In my last post, I wrote about the 60 Minutes segment on Ensign Peak Advisors. As part of that segment, the interviewer asks Bishop Waddell, “But don’t you agree this would be a nonissue if there were more transparency?”
He responds, “No. Because then everyone would be telling us what they want us to do with the money.”
Frankly, I think he’s wrong. But for now let’s respect that. For purposes of this post, I’m going to assume that the church will maintain a significant investment portfolio. And whatever I think about it,[fn1] I’m going to be indifferent to whether and how it should spend down that portfolio. Because I think EPA’s current status, as an external tax-exempt investment advisor, is ultimately untenable, notwithstanding the fact that it’s legal.
What do I mean? Well, as a general rule, investment managers are for-profit, taxable endeavors. EPA is a nonprofit, tax-exempt organization. (Critically, “nonprofit” doesn’t mean it can’t earn a profit. Some nonprofits—including, notably, hospital chains—are tremendously profitable. The “non” in nonprofit means that the profit earned can’t benefit any individual. While this is a little over-simplified, it basically means a nonprofit can’t distribute its profits as dividends.)
Nonprofit status is governed by state law. Some states require that a nonprofit engage in one of an enumerated list of purposes. (Illinois has a list of 35 purposes a nonprofit can be organized to pursue.) Other states allow a virtually unlimited range of purposes. (Utah, for instance, following the modern trend, allows a nonprofit to be organized “to engage in any lawful act,” with one or two exceptions.)
Not all nonprofits are exempt from the federal income tax, though. To qualify as tax-exempt, an organization has to meet an organization and operation test. The organizational test requires that the organization’s governing documents limit its purpose to one or more charitable activities (and the Internal Revenue Code lists the acceptable charitable activities) and prevent it from engaging in more than an insubstantial amount of noncharitable activities. The operational test looks at whether the organization does, in fact, limit its activities primarily to charitable activities.
So right here, EPA runs into a theoretical wall. The church itself clearly qualifies as exempt—religion is one of the explicitly-listed charitable purposes. But investment management? Nope.
Prior to about 1997, that didn’t matter. The church had an internal investment management team. And an exempt organization can manage its assets. But once EPA was separately incorporated, if the church wanted it to be exempt, it had to figure out how that would work.
And look, EPA probably an “integrated auxiliary.” An integrated auxiliary has to qualify as exempt, has to be affiliated with a church, and has to essentially support itself or receive its support largely from the church.[fn2]
But the thing is, if an investment advisor just sits on the money, it doesn’t look like it’s doing anything charitable. Decades ago, the IRS issued a ruling creating the commensurate-in-scope rule, which basically says that to qualify as exempt, an organization has to spend a commensurate part of its assets on charity. I’ve argued that this rule doesn’t apply to integrated auxiliaries, and the New York State Bar Association says its scope and application are generally unenforced and also unduly vague, especially in light of the fact that Congress is capable of imposing distribution requirements if it wants to.
It’s also worth noting that it turns out that EPA does distribute money back to the church on a pretty regular basis, which undercuts the idea that it’s not doing anything charitable with its money.
All of that said, it still strikes me as weird and uncomfortable that we have an exempt organization, the whole role of which is to manage a multi-tens-or-hundreds-of-billions-of-dollar portfolio.
So what should be done? Honestly, I think EPA should give up its tax-exempt status. I mean, it’s not the only exempt money manager out there—Harvard Management Company is also a 501(c)(3) organization. But unlike EPA, HMC files public disclosures of its finances and doesn’t appear to actually hold Harvard’s endowment; it just manages it.
What are the consequences of converting EPA to a for-profit investment manager? There’s one substantive one. It would pay taxes on its income. And what is its income? Presumably the church pays its something for managing the church’s assets. It has to pay its employees and rent and other expenses.
Which means it would be slightly more costly to operate. But the church has the resources to pay slightly more; in fact, the vast majority of its for-profit endeavors are separately incorporated in taxable entities.
And converting EPA to a for-profit entity eliminates questions of whether it’s actually engaged in charitable activities, and whether it actually merits tax exemption. It wouldn’t be! And that would be just fine!
And doing so also future-proofs EPA against legislative or regulatory changes that put increased emphasis on the commensurate-in-scope doctrine. And they frankly undercut any argument that EPA should be more transparent than just filing its 13Fs.[fn3]
So, in spite of the marginal tax costs, I believe that converting EPA to a for-profit investment advisor would be better for society and for the church.
[fn1] I think the church should very publicly and accountably promise to spend X% of its principal annually on certain charitable endeavors.
