The Washington Post recently had a story “He was Mormon royalty. Now his lawsuit against the church is a rallying cry.” The article deals with a lawsuit by James Huntsman against the Mormon Church.
Here are a few paragraphs from the story:
James Huntsman’s family is sometimes called the “Mormon Kennedys,” with members whose titles have included governor, ambassador, billionaire and apostle. For decades, he was a committed church member, tithing 10 percent of his income, as the faith expects.
But when another church member filed an IRS whistleblower complaint in 2019, Huntsman’s theological and spiritual doubts shifted to anger, and he demanded his money back. David Nielsen’s complaint alleged that the church had been hoarding $100 billion in tithes and had used a few billion in tax-free dollars meant for charity to build an upscale mall.
Now Huntsman, a film distributor and father of five, has become an unlikely and high-profile critic of the Church of Jesus Christ of Latter-day Saints, at a time when members’ demands for transparency are rising and church growth rates are dramatically slowing. A lawsuit that Huntsman filed in 2021 accusing the church of fraud initially was rejected by a federal judge but was revived a few weeks ago. A federal appeals court panel voted 2-1 that jurors should hear Huntsman’s argument and his demand for a refund of $5 million minimum.
….
When Nielsen’s twin brother, Lars, leaked the 2019 complaint to several news organizations, including The Washington Post, Huntsman said he was disgusted by what it alleged.
The complaint alleged that Ensign Peak assets grew from $12 billion at its start, in 1997, to $100 billion in 2019. It said Ensign had not directly funded any religious, educational or charitable activities in 22 years but had paid $2 billion to bail out a church-run insurance company and build a high-end shopping mall, City Creek.
Huntsman said he asked the church for millions back in tithes, initially keeping the dispute from his family to keep them out of it. When the church declined, he filed his lawsuit.
…
In a 2020 interview with The Post, Lars Nielsen said his twin saw the job of helping guide church finances as both a professional opportunity and a spiritual service.
“He was excited to see how much the financial reserves of the church were growing,” Lars said.
But eventually he became alarmed with the lack of transparency as billions accumulated from tithes but weren’t spent, he alleges, on charitable, missionary or educational causes.
A key in both men’s legal complaints is their assertion that church leaders lied about how tithes are used. Huntsman’s suit cites five times in the 2000s that church officials repeated that members’ tithing would not be used for City Creek.
Since the men came forward, the church has argued that it used earnings from investments, not the initial tithes, and should have the freedom to collect and spend money as it wishes. In its original motion for summary judgment, it argued that Huntsman’s suit encroaches on “church autonomy” protected by the First Amendment. In other words, the government shouldn’t interfere in religious matters.
The case involves religious liberty, the First Amendment, and allegations related to criminal law. It will be interesting to see how it proceeds.
What are the takeaways for a Canadian charity looking at this case?
- There is a difference between a charity that exists and a charity that exists and fundraises. If your charity doesn’t fundraise, then you don’t have the same issues as a charity that does fundraise. For example, a charity should have a reserve fund policy – it is a good idea. CRA, however, only expects that a charity will have a reserve fund policy if they have a reserve and they continue to fundraise. CRA has a discussion on this topic in their guidance on fundraising. CRA’s guidance notes”162. A reserve fund policy may assist a charity when planning, explaining, and justifying its approach to fundraising to donors and to the CRA. It may help to ensure that a charity fundraises with an identifiable use or need, reducing the risk of failing to devote resources to charitable activities or engaging in fundraising that forms a collateral purpose. A transparent and publicly accessible policy may also help ensure that fundraising appeals are not misleading or deceptive by misrepresenting the charity’s financial position and the extent or urgency of its need for funds.”
- It is important that charities are transparent. Transparent about whether they need your donations. Transparent about how the donations will be used. Presumably, the church and Mr. Hunstman have different ideas about transparency, but it does seem that if you are a church and have a $100 billion dollar fund that you are working hard to keep a secret, some people might say you are not being transparent.
- CRA notes in its Fundraising guidance “every charity is responsible for ensuring that its fundraising appeals do not misrepresent the charity’s financial position. For example, a charity with apparently unjustified reserves that launches a fundraising appeal giving the impression that the charity is in urgent need of funds could be carrying out a fundraising activity that is misleading (contrary to public policy) or deceptive.”
- Transparency is good for your charity. Sometimes, people think that charity transparency has to do with the public knowing about the operations of charities. That may be true but most people in the public are not actually that interested in the inner workings of your particular charity. From my perspective, often, good transparency is more about those who have to make decisions within the charity having the necessary information to make those decisions rather than the public having that information. When there is a lack of transparency, often decisions that are made in that environment are less than ideal. If only a few people knew that there was this $100 billion reserve fund, is it possible that many other people, including officials within the church, were making sub-optimal decisions on other issues, such as whether the church can afford to do more “good works”?
- There are moral or ethical arguments for transparency. I believe in those arguments, but practically speaking, some may not be that interested in those arguments. The possibility that an organization may have to refund donations if a court determines that the fundraising was deceptive or inaccurate might be a bigger or more compelling reason for them to consider improvements in transparency. In other words, being non-transparent can create significant liabilities for your charity in the future.
- All charities should have a transparency policy and review what transparency they have and what improvements are needed.
- One of the most important transparency tools for a Canadian charity is the T3010 filing. It is important that charities ensure that their T3010 is filed on time and that it is accurate.
- However, the T3010 is just the beginning. It is the absolute minimum that a registered charity must do. Here are a few other ideas.
- Religious charities need to think not only about how their actions affect their organization but also how this may negatively affect affiliated organizations and also their adherents. Different charities may discuss this concept in different ways, but certainly, an argument can be made (whether it is fair or not) that problematic behaviour by certain minority groups (not just religious minorities) can have negative impacts on others within their community.
- There are over 3,000 comments on the Washington Post article. Not surprisingly, many of them are questioning the role of churches in general in society and the tax exemptions they receive. In the US, it is my understanding churches and other places of worship don’t have to apply to the IRS for charitable status to have that status and they don’t have to file the annual Form 990. This adds another layer of people questioning whether churches should have charity status and should be tax-exempt. The questioning is not just about whether churches should have special status but also whether it makes sense for a person to have to tithe, even if it puts them in significant financial pressure, when a church has a huge amount of assets.