Samuel D. Brunson (Loyola-Chicago; Google Scholar), Mormon Lawsuits and Tithing: Can Churches Just Invest Funds Members Believe Are for Charity?:
Three men have filed a lawsuit against the Church of Jesus Christ of Latter-day Saints — also known as the LDS, or Mormon church — and its investment arm, Ensign Peak Advisors Inc. The men, at least one of whom remains an active member of the church, according to the lawsuit, allege that the church had fraudulently induced them into making donations.
LDS church doctrine requires its members to tithe — that is, give 10 percent of their income to the church. Otherwise, members cannot attend or participate in worship in the church’s temples.
As a law professor who studies the financial practices of churches and other tax-exempt organizations, I have seen that it is hard for donors to win a lawsuit against their church — or any other charity — when they demand a refund for their donations.
The lawsuit against the LDS church and Ensign Peak, filed on Oct. 31, 2023, is based on the premise that the church has violated its members’ trust by amassing massive investments in stocks, bonds, real estate, and agriculture that don’t support charitable activities. …
The church doesn’t disclose details about its finances. It has denied the allegations that it committed fraud with its “sacred funds” or dipped directly into tithed funds or other pools of money received for charitable purposes to make investments. …
This financial opacity has hurt the LDS church before. In February 2023, the U.S. Securities and Exchange Commission found that Ensign Peak, the church’s investment arm, had failed to make required disclosures of its securities portfolio. The SEC fined the church and Ensign Peak a total of $5 million.
Estimates vary regarding the size of the church’s portfolio. By a whistleblower’s estimate, it may be as high as $100 billion.
Charitable donations, generally of money or property, are often deductible for tax purposes because churches qualify as exempt under section 501(c)(3) of the Internal Revenue Code. Just as when you give money to a friend or relative, you no longer own or control those dollars after the transaction is completed.
Unless a donation is a restricted gift, making it contingent on the charity using it in a particular way, its use is out of the hands of the donor.
While donors cannot get their money back when they are disappointed by a charity, they will probably stop making donations.
Most donations to religious institutions are unrestricted. That means that even if church members who tithe do not like how their church spends money, unless their church acted illegally in soliciting their donation – by, for example, lying about how they would use the donation – a member’s only option is to stop giving.
- Courthouse News Service, Mormon Church Accused of Misusing Billions in Member Tithes
- Daily Mail, Mormon Church Is Sued By Three Members Seeking Class Action Status, Claiming Hundreds of Thousands in Tithes Were Used to Pad Its $175 Billion Investment Fund
- Fortune, Mormon Church Sued For Allegedly Lying to Donors by Investing $350,000 That Was Supposed to be Used for Charity
- New York Post, Mormon Church Sued For Allegedly Using Donations to Pad Its $175B Investment Fund
Prior TaxProf Blog coverage:
- Tax Profs Say IRS Is Unlikely To Pursue Whistleblower's Claim That Mormon Church Stockpiled $100 Billion In Charitable Donations And Dodged Taxes (Dec. 29, 2019)
- More On The Tax Whistleblower's Complaint Against The Mormon Church's $100 Billion Investment Fund (Feb. 9, 2020)
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