[fn2] This history of “integrated auxiliaries” has an interesting Mormon pedigree. In 1969, Congress made some significant changes to the rules governing tax-exempt organizations. Senator Wallace Bennett of Utah worried that those changes would provide worse treatment for church auxiliaries like Relief Society, MIA, and other organizations that, at the time, were still separately incorporated. So he added the word “auxiliaries.” Congress prefaced it with “integrated,” though integrated auxiliaries was not an actual real thing, to ensure that there would be a close relationship between these organizations and the relevant church.
[fn3] UPDATE: To clarify, based on Loursat’s comment: become for-profit wouldn’t answer the question of whether EPA should be more transparent. It would eliminate any legal argument for it. And to be clear: under current law, an integrated auxiliary doesn’t have to file a Form 990 with the IRS. But there are strong arguments that, because it, like other tax-exempt organizations, receives an effective subsidy, it should be subject to the same disclosure requirements that other tax-exempts are subject to. For-profit entities don’t receive the same class of subsidy and don’t have the same duty to society to be transparent.
Photo by Nathan Dumlao on Unsplash
By Common Consent, a Mormon Blog 
Sam, I appreciate your posts on this subject. They really help clarify many aspects of this situation.
I have a question. If I understand what you’ve written here, you say that turning Ensign Peak Advisors into a for-profit entity would “undercut any argument that EPA should be more transparent than just filing its 13Fs.” Why do you say this?
You persuade me that making EPA a for-profit firm would help the church in some important ways, but I’m not seeing how it would undercut all arguments for transparency. I can see that it would undercut arguments for transparency that are based on legal requirements for non-profits. But for me, the weightiest arguments for transparency come from the moral obligations of stewardship and the practical realities of what it takes to lead a church based on love, trust and shared sacrifice.
I have read several article on this EPA fund, many of them discuss the legalitie of the “problem” as though it was a small glitch in the way the leaders have handled the fund.
This article spends considerable time working through how the church can solve the problem of the EPA without mentioning the biggest problem of this situation.
The LDS leaders lied to their members for 20 years about a whole lot of money and would still be lying to us if David Nielson had not spilled the bean.
Lying is one of the Big Ten no nos, one of the big rules.
When we break these rules we are to repent and ask for forgiveness which these guy have not done.
“We consider this matter closed” is what they have done.
No apology, nothing.
I do not trust them anymore to take care of anything much less a multi-billion dollar fund.
We have been demanding full financial disclosure for several years since we found out about their secret stash of 120 billion and they continue to refuse.
Our home teacher, who is an accountant and has seen many con men pull off all kinds of nasty tricks, says the only reason people resist giving a full accounting of their financial actions like the General Authorities is they have something big to hide.
There can be no moving on as to what to do about this fund until the LDS leaders give us an accounting, a full one.
Our trust is gone, their integrety is suspect.
If this was a business or a company or any other kind of charity these guys would be in jail by now.
Sorry, Loursat. That’s what I get for blogging early on a Saturday morning. I meant it undercuts any legal argument that EPA should be transparent. I’ll edit the post when I get home to make that clear.
And Chloe, I’m not going to delete your comment, but it’s irrelevant to this post. I laid out the specific question I wanted to look at. I’ve approached this from several angles over the years, but the question of organizational structure and compliance is one thing that I find interesting and one place I can add value to the public conversation.
And to be clear, nobody would be in jail. The securities law violation was a civil, not criminal, violation.
The church never needed and does not need a separate corporation to manage its investments. They can answer this issue by moving the money back to the church and dissolving Ensign Peak. Churches can have reserves and are completely tax exempt due to being a religion.
Mark, that’s clearly an option. I’m assuming for these purposes the church had a reason for putting its investments into an external entity.
Sam-it might be that the Creator is behind all of this. Why, because he restored the church through the prophet Joseph Smith and guides today’s prophets.
‘”But don’t you agree this would be a nonissue if there were more transparency?” [Bishop Waddell] responds, “No. Because then everyone would be telling us what they want us to do with the money.”’
The author of the article, Mr Brunson, then states, “Frankly, I think he’s wrong”…
…and then Mr. Brunson proceeds to prove Bishop Waddell right by using the rest of his article to tell us all what he thinks the church should do with the money. That is, pay taxes on it because Mr Brunson’s qualitatively-relative time horizon and vision of ‘charitable activities’ is perhaps different from the church’s time horizon and vision of ‘charitable activities’.
Once we step away from the demands of the law and the responsible regulatory agency, we step into a world of vague individualistic moralism and the immeasurable diverse views of people who each have an opinion of what they think the church should do with the money.
The church was fined $5m and life goes on with the church providing the regulatory agency what they require going forward. Done. Questions resolved…unless people want to engage in the navel-gazing fantasy of dreaming about what the church should do with the money. That’s their prerogative. It’s like daydreaming about what to do with future lotto winnings…just need that winning ticket.
