On This Page:
- 03-1. Introduction to General Non-Profit Issues
- 03-2. IRS Requirements for Non-Profit Compliance
- 03-3. Consider Top 10 Legal Problems of Non-Profits
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03-1. Introduction to General Non-Profit Issues
This page offers a step-by-step tutorial to help take you to a basic level of understanding on relevant legal and ethical standards regarding key non-profit problems. This base is intended to equip you with a set of “system indicators” for healthy/toxic organizations, so you can evaluate for yourself various allegations of improprieties against Mars Hill and its leaders. This material covers general legal/ethical background from two sources:
- IRS requirements for non-profit compliance,
- An article on Top 10 Legal Problems of Non-Profits.
Regardless of your eventual findings about Mars Hill Church, if you are involved in a church or ministry non-profit organization yourself, the information in this tutorial could spare you from some potentially disastrous consequences. The problems discussed are ones that harm people. They also waste an organization’s resources. Some can also potentially put the non-profit’s tax-exempt status at risk. So, this information can help your organization to do good plus do no harm, and maintain its tax-exempt status as a corporation created to serve the public interest.
A Few Words of Introduction …
I have been involved with and studying volunteer organizations and non-profits for my entire adult life. And, given my long-term studies in dynamics of power and abuse, I have a fairly developed framework for analyzing toxic systems. So, I’ve already formed reasoned opinions Mars Hill Church and Mark Driscoll, as they’ve been on my “spiritual abuse radar” even more since 2008. It’s impossible to write up and share all of my findings in this series. I have my bias (as do all interested parties). Mine is based on investigative reporting as much as by being a survivor of spiritual abuse myself.
I’m not an MBA or CPA or non-profit lawyer. I just have a lot of experience with organizational systems, most of them non-profits. And this may be one time when my having a broad-based resume of experience is an advantage – not because it gives me “all the answers,” but helps me ask a lot of constructive questions. This is especially helpful because things all too often go wrong, even when we want to do what’s right. So, I’m often observing situations carefully and aiming to ask the previously unasked question, in order to help an individual or an organization become the best they can be. Also, because I’m not a professional, I have to figure out how to reason through technical materials and translate them into something understandable. I don’t always get it right, but I do try to be conscientious with the sources, and consider both facts and opinions.
Before we get into the heart of the matter, I will mention that I discovered while working at a seminary that the most hated course in M.Div. program was probably Church Administration. Most students in that program went be equipped for pastoring and teaching. So, I’d periodically hear complaints like: “Why do we have to take this horrific class in administrating? It’s not as if you can make such a class fun … but does it have to be that boring? And is it really that relevant?”
I think it get it about why it was despised. Pastors and teachers and missionaries and ministers generally aren’t gifted to administrate. But they certainly should’ve seen it as necessary, all part of “doing things decently and in order.” In fact, as we’ll see shortly in the article on Top 10 Legal Risks Facing Non-Profits, most in paid ministry have to do at some of that boring old administrative stuff. However, if we choose to constitute a congregation as a tax-exempt corporation, we merge an organic Body with organizational business. So, like it or not, a business model requires taking care of business, even if pastors and teachers don’t feel like CEOs.
And with that challenging reality in mind, here we go with first steps toward eventually understanding five prominent legal/ethical problems that could drastically affect Mars Hill Church. I’ll suggest implications for Mars Hill and their leaders as the material unfolds, and also periodically list some questions to consider.
I make my own opinions known at various points in the series. Hopefully I’ve written clearly enough so you can see how I used the processes I am describing to help me weigh the evidence base and discern what I think is going on. Although I am an outsider to Mars Hill, I am a research writer on toxic organizational systems. That is sufficient reason to study the allegations of spiritual abuse perpetrated by “public figures” like Mark Driscoll and through a public-supported tax-exempt non-profit like Mars Hill Church.
NOTE: This material is meant to be informational and educational – NOT legal advice. If you have concerns about potential legal issues at a non-profit you work for, volunteer at, or support financially, see a lawyer who can help you identify relevant local, state, and federal laws and regulatory statutes.
