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.

Doesn't Every Church Need a Stunt Plane?

In 2004, LWCC was leasing two airplanes from its senior pastor at a total cost of $74,422 per month! Under the non-cancellable lease agreement, LWCC was also paying for all fuel, maintenance costs and rented hangar space for the planes. And guess who the space was rented from? These were among LWCC's financial obligations listed in the Marshall Group report.

One of the planes was this Cessna 650 that seated 12:

Click here for source. Scroll down for relevant story and image.

The other plane was, apparently, even spiffier...a Flugzeugbau EA 300L marketed as "the premiere aerobatic, sport and professional aircraft on the market today..." In other words, it was a stunt plane. These pictures don't show Hammond's specific plane, but you get a pretty good idea.

Source: Supplement to CREW complaint, 2/9/07.

LWCC’s other loan obligations at the time of the Marshall group report:

• Note for parsonage: balance owed as of 12/31/03 = $369,297
• Note and land lease for hangar: $618,873
• Note for 500 acres near Brainerd: $627,427 due as of report
• Note for 32 acres near Brainerd, $219,305 due as of report

LWCC was planning to pay $893,064 for airplane leases in ’04, ’05, ’06, ’07 and $577,686 in ’08.

The borrower leases two aircraft from its Senior Pastor and incurs related operational expenses such as hangar space, maintenance and staff costs….The Borrower has made both secured and unsecured loans to its Senior Pastor from time to time. One such loan is a mortgage loan secured by the Senior Pastor’s residence in Florida, which bears interest at prime +1%....

The organization leases two airplanes from its President/Senior Pastor under non-cancellable operating leases. The first plane has a lease rate of $39,422/mo…[The second plane] has a lease rate of $35,000/month. The Organization is also required to pay all operating costs of the airplanes…

The mortgage LWCC was seeking from Marshall was to be used to retire loans, give return on equity for private investors, and pay for equipment and facility improvements. The optional $5 million advance would also go for improvements.

As of 10/04 when the Marshall report was prepared, LWCC management was taking serious and unnecessary risks with the organization’s money. At that time, the FDIC insured up to $100,000 per depositor per bank. Many depositors with large cash accounts spread them among several banks so that their assets are fully insured. According to the Marshall Group report, “At June 30, 2004 and 2003, the Church had cash in checking and savings accounts at one bank significantly in excess of federal deposit insurance limits. At June 30 ’04, this amount was approximately $938,000…”

Immediate Fallout from the Bachmann Endorsement

Mac Hammond’s actions on 10/14/06--using the sanctuary to politick, as well as offering it as a platform for one candidate's campaign--set in motion legal challenges to the church’s tax-exempt status, and brought negative publicity for Hammond and LWCC. (The event itself was described here in an earlier post.) What's told below isn't new, but many people still don't know all the facts.

Three days after the Bachmann endorsement, a watchdog group in Washington, D.C. [CREW] filed a complaint with the IRS against LWCC. The complaint quoted Hammond’s words as well as Bachmann’s, highlighting the partisan politicking in each of their talks.

The complaint, addressed to IRS Commissioner Mark Everson, says in part:

[CREW] respectfully requests an immediate [IRS] investigation into the activities of Living Word Christian Center, based in Brooklyn Park, MN….Because you pledged earlier this year to investigate violations of tax law during, and not after, the election cycle, we ask that you look into this matter immediately…

The complete initial complaint can be found here.

The complaint against LWCC made our local news, just as the original politicking had done. In response to media inquiries, LWCC said that Mac Hammond thought he was within the rules by saying he spoke “personally”--that he simply misunderstood the rules.

Unfortunately, that was NOT TRUE. The Minnesota Independent reported:

When asked about the statement [from the pulpit], a LWCC official said that the endorsement was the result of Hammond’s misunderstanding of IRS guidelines. Associate pastor Tim Burt... [said] that Hammond thought he was within the rules by saying he was speaking personally.…“He didn’t knowingly or willingly violate IRS guidelines. He misunderstood the IRS guidelines…’”

But a recording from a…LWCC staff meeting on Election Day in 2004 [two years earlier] indicates that Hammond clearly understood IRS regulations governing his church’s tax status and was aware of the risk in which he placed the church when he personally endorsed Bachmann.

“There have been two or three churches who have gotten a little too vocal about supporting President Bush that did get sued,” Hammond said…. “….But we did what we felt led to do. I preached a Sunday on it [the upcoming presidential elections], talked a lot about it, nobody should have any doubts about what’s the right thing to do…. The law does clearly state that a non-profit tax-exempt organization cannot use their property, premises or influence to support one candidate over another. I could, but I would have had to offer it formally to his opponent.”

Full story here.

Thus, LWCC was not being truthful when it claimed Hammond didn’t understand the rules for tax-exempt organizations. Hammond himself had explained those very rules to his staff. As Hammond himself has said, LWCC has plenty of lawyers to advise it on these matters. In addition, the IRS provides free resources to help churches and other organizations understand the rules. CREW’s complaint referred to IRS Publication 1828. That is a Guide for Churches and Religious Organizations, available to anyone online here at the IRS website.

For those who want to hear for themselves what Hammond said about tax-exempt requirements, the audio recording is linked here. It can also be found through the Minnesota Independent story, linked above.

It’s important to recognize that proof of Hammond’s prior knowledge of the rules came to light only because some concerned person on the inside put the tape in the hands of local media.

The IRS did not impose any sanctions against LWCC for the abuse of its tax-exempt status. That event did occur during the George W. Bush administration, which was known to be very friendly (some would say overly-friendly) to conservative Christian groups.

How'd This Mess Start? Part II: LWCC, Hammond, & Bachmann

As mentioned in the last post, tax-exempt organizations are limited in their political activity. The IRS Guide for churches and religious organizations explains that

…(S)ection 501(c)(3) organizations, including churches and religious organizations, are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. …(P)ublic statements of position (verbal or written) made by or on behalf of the organization in favor of … any candidate for public office clearly violate the prohibition against political campaign activity. Violation of this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise tax.

Some election-related activities are fine so long as they're done in a non-partisan manner. For example, a candidates’ forum to which all candidates for an office are invited, or a get-out-the-vote drive, could be acceptable. If election-related activities favored a certain candidate or a certain group of candidates, they’d be prohibited for a church that wanted to remain tax-exempt. The IRS provides free resources, like the online guide linked above, to help churches understand the requirements.

What About Free Speech Rights?

The leaders of tax-exempt organizations DO have the right under the 1^st Amendment to speak out for candidates, but they must do so as individuals and not use the organization’s platforms (services, gatherings or newsletters) to do so. A statement by a pastor at Sunday church that “I'm voting for X” would not be okay, but a statement at a campaign rally in a park would be fine, as long the pastor makes clear he speaks for himself and not the church.

What About Inviting a Candidate to Speak?

A candidate being invited to speak in a church gathering might be okay, if done in non-partisan way. Does the church provide the same opportunity to all the candidates seeking the same office? Does the church avoid showing support of or opposition to any candidate? A church in Iowa does (or at least used to) invite each candidate for President to speak at its Sunday services, one candidate per week, in the Sundays leading up to the presidential caucuses. That is acceptable because the opportunity was open to each candidate, and there were no comments by the leadership for or against anyone. Other churches have held candidate forums at which all candidates for a particular office are given the chance to talk about the issues.

Michele Bachmann Visits Living Word Christian Center

In 2006, then-State Senator Michele Bachmann was running for the U.S. Congress. On October 14, three weeks before election day, she spoke at LWCC’s Saturday night service, right after a sermon by Mac Hammond. Pastor Mac introduced her by saying,“We can’t publicly endorse as a church, and would not, any candidate, but I can tell you personally that I’m going to vote for Michele Bachmann. Because I’ve come to know her, what she stands for, and I want her to share her testimony with you tonight.”

Michele Bachmann got up and spoke for 15 minutes or more. She expressed appreciation for the opportunity to meet the "fellow believers" at LWCC. Mrs. Bachmann talked passionately about hearing God's message when she was 16 years old and being faithful to God through the stages of her life, saying she was not "lukewarm" but "hot for God." She worked in resume items--college, law school, an advanced law degree, marriage, being a foster parent and serving in the Minnesota Senate. Near the end of her talk Bachmann explained her work as a state senator on the "definition of marriage" issue. She also talked about her run for the Congress, saying,"It's one of the top three races" in the U.S. because the race would decide "which way this country will go."

(My thought: Her talk raises the question--what is the difference between "testimony" and a campaign speech? But even if her talk could be considered strictly non-partisan, Mac Hammond's endorsement from the pulpit was clearly in violation of IRS rules and potentially endangered LWCC's tax-exempt status.)

When Mrs. Bachmann had finished, Mac Hammond spoke again, saying, "It's important. We need to put people of God in office. And I don't want any more letters about 'church and politics don't mix.'"

Here is video of Mac Hammond's introduction of Michele Bachmann that night. The visual is blurry but he can be clearly heard.

10/17/06 Citizens for Responsibility and Ethics in Washington (CREW) filed a complaint with the IRS based on Hammond's introduction of Mrs. Bachmann at the 10/14/06 church service. CREW is a non-profit group dedicated to holding public officials accountable for their actions.

CREW said that Hammond's introduction absolutely prohibtited from interfering in election under “very favorable tax benefits public charities receive” under 501(c)(3). CREW's 10/17 information release said,

On October 14, 2006 Ms. Bachmann delivered a campaign stump speech from the Living Word Christian Center’s pulpit and the church’s pastor, Mac Hammond, openly endorsed her candidacy. Pastor Hammond’s comments and Ms. Bachmann’s speech were made during the Living Word Christian Center’s weekend services, presented before the entire congregation and broadcast over the Internet. By using church resources to promote the candidacy of Ms. Bachmann, the church jeopardized its tax status.

At the time, CREW's executive director chided the IRS for having investigated "only progressive organizations such as the All Saints Church in Pasadena, California, the NAACP and Texans for Public Justice. This complaint and the clear evidence supporting it should spur the IRS to investigate the Living Word Christian Center and all 501(c)(3) charities that abuse their status, regardless of ideology.”

That was how LWCC and Mac Hammond started making the news in 2006. There has been no sanction from the IRS for the incident, but the endorsement of Bachmann set in motion some other difficulties for LWCC and Mac Hammond. And it came to light later that Mac Hammond did not live in the 6th Congressional District, and so was not eligible to vote for Michele Bachmann. Mrs. Bachmann was elected to Congress that year and reelected in 2008.

Videos of Bachmann's LWCC talk are available on You Tube here and here.

How'd This Mess Start? What does the IRS Have to do with LWCC?

This post will try to explain how LWCC’s governance and financial dealings with Mac Hammond came to the attention of the IRS, which put LWCC in a negative light in the eyes of some.

What Taxes Do

As everyone knows, the programs of our government, from the federal to the state, county and city levels, are paid for through our taxes. At the federal level, military operations, including the weapons, vehicles, rations and other supplies of our men and women overseas, are paid for through tax dollars. So are the service academies, air traffic control, homeland security, weather service, Medicare and more. The CDC and health departments do research, testing and/or sharing of information to help identify illnesses like H1N1 and prevent the spread of disease.

State funds pay for state highway construction & repair, bridges, state court system, state park management, highway patrol and more. Regionally, we support our airports and public transportation system. City or county funds pay for hospitals, road maintenance, sidewalks, streetlights, sewer, police and fire protection, and other local needs. Of course there are many other functions of government, all of which cost money.

Tax-Exemption under IRS Code 501(c)(3)

There are some who (very loudly!) object to paying taxes, say taxes are too high, or argue that their tax dollars are not being spent the way they want. I doubt if anyone agrees 100% with the way public funds are spent. But we all use or benefit from government services to a greater or lesser degree.

Most people and businesses are expected to pay income, sales and property taxes to support these various levels of government. But under section 501(c)(3) of the IRS code, religious, charitable, educational, and certain other organizations may be exempt from tax so long as they meet certain requirements. IRS Charities article

Non-profit organizations were exempted from tax in recognition of their benefit to the community. A large church such as LWCC will still use certain public services such as infrastructure (road, sewage, streetlight, etc.), fire and police protection. But unlike its residential and business neighbors, LWCC is exempt from property taxes because of 501(c)(3).

In order to keep its tax-exempt status, a church or other entity must be organized and operated for exempt purposes only (like religion, helping the poor, education, etc.) and none of its earnings may “inure to” (benefit) any individual--more about that in futures posts. In addition, it it may not participate in any campaign activity for or against political candidates. IRS on exemption requirements

More about tax exemption and the "Bachmann episode" in the next post.

Background on Word-Faith Part II: What LWCC Does, Criticisms, and Sources

LWCC's Ministries

The church has or (at least recently had) about 9,000 members, and five services a week. Last week they reported saving their one millionth soul. The church developed a private Christian K-12 school and owns a Christian rock club in Minneapolis. As listed on the church site, there are small groups for adults based on interests such as homemakers, marriage matters, manhood, family, Bible study, finance and career, sports and fitness, seniors, young adults, writers and others. LWCC is a local host site for the national Angel Food Ministries, which each month provides $60-$65 worth of food, at a cost of $30, to those who ask for it. LWCC has many other activities as well.

It's clear that many members of LWCC are satisfied with the spiritual life there. Comments on the LWCC Facebook site have included:

kkkk"Awesome services with Pastor Lynne this past weekend."

"Time in prayer together...is so powerful."

"Love the music and preaching."

Criticisms of the Word-Faith Movement

Other Christians point to scriptures that warn against the love of money, and that tell Christians to care for the poor. Some Christian thinkers have denounced the Word-Faith movement as “heretical,” “false.”

"It's the name it, claim it, blab it, grab it movement," said Ole Anthony, executive director of the Trinity Foundation, a nonprofit that investigates churches. "God wants you to be wealthy. It's the promise of greed in the name of God, and it's the oldest heresy there is."

While acknowledging the good that LWCC does in some areas, such as the 3 Degrees Christian rock club, evangelical pastor Gregory Boyd of the Woodland Hills Church in Maplewood said:

Word-Faith ministries often take biblical phrases out of context. "The Bible has a whole lot to say about hoarding when others are needy," Boyd said. "Greed is the biggest sin in the Bible. What concerns me is saying that [attaining wealth] is Christian thought. That seems to me unbiblical."

(previous two quotes from Kingdom & Power article)

There is a substantial discussion of the controversy in the Wikipedia article linked below.

Links to sources:

Atlanta Journal-Constitution article on Creflo Dollar “Was Jesus rich? Swanky messiah not far-fetched in Prosperity Gospel”

“Dealing with less prosperity, Mac Hammond's church cuts back” originally appeared in Star Tribune, Feb. ‘08

“Mac Hammond’s Living Word church faces off with the IRS” appeared in City Pages 10/08

“The Kingdom and Power of Mac Hammond” Interview & profile published in Star Tribune 11/07

Thorough Wikipedia article on "Word-Faith" gospel

“Hammond: IRS probe of church is politically motivated” Minnesota Independent article published 8/25/08

Winner's Minute introduction

Background on Word-Faith, Part I: Beginnings, Teachings, Resources

This post will provide a little background on the theology of Mac Hammond and the LWCC. think it’s relevant, because the "Word-Faith" or "Word of Faith" or “Prosperity Gospel” preached by Hammond may be related to the lavish financial rewards given to him by LWCC.

At the bottom of this post are links to the articles and websites from which the information is drawn.

Beginnings of Word-Faith and What it Teaches

E.W. Kenyon, 1865-1948, broke with his Pentecostal tradition when he started teaching that a new covenant with God had been attained. In the new covenant, he wrote, spiritual blessings would no longer be given to the faithful according to God’s will, but were now GUARANTEED. The traditional Pentecostal view was that although healing, blessings and miracles can occur, there was no guarantee from God that if you just believe well enough, you’ll be healthy and prosperous.