From a “going concern” perspective, I don’t mind at all that the church has a large ‘war chest’ of relatively liquid assets that makes hardcore detractors think twice about waging a financial war of attrition upon the church via lawsuits, etc, in a bid to weaken the church or make it go bankrupt. If they disagree with a religious organization, they can use their free speech and debate platforms rather than performing end-runs via financially starving the organization. This financial warfare is becoming a common method of “cancelling” similar organizations that espouse counter-cultural views these days.
As for what the church does with the money, well, it’s the church’s money.
@Dan: There is something to that. I would only ask the same courtesy in return. If/When I decide to send my tithing dollars to other charities rather than the church, will the church also agree that my choices are appropriate for my situation and continue to approve my temple recommend? Or will they tell me that, if I want to have a TR, that I must tithe to the church?
Sam, I am sorry if I stepped out of line in my post.
Sincerely.
The remark about going to jail was made by a friend who believes, and I probably should have included this info, that all of the litigation reagarding the EPA fund is not over.
While this was SEC and civil he belives there will be many many more.
The states where the LLCs were set up to funnel money into the stock fund is just one possiblity.
Again my apologies, I misunderstood the boundaries on the comments.
So, JFK – is the Creator behind the SEC violations?
Chloe, no problem! There’s a lot to think about here, and I’m just trying to carve out a narrow part of that.
Dan, while I welcome people coming and and sharing their views, I do prefer it when people read what I’ve written before they disagree with me. I’ll point out that I didn’t lay out what I think the church should do with its money (though I did suggest that the church pick a percentage of its endowment and spend it on something). Rather, I suggested that EPA become a for-profit entity. EPA would pay taxes on its net income, but that net income would expressly not be the church’s—it would be the amount of fees the church paid to EPA for its investment management services.
JFK, it is true that the Creator has a master plan. (But seriously, click on the link.) Also, God’s plan doesn’t hinge on entity choice; through the history of the modern church, it has used a number of different corporate forms and combinations, and church leaders have shown some degree of willingness to adapt their preferences in light of the legal consequences in different jurisdictions and times. You’re really stretching to suggest Joseph Smith has anything to do with the corporate form EPA chooses to take.
I totally agree. The other thing the church absolutely should do is simple – an annual report with all of the church’s financials. Both non profit and for profit entities owned and managed by the church should contribute to the annual report. Then yes people will have an opinion about what to do about those investments and businesses but the church could proudly show what good they are doing or commitments they have for their business investments to contribute to the mission and vision of the church. Just like any other corporation.
@Tim, no He just got bad legal advice.
The comment by Bp Waddell about several transfers / month happening between EPA and the church was interesting.
Based on Nielsen’s response, it appears tithing deposits go directly into an EPA-owned account, and are then swept into a church account as needed to maintain working capital. Then, as the deposit account gets to a certain level, any excess is swept into longer-term EPA investment accounts.
If that is indeed the case, people technically pay tithing to EPA. And could the argument be made that EPA is a financial engine dedicated to supporting the church, a non-profit, and is therefore justified in maintaining its own non-profit status?
Tim,
When principles are in conflict we need to choose which principle is highest and deal with the fallout that may come.
Sam – I appreciate your reply and effort to engage in a discussion. That said, I would kindly ask that you refrain from ad hominem attacks as I did read your article.
Considering your reply, my point still remains: Why would or should the Church do anything (such as legal entity restructuring) that is above and beyond what the SEC has requested and received from the Church?
The article suggests that you “think EPA’s current status, as an external tax-exempt investment advisor, is ultimately untenable, notwithstanding the fact that it’s legal.” What is your exact definition of ‘untenable,’ especially in light of the fact that the EPA’s legal entity status is, indeed, legal and hasn’t been challenged since inception? Since the EPA has been a legal entity for a quarter of a century without challenge, is the only new variable in the equation the fact that the Church has significant investments as an asset class and various people apparently envy this?
As for the SEC, they considered fact pattern of the EPA and Church, and came to the conclusion published in Order Release No. 96951. Their ultimate concern was an issue of proper disclosure on Forms 13F with no mention of anything else:
“Violations
“36. As a result of the conduct described above, Ensign Peak violated Section 13(f)(1) of the Exchange Act and Rule 13f-1 thereunder by failing to file Forms 13F in Ensign Peak’s name. Ensign Peak also violated Section 13(f)(1) of the Exchange Act and Rule 13f-1 thereunder by filing misstated Forms 13F in the names of LLCs created for the sole purpose of filing Forms 13F.
37. As a result of the conduct described above, the Church caused Ensign Peak’s violations of Section 13(f)(1) of the Exchange Act and Rule 13f-1 thereunder.”
No mention of any concerns about legal entity status, past or present.