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03-2. IRS Requirements for Non-Profit Compliance
The IRS Compliance Guide – Basic Prohibitions and Problems
On another subpage, I referred to the Compliance Guide for 501(c)(3) Public Charities, and gave short quotes from it on three things the IRS prohibits. In order to keep non-profit agencies functioning in the public interest, they cannot: (1) use the non-profit for personal benefit, (2) conduct political campaign intervention, and (3) be involved in legislative activities/lobbying.
But the Table of Contents for the Compliance Guide is also instructive on the scope of organizational processes and procedures that the IRS is concerned about. The IRS doesn’t dictate exactly how each and every one of these must be done, so there is room for freedom. But these are the issues the IRS may dig deeper into, if they end up conducting an investigation into your non-profit organization. Check it out – it’s only 30 pages and it’s a great overview. There are only a few main sections in the Guide, and here are topics they deal with:
Three key prohibited activities that can jeopardize a public charity’s tax-exempt status – inurement, campaigning, lobbying.
Federal information returns, tax returns, and notices that have to be filed.
Record keeping – why, what kinds, how to do them, and how long to keep them.
Governance procedures and practices – mission statement, organizational documents, governing body, governance and management policies, financial statement and information reporting, and transparency.
Reporting changes to the IRS.
Required disclosures – public inspection of annual returns and exemption applications, sale of free government information, and substantiation and disclosure of charitable contributions.
All things considered, that doesn’t seem like a whole lot to deal with. It’s just that it may take time and practice to get everything fully up to their standards and then sustain them. But that is the responsibility we sign up for when we choose to become a non-profit – especially if we serve on the board of directors or the staff.
The Nonprofit Complaint Form – Specific Problems and Points of Jeopardy
When we work for a non-profit, or support it financially, we should be able to trust that the people in charge are following the rules so they don’t mishandle their stewardship of our trust, our work, our funds. However, if something does seem to go desperately wrong, insiders and the public have a way to redress the alleged problems. If a non-profit’s leaders keep the organization stuck in unhealthy functioning, then one of the more drastic measures available when all else fails is the Form 13909 Nonprofit Complaint Form …
The IRS has a clear and accessible procedure available for when someone believes a tax-exempt organization is falling short of their legally-required stewardship of resources. Here is a series of four short IRS webpages and documents that explain the Complaint process in fairly non-technical language. I’d suggest reading them in the order given to understand the flow of the process, and then thinking through the notes that follow them.
- IRS Complaint Process – Tax-Exempt Organizations
- Fact Sheet 2008-13: IRS Complaint Process for Tax Exempt Organizations
- Form 13909 – Tax-Exempt Organization Complaint (Referral) Form. See below the list of 10 specific kinds of charges that can be filed.
- Fact Sheet 2008-14: Examination and Compliance Check Processes for Exempt Organizations
CATEGORIES OF CHARGES. Form 13909 has checkboxes for 10 different kinds of charges that can be filed. I’ve copied those below, and numbered them for easier reference. Take a look at these and see how they summarize the three key prohibited activities, and other items noted in the Compliance Guide.
- Directors/officers/persons are using income/assets for personal gain.
- Organization is engaged in commercial, for-profit business activities.
- Income/assets are being used to support illegal or terrorist activities.
- Organization is involved in a political campaign.
- Organization is engaged in excessive lobbying activities.
- Organization refused to disclose or provide a copy of Form 990.
- Organization failed to report employment, income, or excise tax liability properly.
- Organization failed to file required federal tax returns and forms.
- Organization engaged in deceptive or improper fundraising practices.
- Other (describe).
LIMITATIONS ON INVESTIGATIONS OF CHURCHES. Form 13909 states in the section on Specific Instructions (page 2, point #6): “If your referral relates to a church please be aware that Congress has imposed special limitations, found in IRC section 7611, on how and when the IRS may conduct civil tax inquiries and examinations of churches. You can find out more about these special limitations in Pub. 1828, Tax Guide for Churches and Religious Organizations, in the section on Special Rules Limiting IRS Authority to Audit a Church.”
See Publication 1828, page 26, for the one-page overview of Tax Inquiries and Examinations of Churches. Note that the investigation restrictions on the IRS do not apply to issues of criminal investigations and investigations into tax liability of persons connected with the church (such as a minister or donor). It also appears the IRS can still pursue “excess benefit transactions” between the church and insiders, which is one aspect of inurement (one of the five key problems examined in Part 2C of this series).
