John Montague has written an article entitled “The Law and Financial Transparency in Churches: Reconsidering the Form 990 Exemptions” in the Cardozo Law Review. In the US, churches don’t have to file the Form 990 annual return, however, in Canada almost all churches that are registered charities need to file the T3010 on an annual basis. The US Form 990 provides the US public with far more information than the T3010 in Canada. That being many of the points raised by Mr. Montague about church governance, accountability and transparency are relevant to Canada. It is important in Canada that we review the T3010. We should improve the T3010 to provide important information to donors, volunteers and others about registered charities. While the T3010 does provide a fair amount of information, it tends to focus too much on certain issues while ignoring others.
Here is the abstract:
“THE LAW AND FINANCIAL TRANSPARENCY IN CHURCHES: RECONSIDERING THE FORM 990 EXEMPTION
Most tax-exempt organizations are required to file the IRS Form 990, an information return that is open to the public. The Form 990 is used by watchdogs and donors to learn detailed financial information about charities. However, churches are exempt from filing the Form 990 and need not disclose any financial information to the IRS, the public, or their donors. In December 2012, the Evangelical Council for Financial Accountability recommended to Senator Charles Grassley that Congress should preserve the exemption, despite recent financial scandals at churches.
Examining the legislative history, this Article argues that the primary function of the information return has become its utility to donors, and policymakers have recognized the role that public access can play in keeping nonprofits honest and efficient. Unfortunately, because churches do not have to be transparent or accountable, few of them are.
Using research and insights from sociology, this Article contends that because of their opacity and the unique nature of religious authority, churches are more likely to foster and shelter malfeasance. Churchgoers are unlikely to challenge leaders because doing so can endanger their position in the religious community, making it imperative that transparency be mandated by outside authorities. Ironically, increased transparency may actually be good for churches because, as studies suggest, it is likely to increase donations and because, by minimizing opportunities for financial improprieties, it may preserve the religious experience of churchgoers. In addition, transparency is consistent with the teaching of many Christian leaders and with the expressed preferences of a large portion of churchgoers.”
Some other interesting points:
“As the future Justice Louis Brandeis famously wrote, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” The IRS counts on this electric police force to monitor the hundreds of thousands of existing charities that it cannot hope to oversee on its own.”
“Requiring churches to file a Form 990 would guarantee that both the public and churchgoers have access to financial information that would enable them to monitor how churches are using their donations. Such monitoring would make churches accountable to the public and to their donors.”
“Aside from political expediency, however, there are few sound reasons to justify the continued exemption for churches under section 6033. The argument that churches do not suffer from the same abuses witnessed at other nonprofits does not stand up to scrutiny, as witnessed by countless scandals at religious organizations over the last several decades. In fact, because of the unique form of control religious leaders exercise, churches might actually be more susceptible to abuses. In addition, as unpalatable as the suggestion may seem, there are strong reasons why many law-abiding churches should favor amending the law—it could do them good.”
“Besides sociologists and church history scholars, Christian counselors and theologians have also noted that trusted religious leaders exhibit a proclivity to abuse, which is exacerbated by the dynamics of religious authority. The position of trust and respect held by the abuser makes it easier to manipulate and silence victims. Those who confront pastors about sexual abuse, financial improprieties, or even theological concerns may be told that they are “unsubmissive” or “disloyal.” Clever abusers turn the conversation away from the legitimate problem and onto the person confronting the leader, accusing that individual of various spiritual problems.”
“Indeed, a first step to realigning power within churches should be removing the asymmetries of information. Lack of knowledge is disempowering, and transparency may be the first step towards greater accountability. However, an understanding of the dynamics at work in religious institutions makes it seem implausible that this impetus for transparency will come from within the church. Instead, it reinforces the argument that some churches may only adopt transparency measures if required to do so by law.”
“B. Churches Themselves Would Benefit from Increased Transparency and Accountability
For the churches that do handle their money with integrity, requiring greater transparency for all churches could help the honest ones in at least three ways. First, it would give donors greater confidence, making them more willing to give. Second, it would help avoid the fallout that accompanies news of scandals at similar churches, which almost invariably impacts donor giving, even to innocent institutions. Finally, it would mitigate the damage that is done to religious faith when clergy misconduct is discovered.”
“3. Financial and Other Scandals, Caused or Exacerbated by Lack of Transparency, Have the Potential to Damage the Spiritual Lives of Churchgoers
A lack of transparency fosters an environment in which abuses can flourish, and the ensuing scandals are bad for churches financially and spiritually. As Shupe has observed, the impact of financial and sexual scandals “can subvert and shatter individuals’ faith and cause great emotional and social damage.”298 For instance, in the fallout from a recent scam perpetrated by a pastor in Brooklyn, many of those victimized left the church.299 The leader of another church lamented, “I am concerned people are walking away saying you can’t trust preachers.”300 Sociologist and Methodist minister Jackson W. Carroll has noted that it is “tragically” painful when the person who proves untrustworthy is supposed to be “God’s representative.”301 It is not hard to imagine the damage that such a scandal can do to the faith of churchgoers who have placed so much trust in their pastor.
For church leaders genuinely interested in their congregation’s spiritual health and conscious of the inherent temptations to abuse power and money, transparency may be one of the best guards against the damage such scandals inevitably cause.”
“Considering how invested many laypeople already are in their churches, attending weekly services and probably also volunteering outside time, they are not likely to be deterred by the small costs of some basic research on their church. About half of Catholics and a third of churchgoers in many Protestant denominations want more power in financial decisions; these individuals would surely be interested in additional information about church finances. Before choosing a church to attend and before deciding how much of their money to donate, at least some churchgoers would look up the Form 990, if it were available.
David M. Schizer has argued that such private monitoring is one of the principal benefits government derives from charitable deductions.314 Because average donors have little or no influence on the organizations to which they give, they are “unlikely to invest the time” in monitoring them.315 More meaningful monitoring is provided by large donors and those that concentrate their giving and give regularly.316 Although only a few donors at each church will fit Schizer’s first criterion, many are likely to fit the latter two since for average churchgoers, their church is annually the single largest recipient of their gifts.
Many such donors are interested in more financial information from their churches and providing them with such information would improve accountability for churches.
Thus, far from a group that should be excepted form the information return requirement, churches seem like the ideal organization to benefit from transparency. Donors to churches are not writing a check and putting in the mail to send to some far-off place; they are placing money in the collection plate at a building where they worship every Sunday. In numerous surveys, a significant number of churchgoers have expressed a desire for more transparency and accountability in their churches. Many of them care what happens to that money and have good incentives to monitor it.”
“Christianity Today has a record of publishing articles reporting on financial abuses by Christian ministries and churches, and it has consistently advocated the value of transparency. The magazine has published a number of updates on the activities of the ECFA, including news about organizations that have been suspended by the accountability organization. In a 2003 editorial, the magazine urged that all Christian organizations should operate with open books, including churches. The editors wrote, “Although churches . . . aren’t legally required to make financial statements available, they are morally obligated to do so.” The editorial directed harsh criticism at church-based ministries that declined to voluntarily file a Form 990, noting that they were shortsighted, ignorant of reality, and out of step with their “higher obligation” to be transparent in all their doings. Similarly, in a 2012 editorial denouncing Ponzi schemes that had been endorsed by pastors, the editors concluded that “[v]isible, public accountability” was essential for the success of Christian ministry.”
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.