The SEC-issued penalties and demands are summed up as (a) paying fines for improper disclosures on Forms 13F, and (b) filing Forms 13F with proper disclosures going forward:
“In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondents’ Offers.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent Ensign Peak shall cease and desist from committing or causing any violations and any future violations of Section 13(f) of the Exchange Act and Rule 13f-1 promulgated thereunder;
B. Pursuant to Section 21C of the Exchange Act, Respondent the Church shall cease and desist from committing or causing any violations and any future violations of Section 13(f) of the Exchange Act and Rule 13f-1 promulgated thereunder;
C. Ensign Peak shall, within 10 days of the entry of this Order, pay a civil money penalty in the amount of $4,000,000 to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.
D. The Church shall, within 10 days of the entry of this Order, pay a civil money penalty in the amount of $1,000,000 to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.”
No mention of any concerns about legal entity status, past or present.
The Order states at the beginning that the Church and Ensign Peak “have submitted Offers of Settlement (the “Offers”) which the Commission has determined to accept.”
So the SEC is satisfied and this matter is closed.
Also, “[s]olely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order….”
In short, the Church does not admit to nor deny the findings of the Order, but they do recognize the jurisdiction of the SEC and will comply.
This concludes the SEC’s investigation into the matter of the Church and EPA. Questions are resolved and the fines paid to the complete satisfaction of the SEC and also the Church.
At this point, what is left?
After saying the EPA’s legal entity structure is legal, you offer your personal speculation that it’s ‘untenable’. Maybe others have speculations as well. Separate from your position, other folks may also have personal motivations, variable moralisms, or emotional argument to apply to the topic of EPA. But this is falling into a speculative rabbit hole with no end since, at the end of the day, the EPA’s legal entity structure is legal and the SEC investigation into the matter is closed.
I do observe a personal position of some sort when you state “…it still strikes me as weird and uncomfortable that we have an exempt organization, the whole role of which is to manage a multi-tens-or-hundreds-of-billions-of-dollar portfolio.”
Okay, it might strike you as untenable, weird and uncomfortable. That’s fine. It might also strike me as perfectly fine, both as a Church member and as a certified accountant (for full disclosure I have absolutely no dog in this fight whatsoever). Something to note: Certified accountants understand from training that that when the SEC closes a matter, the matter is truly closed.
How do we square this circle? My recommendation is to return to the SEC Order and to ask ourselves: Is the Church complying with current law (including tax law as enforced by the IRS) and the requirements of the SEC, both to the SEC’s and to the Church’s satisfaction? Yes. As part of the investigation, were there any legal actions or regulatory challenges to the Church’s legal structure? No. So there it is.
If the church decides that filing Forms 13F is too burdensome, they can restructure. Or if the church decides that the current legal structure doesn’t meet their needs, they can restructure. Their choice.
———-
Now, if I were to shift into *speculative mode* along with you, I could see a slight chance with low probability that, coupled with this new visibility into the Church’s investment asset class, a regulatory agency (based purely on selfish self-interest) could decide to challenge the EPA’s legal entity status. It’s not unprecedented for regulatory agencies (or Congress) to offer codified guidance saying something is deemed legal and then change their mind later after they get envious about some organization or person’s legitimate and legally-obtained wealth that doesn’t have – according to the government anyway – sufficient and perpetual government suction straws attached to the cash flow. But my offering of this opinion would be pure speculation.
Feel free to agree or disagree with any points I offer – I’m completely open to being convinced otherwise.
The first question is what is the purpose of tithing it the church possesses such a large abundance of wealth? If the purpose is to encourage sacrifice then the church leadership should be fine with members giving their money to any person or charity. What is the purpose of members donating to the church if the church is only going to invest it or give it to other charities?
Quick perusal of conference talks indicates leaders view tithing as a test of the faith of members. Members pay tithing to prove their commitment to the church. How convenient! Is that the test God wants? Should members experience financial difficulty just so they can prove their commitment to the wealthiest American church? That seems manipulative, not faith promoting.
Dan, while I’ve discussed the SEC fine elsewhere, this post has nothing to do with it. The SEC doesn’t regulate entity choice. Whether EPA is for- or nonprofit, the only way the SEC is part of this story is with respect to the Form 13F. This is about the tax status and rules.
And Disciple, similarly, this post has nothing to do with the purpose of tithing. It’s a look at the tax regime EPA has chosen to be governed by.
To “A Disciple”: During the ministry of Jesus Christ, what was the purpose of the widow giving her two mites to the Temple treasury? The Second Temple was supremely well-funded at the time of Christ, and the wealth (nonbelievers may say ‘ostentatious wealth’) on display at the Second Temple was far beyond what almost any Jew could possibly conceive of without seeing it with their own eyes.
Following that, why did Jesus call to his Apostles and praise the widow’s offering of the two mites as captured in the Gospels? Do you think it might have mattered to Jesus whether the widow gave her two mites to the Temple treasury or to some other good cause? Should she have suffered obvious financial difficulty (“she of her want did cast in all that she had, even all her living”) just so she could prove her commitment to the wealthiest Temple in the region? Why did Jesus praise her sacrifice to His Apostles rather than suggest that she should have kept her two mites due to her poverty or give it to another good cause – maybe with less wealth – especially considering how much wealth the Temple treasury contained and maintained?
As for Jesus – we know that He, Himself, paid a shekel to to the Temple treasury to account for the tax that He owed to His “Father’s House” (the shekel also covered Peter since the Temple tax was a half-shekel).
Was this teaching that Jesus shared with his Apostles and all of us (as captured in the New Testament) concerning the Widow’s Mite a manipulative act by Jesus? Was it also not faith promoting?
Sam,
I agree EPA fails to meet the qualifications of a “non-profit”. EPA is a hedge fund. That it serves a limited set of non-profit clients should not qualify the hedge fund itself as a non-profit . As an aside, if Congress was serious about eliminating “tax loopholes” it would eliminate the tax benefit realized by persons donating appreciated assets. If one is lucky or savy or both, a five thousand dollar investment becomes a fifty thousand dollar charitable donation. Not only does the donor claims the full fifty thousand dollars as a deduction from income but no taxes are paid on the appreciated asset by anyone! It is amazing how being a “non-profit” enables those involved to keep more profits for themselves.
The LDS church has become an investment firm that operates a church as a side business. This creates a host of legal and institutional tensions. I respect your focus on the legal matters. However, the church squaring itself with financial regulations will prove to be the far easier task. People, including members, may not have quarterly account statements of the church’s balance sheet, but they know it is massive and that the surplus is not being spent in any accountable way.
Thanks, Sam, for your reply. Let me clarify.
In my post, I wasn’t only referring to the SEC Order. I was referring to any and all regulatory action available in the public domain that was brought against both the Church and EPA (recognizing they are private entities). But there is only one regulatory action that I can find and that I referred to: SEC Order Release No. 96951. Over the 25 years of the existence of EPA in its current legal entity structure. Nothing else is out there that I can find (action from any regulatory agency).
This helps me better understand that your article completely sits within the realm of speculation about future change to the legislative/regulatory landscape. Change that may – or may never – occur.
With this being understood, I’m still confused by your suggestion to “future-proof the EPA against legislative or regulatory changes that put increased emphasis on the commensurate-in-scope doctrine” – and my confusion is centered on the phrase “future-proof.”
Although I started my career in Big Four tax, I’ve personally not heard of such ‘future-proofing’: Advising an organization to preemptively move away from an entity structure that is fully legal and that leads to significant net tax advantages toward an entity structure that is far less advantageous from a tax perspective – all based on a speculative supposition that the legislative/regulatory landscape *might* change…at some point in the future…maybe…but maybe not.
As the IRS Taxpayer Bill of Rights (TBOR) states, “Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.” Paying more taxes than is legally due is not a sign of morality. And paying the bare minimum tax that the law allows is not immoral. Tax law is amoral in this sense – using tax law to your advantage, just pay what you legally owe.
Relative to this debate, the Church is squarely in the clear from a legal perspective…unless and until there is legislative or regulatory change. And even with a legislative or regulatory change, there would be Draft Publications with a period for public comments on each Draft. And once the Publication is final, it would have an “effective date” at some point in the future.
In short, the Church would have a fair amount of advance notice to change their legal structure if/when they see such drafts submitted.
Maybe you can help me understand why you advise ‘future-proofing’ rather than a wait-and-see approach.
The precedent that the church should loophole tax laws validates Cliven Bundy and his ilk in dishonoring, disobeying, and opposing the law, you know, like the article of faith.
The church is inadvertently emboldening anti-government extremists, and I’m not sure it’s inadvertent. This will lead to more tax evading mormon groups, I guarantee it. Like the Laffertys.
re “everyone will tell us what they want us to do”, because random people’s opinions matter to the church?
No, it’s because then members won’t be in the dark about how the church spends money, obviously. Like duh, how stupid does he think his audience is? This isn’t about the unbearable pain of other people having opinions, this is about the faithful, who currently must just accept on faith that the corporation of the church is being honest about $100 billion that God “doesn’t really need”, being kept in the dark and not really having any scary faith-shaking facts about what the church is actually up to. Obviously the moment you take away plausible deniability, you’re going to lose members, and that’s what he can’t say out loud because that obvious fact itself would be too much of an admission.
“Relative to this debate, the Church is squarely in the clear from a legal perspective…”
Sure.
What the church is concerned about, though, is whether they’re in the clear from the perception of their members for a moral imperitive to actually do something good with church funds other than grow unlimited and unaccountable wealth. Not tax law, not legal structures, but actually helping humans.
And that’s why it’s critical to them to keep it all secret.
It always surprises me when there are those who think that the purpose of tithing is for charity. Doctrine and Covenants 119 is clear the purpose of tithing – “[f]or the building of mine house, and for the laying of the foundation of Zion and for the priesthood, and for the debts of the Presidency of my Church.” That is the instruction from the Lord that constrains the use of tithing funds in the Church — it may be used for charitable ends only for the ultimate purpose of advancing one of those ends (usually laying the foundation of Zion). Spending tithing on charity for charity’s sake is not a permissible use of tithing funds by the clear language from the Lord.
There is, of course, a mechanism for such charity within the Church (the offerings of the members). But we have been told that the Church is not primarily a charitable institution but, rather, the Kingdom of God on Earth with the purpose of advancing God’s work through the ordinances of baptism and confirmation. Accomplishing that goal sometimes necessitates charity and the Church will advance the goal of charity when and where it can but that is not the purpose of the Church.
Whenever we have these discussions as to how tithing “ought” to be uses I am reminded of Elder Maxwell’s quote:
“Some real tares even masquerade as wheat, including a few eager individuals who lecture the rest of us about the Church doctrines in which they no longer believe. They criticize the use of Church resources to which they no longer contribute. They condescendingly seek to counsel the Brethren whom they no longer sustain.”
Want to advance charity? Pay fast offerings — that, not tithing, is the mechanism God has provided for the charitable needs of people. As for the rest, it seems it would fall into one of two categories. First, of course, there are likely those who are disingenuous who see this only as a convenient cudgel to wield against the Church. But even those of good will who are addressing this issue seem to very quickly fall into the realm of Uzzah — thinking that God cannot do His work without you and thinking that those who hold stewardship to make certain decisions should instead adopt your way of thinking or else the Ark might fall. Bishop Waddell is unquestionably correct about that, as even this post shows:
Shot – “Because then everyone would be telling us what they want us to do with the money.”
Chaser – “I think the church should very publicly and accountably promise to spend X% of its principal annually on certain charitable endeavors.”
QED.
Aaron –
Bishop Waddell was absolutely correct on the matter. Most of the critical articles that I’ve read so far on this topic are from folks who seem to enjoy the art of navel-gazing about how they like to “spend other people’s money.” Or, in this case, an organization’s money. Whether it’s “spend[ing] X% of its principal annually on certain charitable endeavors” or changing away from a nonprofit legal entity structure so the organization must pay more taxes than the current tax code requires them to pay or whatever else they want to dream about.
Granted, I’m merely an observational passerby with far more accounting knowledge than most and, therefore, I’m more intellectually curious than anything else about the topic at hand. I haven’t read everything posted on the topic…but I’ve now read a good sample of the population of articles in a short amount of time so I can better understand what all the hubbub is about.
From a tax perspective, the Church/EPA is legally in the clear with their legal entity structure. Sam also agrees with this as noted in his article. Sam’s point in the article is that the legislative/regulatory landscape *may* change at some point in the future. But as for now, the Church’s tax position is completely acceptable.
If you were to take university-level tax accounting courses, you’d better understand this topic as the IRS’s TBOR is very clear on the matter: “Taxpayers have the right to pay only the amount of tax legally due.” Period. Choosing to pay more in taxes than the tax code requires is not seen as a moral choice by the IRS and choosing to pay the bare minimum in taxes that is required by the tax code is not seen as immoral. It just *is* (amoral) and every single taxpayer out there has every right based on TBOR to pay the bare minimum that’s required by the tax code.
For example, if you figure out that you pay less in taxes by itemizing your deductions versus taking the standard deduction on your tax return, you have every right to do so. You are following the tax code either way as you apply your tax strategy. You are not being moral if you still decide to take the standard deduction and, therefore, pay more in taxes. And you are not being immoral by itemizing your deductions to pay less in taxes. Same with the Church as they apply their tax strategy. My recommendation for non-accounting folks is that they follow the principles in the TBOR when thinking through this topic and making judgment calls.
As for your comment about ‘helping humans’: We currently live (and have been living) in a time of abundance as Joseph of Egypt might have called it. Throughout the entire history of our species on this little rock hurling through space, we have never before enjoyed such wealth and abundance as we have over the past 25 years (i.e. since the Church started saving into the storehouse with the EPA being part of that strategy). I’m amazed when I think about the number of people who have come out of absolute poverty worldwide.
Joseph of Egypt likely also faced detractors during Egypt’s Years of Abundance. Those who would have been suspicious and who may have wondered why Joseph was being so selfish by saving all of that grain and filling the storehouses to the brim rather than ‘helping humans’ in their current time of need with all of that food. But once the Years of Famine came, the definition of ‘helping humans’ drastically changed and any such detractors would have been grateful that Joseph listened to God rather than their extremely shortsighted opinions on the matter of ‘helping humans’.