IRS REVIEW PROCESS AND OPTIONS. To understand what happens if an IRS investigation is involved, see the entire section on The Review Process in Fact Sheet 2008-13: IRS Complaint Process for Tax Exempt Organizations. Here is an excerpt that looks at the standard of evidence used by the IRS in deciding what actions to take.
Upon receipt, research is done to confirm the identity of the organization in question and once this is complete, information is entered into a database to help the IRS keep track of the progress of the review.
An experienced EO revenue agent then performs a thorough technical analysis of the allegation made on the referral. The agent uses a “reasonable belief” standard to evaluate the facts and to determine whether EO should take further action. Before taking action, the revenue agent must determine that the facts create a reasonable belief that the allegations may be true when considered fairly and in light of other reliable information. [Emphasis in the original. Retrieved August 29, 2014.]
The EO revenue agent has four options for how to proceed, based on “reasonable belief” about the allegations:
- Close the case.
- Hold it for later re-evaluation.
- If it has certain characteristics it must be forwarded to a committee that evaluates such Referrals on a monthly basis.
- Instigate an examination of the organization when the evidence warrants it.
Even if the IRS does not go the route of investigation with Mars Hill Church, there is still the possibility of a state investigation by the State agencies that govern charities. See IRS Complaint Process – Tax-Exempt Organizations:
In addition to oversight by the IRS, tax-exempt organizations are subject to oversight by State charity regulators and State tax agencies. You may also want to send a copy of the referral you send to us to your state charity regulator and/or state tax agency. [Retrieved August 29, 2014.]
WASHINGTON STATE AS AN EXAMPLE. For instance, the state of Washington, where Mars Hill Church is registered as a non-profit corporation, those complaints are handled by the Office of the Attorney General. In the Safeguarding Consumers section of the Attorney General’s website, there is a link to File a Complaint. That takes you to page where you can find out more in the Consumer Issues A-Z section on complaints specifically against Charities. (Note the options listed there, such as arbitration or mediation, Small Claims Court, etc.) There is also an online General Consumer Complaint Form. (Note that complaints submitted become part of public information/public record, so be sure to read the “Public Record Disclosure and Agreement” section carefully.)
And even if a complaint to the IRS and/or state does not ensue, it is still possible that civil suits might be filed – despite probable reluctance by most Christians to take ministers or ministries to court.
CIVIL LAWSUITS. As an important sidenote, it is crucial to realize that this reluctance by Christians to sue Christians may be in the process of change, with more willingness to consider legal action these days. A few prominent situations have arisen in recent years where church or ministry leaders, plus their organizations and/or networks, allegedly refuse to take responsibility for things like failure to report known or suspected child abuse within the church, failure to hold toxic leaders in their association accountable for bullying behaviors, and failure to address long-term sexual harassment. (For instance, C.J. Mahaney/Sovereign Grace Ministries, Calvary Chapel association, and Bill Gothard/Institute in Basic Life Principles.)
At some point, survivors of such abuse who have attempted to follow biblical processes for reconciliation and restitution may conclude that the leaders will never truly repent and take responsibility on their own. So, the problem becomes the entire organizational system, whether it is a single church or parachurch ministry, an informal association of churches, or a formal denomination. And then it is not as difficult to consider filing suit against a toxic organization (and its leaders) as a way to force the issues into the light and prevent it/them from continuing to inflict abuse on the next generation.
DISCLOSURE PROHIBITION. In the section on Acknowledgement and Disclosure Prohibition, IRS Fact Sheet 2008-13 notes that “Section 6103 of the Internal Revenue Code prohibits the IRS from disclosing whether it has initiated an examination or the results of any examination. Therefore, the IRS cannot communicate with the original source of a referral beyond the acknowledgement letter.”
This means if one or more people file a Complaint with the IRS against Mars Hill Church, no one at the church would necessarily know because the existence of submissions is not revealed unless the EO revenue agent makes a decision to pursue an investigation. (It could, if a submitter happened to say something that got back to the leaders, though.)
General Reference – IRS Manual and Resources for Non-Profits
IRS Regulations – Potential Implications
- There is a distinction between an organic congregation of people versus an organizational religious non-profit church that is required by law to obey the IRS tax-exemption administrative rules. How does this potentially affect Mars Hill Church and allegations that have come up?
