IRS Finalizes Tax on Non-Profit Organizations with Million Dollar Salaries and Parachute Payments

Correction:

Following the publication of this article, Trinity Foundation was informed that it included a factual error: An exemption existed in the tax code preventing ministers from being subject to the excise tax. After more research and visiting an IRS office, we have an update.

Before publication, we contacted an IRS spokesperson and were told the excise tax on excessive compensation applied to churches based on Section 3401. While asking follow-up questions, a misunderstanding emerged regarding the role of Section 3401.

Congress authored and adopted Section 3401 as part of the tax code. It defines terms such as wages and employer, while creating a list of exemptions from other tax rules and regulations for income earned from specific jobs. Definition number 9 exempts “services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry.”

A church will be subject to the excise tax only if it pays more than $1 million in wages to an employee that is NOT a minister and NOT an independent contractor. Trinity Foundation has investigated several churches that have paid attorneys more than $1 million. However, attorneys typically work as independent contractors and pay their own taxes directly rather than being paid as a payroll tax by the church.

The excise tax on parachute payments will not be applied to ministers either.

We are sorry for all confusion created by the original article. The updated version of the article features includes a strikethrough of two sentences and three additions in bold text.


The IRS has finalized its rules on an excise tax to discourage excessive compensation at non-profit organizations. In its February 16th Bulletin, the IRS announced an update to section 4960 of the Internal Tax Code taxing non-profit organizations and churches that pay “covered employees” who are not ministers more than $1 million in wages or provide excessive parachute payments.

The Bulletin explains that a covered employee “is one of the five highest-compensated employees of the organization…” These individuals are typically listed on a Form 990 filed with the IRS. Churches, synagogues and mosques are exempt from filing the financial disclosure document.

When covered employees (non-ministers), who are often executives, receive more than $1 million in wages or excessive parachute payments, the non-profit  must file a Form 4720 Schedule N. Then the non-profit organization must pay a 21% tax on the excessive compensation.

In 2018, the IRS modified the Form 990, revealing if organizations have paid an excise tax on payments of more than $1 million. Excise payments are indicated on page 5, line 15 of the Form 990.

Trinity Foundation examined MinistryWatch’s list of highly paid compensated ministry leaders and determined that Inspirational Network, High Point University and Educational Media Foundation (K-Love) pay the excise tax.

Hillsdale College and Glory of Zion International (Chuck Pierce) so far do not report paying the excise tax even though both feature an executive receiving more than $1 million in compensation. This is not proof of wrongdoing because some compensation is exempt from the excise tax such as an organization carrying liability insurance on an employee. Pierce also serves as a minister and his compensation is not subject to the excise tax.

This excise tax penalizes excessive wages, not fees. If a pastor is paid to perform a wedding, the income is considered a fee and would not subject to an excise tax.

Besides excessive wages, the IRS also treats parachute payments as a form of excessive compensation.

After Jerry Falwell Jr. resigned from Liberty University last year, journalists reported the disgraced university administrator could receive $10.5 million in parachute payments.

According to The Wall Street Journal, “Mr. Falwell is due his $1.25 million salary for two years, followed by a lump-sum payment of about $8 million, because of a clause in his contract that allowed him to resign with full pay if his responsibilities were curtailed.”

Trinity Foundation estimates Liberty University will pay a tax penalty of $1,530,383 on golden parachute payments of $10.5 million.

Future Form 990 filings by Liberty University will show whether or not an excise tax is paid on the parachute payments.

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Time for ECFA to Adopt Bold New Leadership and Policies

Nothing scares the American religious establishment more than the threat of real oversight and real disclosure.  Perhaps a history lesson is in order before providing potential solutions.

In 1977, Texas Congressman Charlie Wilson authored a bill, which never passed, that would have required religious organizations soliciting funds to provide documentation for where the money was going.

The events that prompted the bill have long been forgotten but scandals involving the Catholic Pallottine order shocked donors in the 1970s. The Washington Post reported that priests purchased expensive Florida property and provided $54,000 to finance Maryland Governor Marvin Mandel’s divorce.

After Wilson’s bill was introduced, the Billy Graham Evangelistic Association faced its own scandal. The Charlotte Observer discovered that Graham’s ministry had given $23 million to the World Evangelism and Christian Education Fund without disclosing it.

The Evangelical Council for Financial Accountability (ECFA) was created in 1979 in response to growing political pressure for financial disclosure.

As ECFA’s history relates, “Senator Mark Hatfield addressed a group of key Christian leaders and challenged them to police their own mission agencies as a “Christian Better Business Bureau” or face the potential of government intervention. Consequently, ECFA was formed, standards were established, and a chartering process was initiated for applicant ministries.”

Yet ECFA has done a poor job of policing its own members or slowing down the immense growth of religious financial fraud in the Church.

Former ECFA members Harvest Bible Chapel and Gospel for Asia were accused of misusing donations.

Reports in the International Bulletin of Missionary Research estimate more than $60 billion is embezzled annually by so-called Christian leaders. This amount exceeds what is spent on world missions.

In 2005, Trinity Foundation contacted Dean Zerbe, aide to Senator Charles Grassley, and requested the Senate investigate financial fraud committed by televangelists. In response, Grassley and the Senate Finance Committee requested additional documentation. Trinity Foundation provided investigative reports on over two dozen ministries.

The Grassley Six: Joyce Meyer, Creflo Dollar, Benny Hinn, Paula White, Eddie Long and Kenneth Copeland

The Senate inquiry went public in 2007, when Grassley’s staff requested financial records from six prominent TV ministries. However, televangelists wanted the IRS to investigate rather than Congress because the IRS is subject to the 1974 Privacy Act and would be required to keep more information confidential.  Only a few complied and then even marginally.