Hat tip to Jonathan for drawing our attention back to core principles. He explains that tithing is not charity, but rather funds and resources to build the “kingdom of God”. Jonathan writes: “Spending tithing on charity for charity’s sake is not a permissible use of tithing funds by the clear language from the Lord.”
The confusion of tithing being a charitable contribution arises due to a bait and switch encouraged by the tax code. Charitable donations are tax deductible. Charitable organizations receive favorable tax treatment. So it works well for members and church leaders to slap the “charity” label on the operation and call it good.
The IRS has criteria for assessing if a church qualifies for tax benefits. I am confident the Corporation of the First Presidency satisfies the applicable criteria – the church hires smart accountants and lawyers.
All is fine and well except kingdom building is not a charity. My perspective is members are generally happy to pay tithing believing the money is for a good cause and they and family benefit from that cause. But what happens when members notice the dissonance between the pious, and sometimes coercive, teachings of church leaders on faith and frugality and the massive accumulation of wealth held by the the corporate church?
We know this disconnect concerns the church leadership because Bishop Waddell told us so. Heaven forbid church members have expectations how the church spends money that the church members helped create! Isn’t the Lord’s church supposed to be run by the “common consent” of the members?
A community church receives and distributes donations within the same community. Outflows would generally match inflows. Same happens as a community church grows, but with inflows being distributed to other communities where they are needed . This is the conventional idea of the LDS church financial system. And while this is how the LDS church may have once operated it is no longer how it does operate – Inflows and outflows are independent of each other. The buffer is not a modest savings account but rather an investment firm holding massive tradable assets, real property and business interests.
The church the members know and participate in is a far different church than the one the church leadership is operating. These are two very different organizations with different priorities. The church leadership has chosen to hide the business side of the church from the membership – pay no attention to the man behind the curtain! Can this approach continue to be successful? It will be interesting to see how it plays out and what adjustments, if any, are made to how the “business” of the church is communicated to the membership.
“A community church receives and distributes donations within the same community. Outflows would generally match inflows.”
And then, feeling the pressure to pay the monthly bills during a downturn, the preacher(s) within his/their community slips a little on his/their commitment to God by allowing the most wealthy within the congregation to steer the precepts that are preached. And in so doing, the preacher(s) fill the church coffers and pay the bills for one more month…but he/they are far from God. In the end, the community is left with someone at the pulpit sharing the philosophies of men, mingled with scripture.
Been there, seen that. To be fair, Wards/Stakes in the Church were operationalized like this until it was changed many, many decades ago. Wards/Stakes in wealthy communities had more than enough within their boundaries…but Wards/Stakes in poor communities? Eh, not so much.
I appreciate that Bishops and Stake Presidents do not feel the same monetary pressures to pay the bills as community churches so they can focus on guiding their flocks by sharing the pure Word of God not mingled with mammon.
And, as mentioned above: ‘I don’t mind at all that the church has a large ‘war chest’ of relatively liquid assets that makes hardcore detractors think twice about waging a financial war of attrition upon the church via lawsuits, etc, in a bid to weaken the church or make it go bankrupt. If they disagree with a religious organization, they can use their free speech and debate platforms rather than performing end-runs via financially starving the organization. This financial warfare is becoming a common method of “cancelling” similar organizations that espouse counter-cultural views these days.’
Seems like Church Leadership might have experienced a small whisper from heaven 25 years ago about how important it would become for the Church to fill the storehouses. Why folks who have faith wouldn’t want Christ’s Church to be financially secure and preparing for hard times ahead is a question that I’m still seeking to understand.
Dan,
I appreciate your perspective and so I ask, how do you envision the kingdom of god being built? Will it be done by church employees? By contractors hired by the church? How will church members be prepared to do the real work of building the kingdom of god on earth if they are never given any real responsibility to build anything? Your comments imply church members cannot be trusted, which is why the HQ leadership hold such tight control. Will church members ever be trusted?
The stated position of Bishop Waddell, which is wholly consistent with the position of the First Presidency and Q12, is the church HQ will take the members money and they will decide what members need, and they don’t want the members asking any questions or opining on how money decisions are made. Can such heavy handed, top down control produce a vibrant, creative and strong church capable of building the kingdom of god?
As I have commented elsewhere, the strength of the Mormon Pioneers and their communities was realized because they were directly involved in building those communities. They did hard things and were successful. I appreciate the world has changed. But human nature has not. People are more highly motivated when they have a personal stake in the outcome.
