Whistleblower Files Claim Against Mormon Church Alleging Billions in Misused Funds

On December 17, 2019, the Washington Post reported that a former senior investment manager for the Church of Jesus Christ of Latter-day Saints' (the "church") investment arm filed a whistleblower complaint with the Internal Revenue Service (IRS). The complaint alleges that the church has amassed and misused approximately $100 billion intended for charitable purposes.

Specifically, the whistleblower's complaint, received November 21, 2019, accuses church officials of misleading church members by stockpiling surplus donations rather than spending them on charitable projects as intended. Additionally, according to the Washington Post, the complaint accuses church officials of using these tax-exempt funds to "prop up" businesses.

The news report states that the church receives roughly $7 billion annually from its members' contributions. The church uses $6 billion of that amount for annual operating costs, and then transfers the remaining $1 billion into the church's investment division-a company called Ensign Peak Advisors (Ensign)-which subsequently puts some of that into an investment portfolio. The report indicates that internal accounting documents show that the Ensign portfolio's value has increased from $12 billion upon formation in 1997 to about $100 billion today. The complaint alleges that none of this money is used toward religious, educational, or charitable works.

While nonprofit organizations, such as religious institutions, are generally exempt from paying income tax, if an exempt organization derives too much of its total revenue from activities unrelated to its exempt purpose, the IRS may revoke its exempt status. There is very little existing guidance regarding just how much income an exempt organization may derive from an "unrelated business." The IRS has long maintained that an exempt organization will not lose their exemption as long as its charitable activities are "reasonably commensurate" with its resources.1

The Washington Post quotes the church as responding that "[a]ll Church funds exist for no other reason than to support the Church's divinely appointed mission."

Critics and experts alike have noted that there is nothing in tax law that prohibits churches and religious organizations from accumulating wealth. The whisteblower's argument for IRS involvement is that Ensign is a private foundation which must distribute at least 5% of its assets. However, critics argue that Ensign is a supporting organization-not a private foundation-and therefore there is no obligation of distribution.

If you have a whistleblower claim you would like to discuss, contact Frost & Associates, LLC today at (410) 497-5947.

1 REV. RUL. 64-182, 1964-1 C.B. 186.

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