In 2011 Grassley’s staff released reports on four of the TV ministries revealing conflicts of interest, self-dealing, and examples of extravagant spending.  Trinity Foundation had provided the Senate with 36 investigative reports.

Grassley requested ECFA set up a commission to study areas of abuse identified by his staff and to offer solutions.

Lobbyists and Christian leaders met with Grassley in attempts to thwart the Senate inquiry and arguably succeeded. No subpoenas were ever issued.

ECFA set up a commission but failed to offer solutions to the growing financial fraud. The commission obtained “expert testimony” from televangelists’ attorneys without including the testimony of the televangelists’ critics. A one-sided consensus emerged for no new oversight or legislative remedies to close tax loopholes exploited by televangelists.

The government-sanctioned commission was captured by the very people it should have been holding accountable. Economists and political scientists describe this failure of oversight as regulatory capture.

With the news that ECFA’s current president Dan Busby will be retiring in 2020, it is an appropriate time for the organization to consider not only bold leadership appointments but bold policy decisions as well.

Trinity Foundation would like to suggest four bold actions.

Take a stand against the prosperity gospel

Imagine Martin Luther attempting to reform the Catholic Church without addressing the evil of indulgences. Such a scenario seems ridiculous, yet that is how ECFA treats the prosperity gospel. ECFA is quietly neutral where it should be most outspoken. ECFA’s Doctrinal Standards never mention the prosperity gospel or related abuses.

At a minimum, ECFA should advise its members to avoid falsely promising that God will enrich people that give to their ministries. Not only is this an abuse of scripture, it is advance-fee fraud. According to the FBI, “An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of greater value—such as a loan, contract, investment, or gift—and then receives little or nothing in return.”

Allow Wall Watchers to join ECFA

When Wall Watchers, the parent organization of Ministry Watch, attempted to join ECFA, its membership application was declined. Ministry Watch rates ministries, issues donor alerts, and warns Christians not to donate to organizations that spend donor funds recklessly or without transparency.

After its rejection, Wall Watchers reported on its website, “The denial of Wall Watchers application for ECFA membership was based on a difference in philosophy concerning the rating of ministries, not because Wall Watchers could not meet ECFA’s Standards. The ECFA Board concluded that Wall Watchers’ pursuit of its objectives as a member of the ECFA could create divisiveness within the membership of the ECFA.”

If ECFA intends to get serious about religious financial fraud and excess, it must be welcoming to victims, whistleblowers and Christians that investigate such fraud.

Select a president and board members willing to fight religious fraud

In 2017, ECFA’s board of directors included 15 people.  ECFA’s website currently lists 11 board members and officers.  Who will replace the board members that have recently left? ECFA should seek out people that are advocates for the victims of religious financial fraud. It is time to give them a real voice, rather than being a voice of the religious establishment.

Why not ask someone like Rusty Leonard to join the board?  New perspectives should be welcomed.

Require member organizations to disclose how much key employees are paid

On March 12, 2009, Joyce Meyer Ministries joined ECFA. Joyce Meyer’s compensation should have been disclosed to ECFA during the application process. However, Meyer has never disclosed this amount to her donors. She hides behind a claim of church status to avoid filing a Form 990 which discloses salaries of highest paid non-profit employees.

Was Meyer compensated $2 million per year from her ministry? Possibly. At least one of the televangelists Grassley examined was paid this much.

Senate Finance Committee staffers prepared a memo for Grassley outlining tax loopholes being exploited by religious organizations. The memo also examined excessive compensation. Could the following quote written by Grassley aides be about Joyce Meyer?

“Staff reviewed a compensation study prepared for one of the six churches by a leading compensation consulting firm that also does studies for for-profit organizations. … Taking into consideration the compensation of for-profit CEOs and media personalities like Oprah Winfrey, Britney Spears, Madonna, Rosie O‘Donnell, and David Letterman, and mindful that the minister also receives income from book royalties and consulting fees, the consulting company recommended that the minister‘s total compensation be set at $2 million.”

Is Meyer enriching herself at donor expense? Her donors deserve answers.

Following the Jim Bakker scandal, televangelist D. James Kennedy testified in a Congressional hearing and said, “I would think that if a person is going to give money to something, that they have … a responsibility to learn where it is going.”

 

How can donors avoid funding lavish lifestyles if they lack salary data and more facts about where the money goes, such as the IRS form 990?

Compare Catholic Archbishops’ Homes With Televangelist Mansions…

NY archbishop Manhattan mansionProperty records and independent appraisals done for CNN’s religion editor indicate that ten out of 35 U.S. Archbishops live in lavish homes worth more than $1 million.  Complete with photos, The Lavish Homes of American Archbishops, by CNN’s Belief Blog Editor, Daniel Burke reveals that some of these homes are shared by a few fellow priests.  Nonetheless, some of these are whoppers.  The Vanderbilt Appraisal company, hired by CNN, found this particular residence to be worth over $30M–due in part to the prime real estate it sits on in Manhattan.

We definitely can offer some competition from America’s televangelists.  Consider TV preacher TD Jakes’ personal crib appraised at over $6.36M and note the Bentley in the driveway–perhaps he should take a cue from the new pope.

Or, consider Kenneth and Gloria Copeland’s Eagle Mountain lakefront “parsonage” which, together with immediate surroundings, is valued at over $6.6M:

We’re guessing that not many if any of the aforementioned archbishops travel around in private jets, drive Bentleys or preach the prosperity gospel.  For images of these and other televangelist homes, jets and cars, watch our investigations video.