It’s Not Taxes

A popular legal Twitter personality has an evergreen tweet: “It’s not RICO.” See, RICO (the Racketeer Influenced and Corrupt Organizations Act) has become a super-popular rhetorical crime. Trump violated RICO; antifa violated RICO; I’m probably violating RICO just by posting this!

The thing is, RICO is a very narrowly-tailored law. There are specific criteria a crime has to meet to violate RICO and basically, if you hear someone say that somebody else violated RICO, you can be about 99% sure not only that they’re wrong, but that they have absolutely no idea what they’re talking about.

I thought about that the other day when a friend pointed me to a clip from a popular Mormon-themed podcast.[fn1] In the clip, the podcaster makes a blockbuster announcement: the podcaster has just discovered why the church builds so many temples. Specifically, the podcaster was told by an “inside source”:

It turns out that for the church to maintain its tax-exempt status, for the Mormon church to maintain its tax-exempt status as a charity or as a church, it has to do something with its money. And so building temples is one of the major ways the church can spend a boatload of money with all this cash that it keeps collecting and stay in business and be perceived as a charitable institution.

Now, unlike the podcaster, I don’t have an inside source to tell me why the church is building a lot of temples. But I can tell you, without a doubt, that it has nothing to do with the church’s tax-exempt status.

Now, in spite of Ken White’s evergreen tweet, on the rarest occasions it is, in fact, RICO. RICO wasn’t passed to sit on the books unused. But it also wasn’t passed to criminalize everything we think is bad.

And there have been times when the church does things because of taxes. A chapter in my first book discusses the effect that Supreme Court litigation about the deductibility of missionary support had on mission financing. I wrote about how Brigham Young almost did away with tithing as a result of the Civil War income tax. And I’m writing about a couple more situations where the tax law affected church decisions in the book I’m currently writing. And the fact that the church’s for-profit businesses are separately incorporated is definitely tax-related.

But I’ve also written about the more common situation: where tax pressure doesn’t affect the church’s decisions. I know it’s popular to say that the church reversed its race-based temple and priesthood under tax pressure but (a) that’s not where the law was in 1978 (or frankly today) and (b) there’s no contemporaneous evidence that its tax-exempt status played into that decision. (As far as I can tell, it became a popular assertion at the ten-year anniversary, which makes sense because, at that point, the Supreme Court had decided Bob Jones.) Similarly, rhetoric about loss of tax exemption didn’t affect the church’s position on the ERA or same-sex marriage.

But 99 times out of 100, when someone tells you a church (ours or, frankly, any other church) made a decision to preserve its tax exemption, they’re wrong. Period.

And this particular claim (which another friend tells me is not unique either to this podcaster or to discussion of our church) is laughably wrong. Because public charities (a classification which includes, among other things, churches, universities, museums, and even the NCAA and the US Olympic Committee) don’t face any type of spending requirement. At all.

That’s in distinction to private foundations, which are required to spend at least 5% of their assets annually or pay a fine. (The main distinction between private foundations and public charities is that private foundations are funded principally by a single person or a small group of people, while public charities enjoy broad public support. A private foundation is basically a rich-person’s fund to make charitable contributions.)

And the thing is, this isn’t ambiguous. It’s not hidden. It’s not a close question.

And it’s not a sin to be wrong about taxes. But it’s also not hard to be right, at least on this question. This podcaster—and others who make similar claims—could have spoken to literally anybody who is familiar with taxes or nonprofits and had their mistaken understanding corrected. Heck, they could have tagged me on Twitter and I could have given them an answer.

So sure, on occasion, the church will change its actions in reaction to the tax law. But if you assume that the tax law was not a cause—directly or indirectly—you’re probably right.


[fn1] No, I’m not going to link to it. And no, I’m not going to say which Mormon-themed podcast and podcaster it is. If you really want to find out, I saw it on TikTok. I’m sure you can find it too.

Comments

  1. I don’t have inside information, but ticking off a long list of tax issues in my mind I wouldn’t be surprised if the LDS Church deals with tax matters every day. But never or almost never its tax exempt status under the U.S. Federal income tax. (Sam, you can take this as agreeing with you in the main but reiterating my perennial pushback against using “tax” as synonymous with U.S. Federal income tax.)

  2. Chris, that’s totally fair. And absolutely it has to do tax compliance stuff, like withhold on church employees. I wasn’t as explicit as I should have been, but my basic point is that, with a small handful of exceptions, tax considerations—federal income or otherwise—don’t affect substantive choices the church makes; for the most part, they just impact administrative ones.

  3. Terry H says:

    In addition, we should make the caveat that the Church has to deal with tax laws in all of the countries in which it operates, many of which are far different from ours.

    PS: I enjoyed your first book and look forward to another, when you’re done with it.

  4. Thanks Terry! (FWIW, this particular person wasn’t being that sophisticated.)

  5. (Just as a preview, my next book will talk about the relationship of Mormonism and taxes. It’s mostly, but not exclusively, the Church of Jesus Christ of Latter-day Saints and it’s mostly, but definitely not exclusively, U.S. taxes.)

  6. A Popehat reference. Well done!

  7. News this morning about a possible challenge in Australia reinforces Terry H’s reminder. Judging by my (limited as is everyone’s) experience with non-LDS churches and charities, I’d suggest that tax exemption for core activities is relatively low on the list of concerns, that administrative matters such as employment tax compliance are necessary but not high concerns, and that the big issues that employ tax professionals are (1) drawing lines between exempt and non-exempt (often profit making) activities, (2) inclusion or exclusion of schools, religious orders, and non-productive property, (3) ensuring deductibility for donors (appears to be the issue in Australia), (4) cross border activities and cash flows (many exemptions are geographically bounded),, and (5) property tax and sales tax exemptions.

  8. Rockwell says:

    That podcaster in particular, and Mormon related podcasts in general, are not very careful about fact checking rumors and checking with experts on the small side comments that are not the main point of the episode. They will call in experts for the main topic, but a lot of ancillary comments get through without checking. And we typically have no way to know if anonymous tips have corroboration from multiple sources. For this reason I like to support traditional news media that maintain journalistic standards of excellence.

    However, I do think that the podcaster in question is good at talking to people about their experiences, from their perspectives, with all the limitations of their point of view.

    When I heard the quote in the original podcast I immediately wondered what Sam Brunson would have to say about it. Thanks for clearing that up.

  9. Chris, I think you’re right about that; the church has generally seemed interested in maximizing the deductibility of member donations, though mostly not by making any substantive changes. I can’t speak to the Australia situation because (a) I’m less familiar with Australian tax law and (b) the article I read was largely not terribly coherent about what the requirements for deductibility are or the details of the behavior the church has allegedly engaged in. (Also, honestly, I’ll confess that I’m skeptical when I read Ryan Cragun as an expert source on money stuff.)

    I mean, it’s a big administrative ask to comply with requirements in multiple jurisdictions. But I don’t see (again, based on the limited reporting I’ve seen) any indication that the church did anything substantive, as opposed to administrative, as a result of Australian tax law.

  10. Having listened to hundreds of hours of Mormon Stories, I think if John were corrected, he would go on the record and correct his mistake. At least I hope he would!

    Also, yes, non-profit laws are the way they are in the United States. But, what about somewhere like Australia?

    https://www.smh.com.au/national/mormons-inc-church-accused-of-multinational-tax-rort-20220330-p5a98p.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: