2 Condos? 3 Boats? A Porsche? Directed Toward God?

This post focuses on the two Twin Cities dailies' fascinating response to CREW’s 2/8/07 complaint against LWCC. Other media coverage, and Hammond's reaction, will be detailed in future posts.

The day after CREW filed, The Saint Paul Pioneer Press published the news, along with the church’s official response. The story, entitled "Group Questions $2 Million in Loans to Pastor," is excerpted below. The full text is available for a minimal fee through the PP's archives.

A Twin Cities mega-church loaned its pastor nearly $2 million on favorable terms over five years, and a public-interest group has asked the government to investigate whether the deals were legal. In a complaint filed Thursday, Citizens for Responsibility and Ethics in Washington, or CREW, asked the Internal Revenue Service to look into the loans and other deals between the Rev. James "Mac" Hammond and the board of trustees of his Living Word Christian Center, based in Brooklyn Park.

… "We've always sought to do things above board," said Mark Redman, an associate pastor at the church. "We have no concern that there's any validity to the allegations." In a written statement... Redman said, "Every effort is made, and will continue to be made, to completely comply with and diligently follow all applicable legal standards established by the IRS and the State of Minnesota for the conduct of non-profit organizations." ... "The documents that we received paint an incomplete picture and don't give us all the details. However, the more you read the loan documents, the more you're left with the impression that something shady was going down at Living Word," said Tim Mooney, senior counsel for CREW. … In the fall, the organization complained after Hammond, in the midst of a church service, told the congregation he intended to vote for Michele Bachmann, then a Republican candidate for the state's 6th Congressional District. ... CREW claimed his endorsement was electioneering, which is prohibited in churches because of their tax-exempt status as religious institutions. At the time, Hammond claimed ignorance of tax laws prohibiting such behavior in churches. The church said the pastor of 26 years had "misunderstood the IRS guidelines."

[My thought: How credible is the claim that Hammond--with all of the legal advice the church gets, with the IRS sending out advisories, with his years of experience leading LWCC--didn't understand those guidelines for tax-exempt organizations? Not very, in my opinion.] … The records show Living Word sold Hammond an airplane for $1.06 million. He leased two planes to the church in a deal that required Living Word to cover the airplanes' operating expenses, maintenance, fuel and hangar fees. As Hammond was repaying Living Word an average of $9,590 a month for the loans on the aircraft, he was leasing them back to the church at a rate that was nearly twice that amount, CREW said. In addition to leasing the planes from Hammond and paying for their operating expenses, Living Word also rented hangar space from Hammond. "Essentially, Living Word paid Pastor Hammond to use, operate and store his own planes at his own facility. That's basically what ended up happening," Mooney said. … Redman said the church is confident that any investigation "will show that we've followed every letter of the law." "We're not nervous about investigation and accountability," he said. "We work hard to be accountable and candid.

The Star Tribune published a lengthy profile/interview of Hammond by Jon Tevlin in its Sunday, February 11, 2007 edition. The full story, well worth reading can be found at no charge here. Tevlin wrote, in part:

In the early days, [Mac Hammond was] … struggling to pay debts and about $100,000 in back taxes. His air cargo business was for sale. …

Yet Hammond felt called to spread the word. "My biggest insecurity was that I had no formal training for the ministry," he said. "So I'd stand for hours before a full-length mirror, and preach my message to myself."

Today, 25 years later, James McBryde (Mac) Hammond presides over an expansive spiritual empire ...

Last week, a Washington watchdog group filed a formal complaint with the Internal Revenue Service against Hammond's Living Word Christian Center. … But church officials said they are confident that they are complying with tax laws.

Meanwhile, some religious leaders and fellow evangelical ministers are criticizing Hammond's unapologetic embrace of wealth -- from his two planes to his luxury cars and high-end condos. …

The church already owns millions of dollars of property in the Twin Cities and 560 acres in northern Minnesota that includes a $500,000 cabin "retreat." …

"I have heard recounted to me, 'Well, you couldn't make it in business, so you decided to give it a shot in the ministry,' " Hammond, 63, said in an interview in December. "That's just not fair." …

"I think it's important that I not be embarrassed about the increase the Lord does bring me," Hammond said. "One of the things I think has kept Christianity from being as effective as it could be is the idea that the clergy has to be poor. The Bible doesn't say that."

[My thought: Here Hammond has set up a "straw man"--a weak argument that he can easily knock down, an argument that intentionally misrepresents what critics of the prosperity gospel have said. Specifically, Hammond has set up a false dilemma or false dichotomy between pursuing great luxury and being poor, as though there were no other option. Virtually no one argues today that the clergy "has to be poor." Those who object to the theology of Hammond and other Word-Faith preachers have never maintained that poverty is required of ministers. They have argued against what they see as an overemphasis on materialism at the expense of the full Christian message, and/or what they see as questionable ethical practices, less-than-full disclosure of financial dealings, and diversion of tax-exempt funds to the private benefit of a few.]

…

"Noah was the first investment banker," he said at the start of one recent sermon, which was filled with folksy charm, biblical references and business jargon. "He was buying stock when the rest of the world was liquidating." …

…Hammond's story is remarkable. In 1972, his wife, Lynne...had "an encounter with the Lord"...

Hammond, who says he was born again at 12, had strayed from serious study of the Bible. …But he said he was struck by the profound change in his wife and began to consider a life in the ministry.

Hammond said that, despite his financial struggles, he could have earned a good living in aviation. Instead, the couple embraced the Word-Faith movement, which was practiced by Hammond's televangelist contemporaries, the Rev. Kenneth Hagin and the Rev. Kenneth Copeland.

Word-Faith, an offshoot of Pentecostal ministries, preaches literal adherence to the Bible and spreading the gospel. Members believe in speaking in tongues and faith healing. Hammond says that while he can't predict a date for the Rapture, he believes we are in the "last days."

But members also believe there's no reason to live those days uncomfortably, as long as wealth is directed toward God. Hammond's private jet, he said, allows him to preach in congregations nationwide. [My thought: Commercial air service not sufficient?] "It's impossible to bless someone else or be a blessing if you have nothing to bless them with," he said. "It is a fact that the greatest impact we can have on the world around us is going to be defined by financial resource" used for the right reasons.

Hammond declined to discuss his personal wealth. But records show his two Destin, Fla., condos are worth more than $3 million. He pays no taxes on his comfortable but hardly ostentatious Plymouth home, which has lovely landscaping and a pool. A Lexus and a Porsche are registered under Hammond's name, as well as three boats.

[My thought: How are those two Florida condos, that Lexus, that Porsche and those three boats "directed towards God?" How are they "having an impact on the world?"]

A home near Brainerd valued at more than $500,000 (bought for half that) is used as a retreat, according to a church spokesman. The acreage near Brainerd is part of the church's investment strategy, the spokesman said, but may become a youth camp.

Hammond leases his jet to the church, according to public documents.... Hammond makes many trips to other Word-Faith locations. But he also used the jet to travel to Florida property. Hammond said he keeps track of personal use, and repays the church.

…

The church's associate pastor, Marc Redman, said the accusations [of insider dealings] are false. "Living Word and those outside professionals involved in the conduct of our financial affairs remain confident any fair review of our dealings will reveal the validity of our effort to consistently be an accountable and honest ministry before God, our congregation and our community," Redman said.

…

Hammond selected an early board of directors. They nominate new members. Board members include Mac and Lynne Hammond, Kenneth Copeland's son, pastors of Living Word's Duluth satellite and Texas minister Dennis Burke. They set salaries for the Hammonds (Lynne and sons James and John and daughter Lucyhrt work for the church) by comparing compensation of pastors in all denominations, as well as founders of similarly sized nonprofits and for-profits.

Hammond says he has rarely if ever accepted the full amount the board has approved, and added that he is the church's biggest donor, even though some have given $1 million. In the early years, the Hammonds were not compensated, said a church spokesman.

Some criticize the closed circle and appointed board. "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." "It just seems to invite suspicion," said Gregory Boyd, the evangelical pastor at the Woodland Hills Church in Maplewood.

Anthony said his organization has received periodic complaints about political and tithing pressure from former members of the church. “…. Because of the rules in America, you can do just about anything you want once you declare yourself a church," he said.

Boyd … said that God has used Hammond for many good deeds. Yet he also contends that 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."

…

Frances Hill, author of "Taxation of Exempt Organizations" and attorney for the Campaign Legal Center in Washington, reviewed a copy of one fundraising letter and the Bachmann incident. "My question is why isn't the IRS already in court to remove their tax-exempt status?" she said.

"This is a perfect example of misuse of [that] status," she said, adding that televangelist Jimmy Swaggart had his tax-exempt status taken away for two years for similar behavior.

Hammond said the letters were vetted by his lawyers and don't violate IRS rules. No action has been taken, he said.

…

Boyd, who eschews mixing religion with politics, admits that Hammond's politics are a draw. "In evangelical circles, there's a real desire for an authority to tell you how to act," he said. "People like a nice, clean-cut world and an authority who tells you what to believe and that God is on your side. There's no doubt that kind of religion works. Mac's a good communicator; he's saying what people want to hear."

...

There's no debate about who runs the church. Hammond says he's far from finished with his mission. His sons are at least a decade away from taking over, he said.

[My thought: So it's a done deal--his sons are just going to "take over" the church? This is how pastors are chosen? Is this a monarchy or a religious congregation? It's a far cry from seeking applicants, conducting interviews, hearing the candidates preach, prayerful consideration and democratic processes of many other congregations.]