David Says: Is there a budget proposal for the building of the “New Jerusalem” to be built in Missouri? D&C 84:1–5 (D&C 57:1–3). What will be the expense necessary to accommodate the refugee needs of “they who are in the north countries [who] shall come in remembrance before the Lord … who shall no longer stay themselves … who will bring their rich treasures unto the children of Ephraim … [where the] boundaries of the everlasting hills shall tremble at their presence?” (D&C 133:26-32). Should there not be rainy day fund given the portend of “calamities” (D&C 1). “Wherefore, I the Lord, knowing the calamity which should come upon the inhabitants of the earth, called upon my servant Joseph Smith, Jun., and spake unto him from heaven, and gave him commandments.” The present “prophets, sears and revelators” stand in his shoes. What about the promise to “preserve the righteous” when “blood, and fire, and vapor of smoke must come… upon the face of this earth.” 1Nephi 22:18 Let’s call the Church’s portfolio the “building and preservation fund.”
David: This may help with understanding the refugees from the North countries: https://bycommonconsent.com/2009/08/01/lost-ten-tribes-found/
Thanks for your reply, Disciple. I’ll do my best to respond to your questions.
Disciple: “[H]ow do you envision the kingdom of god being built? Will it be done by church employees? By contractors hired by the church? How will church members be prepared to do the real work of building the kingdom of god on earth if they are never given any real responsibility to build anything? Your comments imply church members cannot be trusted, which is why the HQ leadership hold such tight control. Will church members ever be trusted?”
To be completely transparent with you, the building up of the Kingdom of God has very little to do with me pulling out a checkbook each month to write a check to “XYZ Gas & Electric Company” for last month’s utility costs at the church building. Everyone already does enough of this for their respective homes or rental units.
Building up the Kingdom of God has very little to do with putting on a green visor, taking a pocket protector with red pencils and inserting it into your shirt pocket, pulling out the Texas Instruments BA II Plus Financial Calculator, firing up Excel on the PC and logging on to bank accounts for some fine financial wizardry. If it were, I would have been Translated long ago.
If you’re interested in money and are looking to be an accounting or financial wizard and think this is how you’ll gain “HQ leadership” respect, I can suggest some good accounting or finance university programs. There are plenty around. But I’ll warn you that accountants and investment bankers are a dime a dozen.
For me, the greatest trust that’s necessary for the building the Kingdom of God is the trust God places in me (as one of his children) to raise another child of His in the righteousness of the Gospel. It’s the trust He places in me to guide His youth and young adults at church as they try to navigate wicked peer pressure at school/on campus that’s trying to pull them down (recognizing that their brain won’t fully develop until they’re between the ages of 20 to 25 and so their current decisions will be absolutely riddled with regrettable mistakes). It’s the trust God places in me when I sit next to the widower at church who misses his wife terribly so we talk about his effort to endure to the end. It’s the trust God places in me when I serve people at church and the community through words and actions.
I don’t need anything else. I don’t desire the praise of men or titles at church or ownership of bank accounts in Switzerland (this may sound odd coming from an accountant, but I really don’t care about money beyond what’s necessary). I only need the approval of my God as I serve in whatever capacity he asks me to serve in within his Kingdom. Many others within the Church feel and are the same as me. If God can build an entire city out of the dust of a desert with the pioneers, I trust that God knows how to use each of us (if we are willing) to build His Kingdom.
Lastly, I have had the pleasure of meeting a number of the highest Church leaders that you refer to at “HQ” (when I was a lowly and unknown teenager to them). They served and treated me with the respect and care that they would give to a royal child of God. I could be wrong but I suspect that you may not know this about them. But from personal experience, I do.
Be well, Disciple.
I don’t believe the proposed resolution would solve anything. I’m certain the church funds the operating expenses of EPA but why would they pay anything above that? If the fees payable by the church to EPA equal EPA’s expenses, then there is no income for EPA to pay taxes on.
Dan, I absolutely love all of your responses. I too am a long retired financial executive and I for the life of me don’t understand all of the consternation and “doubt”, questioning, concern etc etc etc. This request for more transparency, or a change in organization baffles me. I truly believe this church IS run by God thru his Prophet, quorum of the twelve, and other general authorities. Are they perfect and infallible. No they aren’t, but in
terms of goodness, kindness, wicked smart, 24/7 dedicated to God and this church, they are far, far above my “paygrade”. I have my responsibilities, which is, obedience to commandments, and they have their responsibilities, which is to do their very best to guide and lead this church as they listen to the spirit. I really hate to do this, BUT, either you really really have a testimony regarding the Prophet and the 12 or you want to “counsel” them what to do. Now I also believe that many of the remarks were sincere but they in fact don’t really apply. This of course is my opinion. Finally, I as
a very long- term member, could care less about how much funds are in Ensign. In fact, if the truth would be know, I wished it was double whatever it is. I have checked with many members of the church and have even explained to the best of my ability what the issues are, (most don’t have a clear understanding) and to a person they have expressed to me that they too could care less and are not questioning the Brethern. All of my remarks are not meant in any way to impune anyones thoughts or motives. I just want the sincere majority to rethink of their testimony regarding living Prophets and the 12. Best wishes to all.