, due to its size, is actually audited by the IRS every 7 years. The tax exempt status falls under the 501(c)3 tax code of the IRS, and is therefore monitored by it to ensure compliance. Nonprofits regularly lose their status for non-compliance, and whose violations are discovered by the IRS either because they were reported or because they were audited.
In addition, it is an illegitimate argument to question tax exempt status of churches. Why? Because they don’t receive tax exempt status because they’re churches, they’re tax exempt because of the way they spend their income. The tax code (found within 501(c)3) requires that the majority of their income be spent on their programs and overhead–hence the term “nonprofit.” To question a church’s tax exempt status, but not that of any other nonprofit, signifies either ignorance about nonprofit organizations and tax law or anti-religious prejudice.
Thank you, Scott, for explaining everything. It is great to have an honest, clear answer to those who insist on attacking a church which is honest, transparent and wonderful.
I always wondered if there was a connection between our church giving Blacks the priesthood
and Bob Jones University having their tax
exempt status taken away because, according
to the government, that university discriminated
against Blacks. Isn’t it true that most revelations
have had a political element?
I always wondered if there were a connection
between Blacks being offered the Priesthood
and Bob Jones University’s tax exempt
status being revoked because, according
to the government, that university discriminated
against Blacks. Is there not usually a
political component in our church
revelations?
Hi Gayle,
While this is a popular criticism that gets circulated from time to time, it has no basis in fact. Unlike Bob Jones University, BYU did not discriminate against blacks at the time in question. There were black students at BYU. The policy in question was a church policy related to church governance and not a school policy.
LDS Church public affairs made the following statement about government pressure.
Distorted History Thursday, April 5, 2001
It’s one thing to distort history, quite another to invent it. Kathy Erickson (Forum, March 11) claims that the federal government threatened The Church of Jesus Christ of Latter-day Saints with its tax-exempt status in 1978 because of the church’s position regarding blacks and the priesthood.
We state categorically that the federal government made no such threat in 1978 or at any other time. The decision to extend the blessings of the priesthood to all worthy males had nothing to do with federal tax policy or any other secular law. In the absence of proof, we conclude that Ms. Erickson is seriously mistaken.
BRUCE L. OLSEN Public Affairs Department The Church of Jesus Christ of Latter-day Saints
Thanks Scott for your excellent essay and your reply.
Gayle Schilling
You are welcome. It was a very good question you posed.
Thanks for the article. I believe Mr. Karger is engaged in the time-tested method of throwing mud, hoping some of it sticks. Comparing him with the Quijote is demeaning to that figure, and giving him too much credit.
As a non-profit organization, the Church and its assets are not owned by anyone else. Nobody gets dividends based on a property interest in the Church, and no one controls the Church based on ownership shares, and no one can sell an ownership share in the Church to get cash. As recent news stories have affirmed, the few dozen senior ecclesiastical leaders who work full time for the Church receive a standard living allowance that is uniform for all of them, from the president on down. The people who work in regular jobs for the Church, like computer programmers and secretaries, are paid salaries and benefits, not stock options. No person becomes more wealthy if the Church acquires an asset. There is no motive of personal venality in the Church’s activities. Those who want to take funds away from the Church are the greedy and covetous ones.
Are the property and income taxes paid by the churches non-tax exempt businesses a matter of public record?
Thank you Scott for laying all this groundwork for us. It’s much appreciated. I have a hard time understanding why Comcast would let this guy buy ad time to attack a church entity on any grounds, let alone these flimsy arguments he makes. Appreciate the work you do.
This cannot be true because I heard on TV that the LGTB community just wanted to be allowed to do their thing and be married just like the rest of us and then let us be. I doubt this can be true because they would never try to attack the lives of others once they were granted the same rights as everyone else.
Next thing you will be telling me we are going to fine people who refuse to bake cakes for gay weddings.
Fred Karger and his supporters object to LDS involvement in the Proposition 8 campaign, and seek to punish the LDS church on account of it. Curiously, I do not hear them voicing any such objection to the Unitarian church or the United Church of Christ for their involvement in the No on 8 Campaign. As a Mormon and former Unitarian, I find this flat out laughable, not to mention blatantly hypocritical.
Okay, here’s further requirements to be ‘politically active’:
“Nonpartisan analysis, study, or research may advocate a particular position or viewpoint as long as there is a sufficiently full and fair exposition of the relevant facts to enable the public or an individual to form an independent opinion or conclusion. However, a mere presentation of unsupported opinion does not qualify as nonpartisan analysis, study, or research.”
Several mormons said they felt expected to vote for Proposition 8, some were even asked. Now I’m not 100% sure, but the insinuation that people were laid to the conclusion, and or were told their opinions (yes, following Church doctrine to an extent it makes sense) doesn’t sound like a nonpartisan analysis, study, or research by any means.
I would love to be proven wrong.