Kenyon’s ideas influenced Kenneth Hagin, 1917-2003. Hagin spread the doctrine and summarized it as “Say it, Do it, Receive it, Tell it.” There are many faith leaders who’ve been influenced by Hagin, including Kenneth Copeland, Oral Roberts, and T.D. Jakes.

Pastor Mac Hammond also joined the Word-Faith movement, around the time he started LWCC. He considers Kenneth Copeland as “…kind of a spiritual mentor, a spiritual father, someone ahead of him on the path who has been a sounding board and provided guidance.” (Church cuts back article linked below)

The Word-Faith movement relies in part on language in Genesis (multiply thee) and Deuteronomy (verses on blessings of the covenant). They also point to Isaiah: “We ARE healed” (present tense), meaning God has already given us health, and illness is Satan trying to rob us of our divine right. Word-Faith preachers teach that God wants us to be prosperous in health, relationships and finances, but the emphasis is almost always on finances. One current leader, Creflo Dollar, says that Jesus himself was rich (Creflo Dollar article linked below).

Hammond's "Winner's Way" Teachings

Mac Hammond calls his version of the Prosperity Gospel “The Winner’s Way.” He has said that if we have wealth and luxury, then we must be blessed by God and Walking the Winner’s Way. He has said:

“It is the will of God that you prosper.” (Church faces off article)

“Noah was the first investment banker.” (Kingdom and Power article)

Hammond says that financial resources are required for Christians to have impact on the world, so the church using its tithes and other funds to lease a 9-seater private plane from him is okay as long as it’s used in the service of God. In a letter to supporters he said:

Our individual level of wealth, according to God (Eph. 3:20) can potentially exceed what we can even ask or think, limited only by the power of faith that works in us,” he said…(I)t is the will of God for us to prosper and the level of that prosperity [is] to be determined only by our faith…

(Minnesota Independent article)

My question: In other words, if something’s wrong in my life, it’s only because I don’t have enough faith?

From the Winner’s Minute website, linked below:

Vince Lombardi, the legendary coach of the Green Bay Packers, is famous for saying, "Winning isn't everything—it's the only thing."

…

But the truth is that God created you to win, not just spiritually but financially, professionally, relationally, and in every other area of life. In fact, if you're not at least in the process of becoming that kind of winner, you're not fulfilling God's whole purpose for your life...

My thought: This sounds very, very close to the teachings in Unity, part of the New Thought movement, which I attended about 10 years ago. I also wonder—since LWCC had financial shortfalls in 2008, and had to cut back on things, and Mac Hammond had to put his 9-seater plane up for sale--does that mean LWCC and/or Mac Hammond was deficient in faith? Source about the downturn is LWCC’s Rev. Brian Sullivan in the “Dealing with Less” article linked below.

Mac Hammond himself has noted that the Prosperity Gospel has its problems.

At Copeland's conference, which was broadcast live on the Internet, Hammond told other ministers that people "gradually become disillusioned" when their prayers are not met promptly or when promised riches don't come.

"They have needs to be met, and when they don't get it they leave," Hammond said. "They get their hands put on them, they don't get cured, then the disillusionment sets in."

(from “Dealing with less prosperity”)

Links to sources:

Atlanta Journal-Constitution article on Creflo Dollar “Was Jesus rich? Swanky messiah not far-fetched in Prosperity Gospel”

“Dealing with less prosperity, Mac Hammond's church cuts back” originally appeared in Star Tribune, Feb. ‘08

“Mac Hammond’s Living Word church faces off with the IRS” appeared in City Pages 10/08

“The Kingdom and Power of Mac Hammond” Interview & profile published in Star Tribune 11/07

Thorough Wikipedia article on "Word-Faith" gospel

“Hammond: IRS probe of church is politically motivated” Minnesota Independent article published 8/25/08

Winner's Minute introduction