CREW's 2nd Complaint Against Living Word

On 2/08/07, Citizens for Responsibility and Ethics in Washington, or CREW, filed a complaint with the IRS, asking it to investigate LWCC for possible violation of federal law. CREW is the group that had made a complaint the previous October, based on the politicking from LWCC's pulpit. This time, CREW cited possible “inurement” [private benefit] to LWCC’s senior pastor, based on information in the Marshall Group report. CREW’s letter of complaint laid out the relevant law and facts.

CREW began by referencing section 501(c)(3) of the federal code, which governs tax-exempt organizations.

Public charities, including churches, are granted special privileges under federal tax law. Among these are exemption from most income tax and the ability to confer tax-deductibility to donors’ contributions. A public charity must be organized and operate exclusively to engage in charitable activities…and may not pass on any portion of its net earnings in a manner that inures to the benefit of private individuals…

Citing the IRS’ Tax Guide for Churches and Religious Organizations (link at left), CREW continued:

This restricts a public charity from engaging in certain acts of self-dealing with insiders and from creating excessive compensation schemes that are not in the interest of the organization or the public benefit it is mandated to serve.

…

Based on the information in the Marshall Group memorandum, it appears that LWCC may have violated tax law prohibitions on inurement and self-dealing through a series of financial transactions involving its founder, Senior Pastor and member of the Board of Trustees, James “Mac” Hammond.…

The complaint listed the specific facts that raised questions about LWCC's stewardship, beginning with the sale and leaseback of the airplane.

In 1999, LWCC sold Mr. Hammond an airplane for $1,063,000…Mr. Hammond leased two planes to LWCC under a non-cancellable operating lease that required LWCC to cover…expenses including maintenance, fuel and staff costs…

Mr. Hammond enjoyed favorable financial treatment in his transactions with LWCC. Mr. Hammond paid an average of $9,590 per month to LWCC through April 2003 for the balance of the debt on the plane LWCC sold him…LWCC paid Mr. Hammond, at a minimum, nearly twice that amount monthly to lease the plane back to him. Despite the fact that LWCC had an option to purchase the plane it leased from Mr. Hammond, the church never exercised that right. Had it done so, or had the church maintained ownership of the plane it sold to Mr. Hammond, it would have incurred fewer expenses….LWCC also rented hangar space owned by Mr. Hammond for $3,650 per month with an option to purchase…LWCC did not exercise the option to purchase the hangar, but instead allowed Mr. Hammond to borrow $155,000 from the church…using the hangar as collateral…Essentially, LWCC paid Mr. Hammond to use, operate, and store his own planes and his own hangar facility.

The airplane leaseback scheme appears to have violated federal tax law because it potentially inured charitable resources to the benefit of Mr. Hammond. Inurement occurs when an insider, such as a director or founder, derives a benefit from an organization’s assets or resources because of his or her position…

A related issue…is whether LWCC’s payments to Mr. Hammond for the use of his planes sufficiently furthered its exempt purpose as a ministry…Living Word Christian Center is located 23.9 miles from [MSP] airport, which serves 131 nonstop markets…It is unclear whether LWCC’s leases for the two planes represented ordinary and necessary expenditures to further its exempt purpose, but it is clear that the ultimate beneficiary of these payments was Mr. Hammond.

The CREW complaint also noted the eight personal loans totaling $1.9 million made by LWCC to Hammond between 1999-2004, and concluded:

Based on the totality of the available facts and circumstances, it appears that LWCC illegally extended private benefits to Senior Pastor Mac Hammond in violation of IRC section 501(c))3). ... CREW respectfully requests that the IRS conduct a full-scale investigation into the financial transactions and internal processes....

Mac Hammond's response to the complaint, and what happened next, will be explored in future posts.