But some don't like how Hammond uses his authority. Several current or former employees and volunteers... said he can be too demanding. They also say he records many church functions to maintain control over the message. A church spokesman said the practice simply allows those who miss meetings to catch up. Some also contend that Hammond mandates tithing, or giving at least 10 percent of their pay, to the church. Redman said tithing is not mandatory, but employees should consider their work a calling and set an example.…

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…”

James "Mac" Hammond's Private Bank

After the publicity around LWCC/Hammond’s endorsement of a candidate in October '06, an anonymous source gave The Minnesota Independent (MNIND), an online newspaper, a copy of a lengthy financial report on LWCC that had been prepared in late 2004.

The report had been prepared by "Marshall Financial Group [then known as The Marshall Group], a non-bank lending company that set up and serviced large participation loans, mostly in real estate… Its core business had been organizing and leading loans that were too big for one bank to handle..." Source: Mpls/St Paul Business Journal 11/13/08

The Marshall Group report was prepared in 10/1/04. LWCC was seeking a $20-$25 million loan package from Marshall. Before deciding whether to make the loan, Marshall investigated the church’s financial history, financial practices and its assets and liabilities. The Marshall Group is no longer in business.

MNIND reported that the Marshall Group docs seemed to show financial deals that "heavily benefited Hammond personally." The Marshall Group report listed "generous loans Hammond received from the church totalling $1.9 million. It outlined agreements for rental of airplanes he purchased with church loans, then leased back to the church--at a profit to him of nearly $900,000." MNIND sent the docs to a tax watchdog group (CREW) for its opinion. After seeing the documents, CREW filed a complaint with the IRS.

From the report, here are dates and amounts of loans to Hammond from 1999-2004, and a few other dealings. It's long and slow loading, but if you want to see for yourself, access it here.

LWCC had been founded in 1980 and operated as LWCC. In 12/94 Living Word International Inc. incorporated for religious/charitable purposes. Revenues and expenses of LW Int'l have been intermingled with those of LWCC.

In April 1998, LWCC borrowed $1 million to buy 500 acres near Brainerd. LWCC representatives said it might be developed into a camp. As of the writing of the Marshall Group report, this land had not been developed.

Loan #1. In 7/99 LWCC sold an airplane to Hammond for $1,063,000. LWCC was paid $700,000 in cash and given promissory note for $363,000 at 8.7%. (In other words, it agreed to let Hammond pay off the remainder of the cost over time, in effect loaning him $363,000 toward the cost of the airplane.)

Loan #2. In 4/02 LWCC gave Hammond an additional loan of $30,500. The July ‘99 note for the airplane was restated at $159,000. According to the church, the note was “paid in full” by April, 2003.

Loans #3, 4. In 2000 LWCC two or more loans not including the $30,500. These combined for a 2002 balance of $568,000.

These next two transactions were explained in this way: A business “related by management control” (which the Marshall report didn’t name, but “related by management control” sounds like Hammond or someone close to him) operated internet service and receives subscription revenues for total of hundreds of thousands in ’03 & ’04.

The Church’s integrated auxiliary, Living Word International, Inc., has a contract with a corporation related by management control to provide internet services to Living Word Int’l Inc. Terms of the agreement call for set fees to be paid to this corporation based on the number of subscribers to the proprietary internet service to be offered by the auxiliary church. The corp. provides the necessary access, service and support to allow subscribers to access the auxiliary Church’s internet portal. Living Word International, Inc. is the only customer of this corporation.

?1^st loan to Hammond-owned corporation? In December, 2000, LWCC made a $180,000 loan through Living Word Int’l to “a related corporation that is providing internet services.”

?2^nd loan to Hammond-owned corporation? In June of 2001 there was a second loan to this “related corporation providing internet services” for $198,000. (This was later combined with the 12/00 loan for total of $378,000, unsecured, due 12/04. )

Loan #5. In 12/01 Hammond was given an unsecured loan for $15,000 5.75%. Monthly payments were $288; was declared paid in full in 8/03.

Loan #6. In 5/02 LWCC made another loan to its senior pastor, this time for $155,000, secured by an airplane hangar.

Loan #7. In 5/03 LWCC borrowed $630,000 for a hangar for “leased aircraft.”

Loan #8. In 12/03, LWCC loaned another $177,133 to Hammond, unsecured.

Loan #9. In March ’03 there was yet another unsecured loan to the “Senior Pastor-President,” this time for $225,000.

What questions does this raise in your mind? How about these for starters.

Why was LWCC was loaning large sums of money to Hammond again and again? LWCC is not a bank or lending institution. Secondly, why does Hammond keep seeking loans from LWCC? Why doesn't he go to his bank or other lender?

More from the Marshall Group report, what it means, why it matters, and what happened next, in future posts.