Tribune Article and New Details About The 100 Billion Fund

[Abulafia]

For interest...

https://www.ft.com/content/d87f60ec-3cbc-11e7-821a-6027b8a20f23

 

This details the success of the C of E endowment fund, the interest it made, and its endeavours to invest ethically.  It also outlined how a % of the fund is dispersed.

"

The investment fund supports the work and mission of the Church of England, including responsibilities for bishops, some cathedral costs, clergy pay and pensions.

In 2016, it contributed £231m or about 15 per cent of the Church’s overall mission and ministry costs.

The Church‘s ethical investment policy dictates that all investments should be compatible with Christian values.

[smac97]

16 minutes ago, Abulafia said:

Quote

There is no legitimate argument that the Church does not "do charitable work from time to time."

Thanks,

-Smac

Smac, EPA, not the church.

As I understand it, legally speaking, the EPA is "an integrated auxiliary of The Church of Jesus Christ of Latter-day Saints."

I don't think you can differentiate the two in terms of "charitable work."  See, e.g., here:

Quote

Are the Church’s reserve funds illegal or somehow evading taxes?

For tax purposes, as an integrated auxiliary, the investment arm of the Church, Ensign Peak Advisors, is under no obligation to make minimum distributions. The allegations appear to stem from the whistleblower’s misunderstanding of tax law. For unknown reasons, the whistleblower apparently didn’t hire an attorney or a tax expert to help write this report.

One can only assume this is why so many of the conclusions in the whistleblower report diverge from the law. Not only does the whistleblower report misconstrue the definition of “charitable,” but it also applies something called the commensurate test (explained below) in a way never before applied by the IRS, and it fails to give enough evidence to demonstrate that two alleged investment disbursements were in fact improper.

For starters, the federal tax code does not have a minimum disbursement requirement for what are called “public charities,” a category of 501(c)(3) tax-exempt organizations. Churches are public charities by default.

There is a requirement that all 501(c)(3) entities carry out charitable activities that are “commensurate in scope with their resources.” This ostensibly means that a charity cannot merely accumulate assets and remain a charity. The law does not set a fixed threshold for this though, and the IRS instead takes it on a case-by-case basis, applying the commensurate test very rarely. But, even by the whistleblower’s own admission, each year the Church is in fact spending $6 Billion a year on its tax-exempt activities.

There is an interesting wrinkle in this case, though, that the whistleblower’s claim relies on. Ensign Peak Advisors, the legal entity where the LDS Church holds these investments, is exempt as a separate 501(c)(3) Supporting Organization. (Notably, the whistleblower also disputes this status, but without directly addressing how Ensign fails to meet the legal definition. He instead focuses on the “spirit” of the status.) As a Supporting Organization, Ensign is an independent nonprofit. The whistleblower claims that this requires Ensign to pass the commensurate test all on its own – and not as part of the larger whole of the Church.

But according to the IRS’s own definition, Ensign is also an “integrated auxiliary” managed by the Church, a legal treatment that combines their activities in certain ways. This is a critical detail that the whistleblower report only briefly mentions and seems to misunderstand.

If the Church directly held these investments, it would likely pass any legal tests without concern. Does it make a legal difference if Ensign does the investing for the Church as an integrated auxiliary? This difference—a relatively narrow and technical one—has never been questioned by the IRS or a court, according to Sam Brunson, a Latter-day Saint and Loyola law professor who specializes in tax-exempt organizations.

After looking at the facts and allegations involved, Peter J. Reilly, a non-Latter-day Saint CPA and tax specialist, observed in Forbes that “Ensign is not a private foundation. It is an integrated auxiliary of a church. And there is nothing in the tax law that prevents churches from accumulating wealth.” Reilly reached out to Paul Streckfus, another tax expert who runs a trusted publication focusing on tax-exempt organizations. He too concluded that the “matter does not merit IRS attention.”

I will also note here that the more we examine the legal intricacies/complexities of this issue (particularly the "relatively narrow and technical one" that you seem to be relying on), the less it becomes a "moral" issue, and more it ends up being about, well, compliance with legal technicalities.

Thanks,

-Smac

[Bob Crockett]

44 minutes ago, Analytics said:

Of course. This just proves my point.

I clearly don't. By way of analogy, from my perspective the conversation is like this:

A: Bob started exercising and eating less junk food. I think it is because he is trying to lose weight.

B: No way! Show me where he is required by law to have a weight! If you can't show me a law that says he is required to have a weight, that proves he doesn't have one. So if he isn't required to have weight, why we he try to lose it?

There just isn't any logic to your answer.   EPA is a non-profit.  It was organized to support the Church.  To support the Church's interest the money may be spent to secure an endowment or for the temples and other structures.  

Further, I'm not pretending there is no legal concern.  I am saying, that on the absence of any evidence - I mean - any evidence, there is no legal concern.  I'm not pretending anything. 

But I am intrigued about one thing and I'd like an answer from you.  If the Church is not required to maintain a balance sheet for any purpose (unlike charities registered with the Attorney General or public companies filing with the SEC) then what is the motivation -- as you have charged -- for getting things off the balance sheet?