- From what you know of the document evidence (e.g.,official Mars Hill materials and correspondence, etc.) and witness testimonies, list what you see as key allegations.
- What allegations (from former Mars Hill elders and members, current elders and members, researchers and reporters, etc.) potentially match various prohibited activities, according to the IRS materials here, plus from any other sources on required standards that you’ve absorbed?
- What allegations against Mars Hill Church (including those in the Statement of Formal Charges and Issues – Mark Driscoll) may not match with legal organizational requirements of the IRS, but are more on the line of moral/ethical issues based on biblical commands for Christians and for churches?
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03-3. Consider Top 10 Legal Problems of Non-Profits
In 2010 and 2011, several websites posted versions of an article on “Top 10 Legal Risks Facing Non-Profits,” by Melanie Lockwood Herman, Jeffrey S. Tenenbaum, and Kristen E. Sitchler. As we take a look at two versions of this material, see how you think they fit with the categories of concern from the IRS documents.
Top 10 Legal Risks Article – Original Version
The shorter version on Venable has a one-paragraph summary of each of the top 10 issues. Here is their list, plus short quotes from a select few.
- Exposures from social media use, misuse and naivete.
- Going rogue: Unhappy staff and volunteers. Bullying, intentional infliction of emotional distress, assault. Quote: “What’s the board’s role? The board should ensure that an easy-to-use internal complaint procedure is in place and that the CEO sets the tone for appropriate workplace behavior. A CEO who could play the boss in The Devil Wears Prada is a liability exposure your nonprofit cannot afford.”
- IRS Form 990 and federal tax-exempt status.
- Misuse of copyrights and trademarks.
- Lobbying and political activity compliance.
- Third-party sexual harassment. Quote: “Many board members may not be aware that the nonprofits they serve are exposed to claims alleging third-party sexual harassment—illegal harassment committed against employees by vendors or volunteers, or illegal harassment committed by the nonprofit’s employees where third parties such as vendors or volunteers are victims.”
- Failure to limit contracting authority and other common mistakes in contracting.
- Lack of synchronicity in board policy and practice. Quote: “From time to time, every board should examine its practices in light of the nonprofit’s overarching mission. Ask, what would our stakeholders say if a light was shined on our governance operations? Getting the nonprofit’s policies and practices “in sync” with its mission is a worthwhile exercise for every organization.”
- Failure to understand and manage conflicts of interest. Quote: “Nonprofits that fail to manage conflicts of interest run the risk of losing public confidence, or worse, becoming the object of a media scandal. Such risks provide ample reason to avoid even the appearance of impropriety by implementing a well-drafted conflict of interest policy and a transparent disclosure process and procedure for managing conflicts.”
- Reliance on the goodwill, good nature, and insurance coverage of others.
Top 10 Legal Risks Article – Notes-and-Tips Version
The longer version from BoardSource has notes and tips from a teaching session on the 10 issues. This article focuses on the seven issues that presenters talked about the most.
- Social media
- Unhappy employees
- IRS Form 990
- Copyrights and trademarks
- Contracting mistakes
- Conflicts of interest
It helped me process the material in these articles to cluster various items into categories of issues. Here’s what I came up with:
- Personnel, sexual harassment, hostile work environment/bullying.
- Partnerships, contracts, good will, insurance, conflicts of interest.
- Financial transparency and accountability, failure to use designated solicited funds for the intended purpose, inurement.
- Media and communications, social media, intellectual property misuse,
- Legal and administrative problems such as being out of synch with the corporation’s bylaws; conflicts of interest by board members, staff, volunteers.
Top 10 Legal Risks – Potential Implications
- What did you learn from these articles that could help right now in the church you’re at, or in other ministries or non-profit agencies you work with?
- How do these 10 issues relate with the top issues the IRS is concerned about?
- How do they fit in with the 10 categories of Complaint on IRS Form 13909?
- How do these articles add to our understanding of legal issues for organizations?
- How do these articles add to our understanding about moral/ethical issues for the relational organism of a church or ministry?
- Looking at the categories I suggested, what alleged personnel cluster issues have come up at Mars Hill? Similarly, what allegations have come up related to the partnerships, financial, media and communications, and legal and administrative clusters?
- How do your initial opinions about Mars Hill allegations relate with the descriptions in the shorter version of the Top 10 Legal Risks article, and with the expanded tips in the longer version?