Edited December 30, 2019 by Bob Crockett

[Analytics]

16 minutes ago, smac97 said:

As I understand it, legally speaking, the EPA is "an integrated auxiliary of The Church of Jesus Christ of Latter-day Saints."

I don't think you can differentiate the two in terms of "charitable work."  See, e.g., here:

I will also note here that the more we examine the legal intricacies/complexities of this issue (particularly the "relatively narrow and technical one" that you seem to be relying on), the less it becomes a "moral" issue, and more it ends up being about, well, compliance with legal technicalities.

Thanks,

-Smac

My understanding is that 501(c)3's are of two flavors: "public charities" and "private foundations." The questions raised by the whistleblower seem to hinge upon whether the EPA is one or the other. That is because whether it is in fact an "integrated auxiliary" depends upon it being a public charity. If it isn't a public charity, it can't be an integrated auxiliary (see https://www.irs.gov/charities-non-profits/churches-religious-organizations/integrated-auxiliary-of-a-church-defined).

So, is EPA a public charity? According to the IRS:

Quote

 

A private foundation is any domestic or foreign organization described in section 501(c)(3) of the Internal Revenue Code except for an organization referred to in section 509(a)(1), (2), (3), or (4). In effect, the definition divides section 501(c)(3) organizations into two classes: private foundations and public charities.

Generally, organizations that are classified as public charities are those that

• Are churches, hospitals, qualified medical research organizations affiliated with hospitals, schools, colleges and universities,
• Have an active program of fundraising and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities,
• Receive income from the conduct of activities in furtherance of the organization’s exempt purposes, or
• Actively function in a supporting relationship to one or more existing public charities.

Private foundations, in contrast, typically have a single major source of funding (usually gifts from one family or corporation rather than funding from many sources) and most have as their primary activity the making of grants to other charitable organizations and to individuals, rather than the direct operation of charitable programs.

 

https://www.irs.gov/charities-non-profits/charitable-organizations/public-charities

• EPA is NOT a church, hospital, or qualified medical research organization.
• EPA does NOT have an active program of fundraising and receiving contributions from many sources.
• In theory, EPA might receive income from the conduct of activities in furtherance of the organization's exempt purposes, but only in the sense of not spending any money whatsoever on the furtherance of those purposes,  but rather in accumulating money so that it will be in a strong position to help on some future rainy day.
• EPA actively supports the public charity of the LDS Church by investing some of its money and being prepared to give some back if and when needed, but that seems to be a novel type of support that wasn't contemplated when these categories were created.

From my seat, EPA is a private foundation, not a public charity. If I'm right about that, it can't be an integrated auxiliary.

[Analytics]

16 minutes ago, Bob Crockett said:

But I am intrigued about one thing and I'd like an answer from you.  If the Church is not required to maintain a balance sheet for any purpose (unlike charities registered with the Attorney General or public companies filing with the SEC) then what is the motivation -- as you have charged -- for getting things off the balance sheet?

Balance sheets are inherent to entities that deal with money and are the most basic financial statement there is. Conceptually, any organization that has assets or liabilities or both has a balance sheet--even if they don't bother calculating the value of the assets and liabilities and presenting it in a report, the balance sheet is still there. I don't know what the Church's internal accounting standards are, but we can be 100% sure that they include creating a report for the Church's leaders with a valuation of the Church's assets and liabilities (i.e. a balance sheet). Can you imagine if they didn't? ("Bishop Causse, how much money does the Church have? Can we afford a new temple in Syracuse?" "I have no idea, President Nelson. We aren't required to maintain a balance sheet!")  

Anyway, there are various scenarios when the Church could be compelled to disclose how much money it has (i.e. its balance sheet). It could be required to produce financial statements as part of a lawsuit. Or it could be required to produce financials related to BYU getting certified to receive federal financial aid. Or the laws could change and it could be required to publish its financials. Or reports of its assets could be leaked. There are lots of reasons for the Church would want to get these assets off of its own balance sheet and hidden somewhere else.

But I'm open to other suggestions. If it wasn't trying to somehow get these assets off of the Church's balance sheet or otherwise trying to obfuscate how much money it had, why did it bother creating EPA in the first place? And do you think EPA being created a month after the TIME article was a coincidence? I'm open to other theories.

[Teancum]

10 hours ago, Bob Crockett said:

You are mistaken. 

There is no such thing as a shareholder in a nonprofit. It exists on its own. If you disagree, name one shareholder of EPA. 

There is no reason for the church to keep a balance sheet.  If so, point me to that balance sheet. Where is it displayed, published or filed?  I'd like to see it.  

Therefore there is no reason to keep things on or off a balance sheet or to hold church assets in any particular way.  If you disagree, point to the law or regulation or FASB standard requiring a church to keep a balance sheet. 

Now, as a libertarian I believe churches should be treated no differently than a Sub C corporation, but that isn't the case. At least in the US.  I know that in the UK the church is treated by like any other corporation but its filings are limited to the UK. 

 

1:  You are correct that a non profit has no shareholders.

2: There is every reason for a church or any other large institution with significant assets to keep a balance sheet and other financial statements. You cannot see it because Church's are exempt from all the other reporting and independent audit requirements all other charities are subject to.

3: If the Church cares about GAAP financial statements it certainly would be subject to FASB standards.  But they have no requirement to report to the public, unlike all other charities and not for profits. However BYU is required to have GAAP financial statements as well as FASB rules. Based on the article the independent CPA firm withdrew from the audit because they could no verify assets that related to EPA.

4: I agree with your position that a church should not be treated differently than other entities.

[Bob Crockett]

15 minutes ago, Teancum said:

1:  You are correct that a non profit has no shareholders.

2: There is every reason for a church or any other large institution with significant assets to keep a balance sheet and other financial statements. You cannot see it because Church's are exempt from all the other reporting and independent audit requirements all other charities are subject to.

3: If the Church cares about GAAP financial statements it certainly would be subject to FASB standards.  But they have no requirement to report to the public, unlike all other charities and not for profits. However BYU is required to have GAAP financial statements as well as FASB rules. Based on the article the independent CPA firm withdrew from the audit because they could no verify assets that related to EPA.

4: I agree with your position that a church should not be treated differently than other entities.

Analytics confuses the difference between cost accounting (preparing balance sheets and income statements for better management) and financial accounting (preparing such sheets for disclosure purposes).   You say there is "every reason for a church" to keep a balance sheet, but cite the law which requires the church to do so.  There is no law.  There are plenty of churches which refuse to agree to disclose their finances.  They don't.  

I repeat:  If there is no reason to publish a balance sheet, then the charge the Church is using EPA to get stuff off its balance sheets is absurd browbeating.  For what purpose is this charge made?  To confuse the weak?

Edited December 30, 2019 by Bob Crockett

[Teancum]

On 12/29/2019 at 9:37 AM, Bob Crockett said:

And where has the IRS said that the commensurate test applies to a religion?  Religions have protection under the First Amendment that charities do not.  Charities must spend money commensurate with their solicitation for funds.  Religions do not.  Otherwise, if Congress said a religion must spend 20% of its assets on charitable endeavors, the Constitution would have something to say about that.

There is nothing in the constitution that promises tax exemption to a religion. That is a function of the Internal Revenue Code. Since the 16th Amendment to the Constitution the government has the power to tax income. The exclusion from tax for various non profits is a privlidge current tax law provides. It is not a right and can be withdrawn. Any NFP that is abusive of the provisions of tax law that grant them tax exemption can lose their exemption and/or be taxed on unrelated business income. Church's are not exempt from this. Just as Scientology.

That said there is no bright line test on how much a charity can accumulate nor how much it has to dispense. Though there is plenty of case law on the subject.

[Teancum]

45 minutes ago, Bob Crockett said:

Analytics confuses the difference between cost accounting (preparing balance sheets and income statements for better management) and financial accounting (preparing such sheets for disclosure purposes).   You say there is "every reason for a church" to keep a balance sheet, but cite the law which requires the church to do so.  There is no law.  There are plenty of churches which refuse to agree to disclose their finances.  They don't.  

I repeat:  If there is no reason to publish a balance sheet, then the charge the Church is using EPA to get stuff off its balance sheets is absurd browbeating.  For what purpose is this charge made?  To confuse the weak?

My comment about there is every reason for the Church to maintain a balance sheet (an other financials) was referring to internal management and so forth. I cannot imagine that the Church does not keep likely rather good financial statements. I agree there is no legal requirement that they do so nor is there one that requires them to publicize such financial reports. Or better said, they are excluded from the reporting all other not for profits are subject to both under federal and state laws.

[Robert F. Smith]

J. Brian Watkins, “Did The Church of Jesus Christ of Latter-day Saints do anything that violated the tax laws of the United States of America by maintaining an investment fund?” Quora, Dec 19, 2019, online at https://qr.ae/TSegRr .
 

[Calm]

6 hours ago, Abulafia said:

Smac, EPA, not the church.

If EPA is a part of the Church, then that reasoning would be like complaining that CES or the Facilities Maintenance Dept does no charitable work...not an issue as that is not its purpose. 

Edited December 30, 2019 by Calm

[Bob Crockett]

46 minutes ago, Robert F. Smith said:

J. Brian Watkins, “Did The Church of Jesus Christ of Latter-day Saints do anything that violated the tax laws of the United States of America by maintaining an investment fund?” Quora, Dec 19, 2019, online at https://qr.ae/TSegRr .
 

Very poor analysis and response.  Very. 

[Abulafia]

41 minutes ago, Calm said:

If EPA is a part of the Church, then that reasoning would be like complaining that CES or the Facilities Maintenance Dept does no charitable work...not an issue as that is not its purpose. 

It's the *if* that I'm not clear on, Calm.  

[Robert F. Smith]

1 hour ago, Bob Crockett said:

Very poor analysis and response.  Very. 

Wow, Bob.  Just wow!!  That bad, huh?