Paul Glader: Just to introduce Sam and why I'm reaching out to you today, you're a law professor. Tell us a bit about your work as a lawyer, law professor and your area of research that led me to call you.

Sam Brunson: Right. So I'm a law professor at Loyola University Chicago. Here I teach primarily tax law. My research recently has focused on the taxation of tax exempt organizations and especially of religious organizations.

Glader: Right. I came across your work as I was reporting the story that we broke last night (Monday) on Religion Unplugged and we broke it simultaneously as the Washington Post broke that story as well. It's on page one of the Washington Post today.

Brunson: Right, right.

Glader: The details in the story is that there is a fund or set of funds and that the whistleblower is alleging the Mormon Church registered this investment firm as a 509(a)(3) Supporting Organization to the church and that it receives some tithes from the Mormon Church members, which are considerable. We are talking 12 million [LDS Church] members and billions of dollars of tithe revenue. And the allegation is that some of that tithe money went to the supporting organization, which invested that money. In the last 22 years, the whistleblower alleges, the fund grew from $10 billion to $100 billion and hasn't been used too much [for charitable purposes]. There are some other allegations in the story. But I'm curious, Sam, about your initial take on the story in the Washington Post and on our site and the allegations from the whistleblower around that a 509a(3) or supporting organization shouldn't be used in this manner. Do you have any sense about that?

Brunson: It's interesting. It seems like a strange setup. In the first instance I would say it's unsurprising that a tax exempt organization would have some amount of money, would have investments. They do that. They can do it in-house. The Mormon Church could just have as employees a handful of investment managers and do it in-house. If they did that, it would be from a tax perspective completely uncontroversial. Similarly, if they went to an ordinary for-profit investment advisor, hedge fund and invested the money there, again it would be uncontroversial. They could do that. They wouldn't have to get the money sent back to them. The weird thing here, as you point out, is that it's a nonprofit, a supporting organization or an integrated auxiliary that is the investment fund. The problem with that, and the weird thing about that is that, generally speaking, to be tax exempt, you have to primarily pursue some particular tax-exempt purpose. A church has religious purposes. That's one of the things that's listed in 501(c)3 as a permissible exempt purpose. My employer is a university. Education is another acceptable tax exempt purpose. There are a handful of others, but tax exempt purposes don't include investing. Like you said, to qualify as exempt, it has to do something different than just be an investment fund.

Glader: Right.

Brunson: As a supporting organization or as an integrated auxiliary, the IRS has said that an organization like that can also be a tax-exempt purpose if it engages in a business. But it essentially gives money to a tax exempt organization to pursue its tax exempt mission.

Glader: Right.

Brunson: It's created a standard that it calls the commensurate in scope standard, which is the amount that it gives to the tax-exempt organization to be commensurate in scope with its financial standing. The problem with that standard is the IRS has never really clarified what commensurate in scope means. They also haven't qualified who it applies to. But for the first part on what it means, I mean, we don't know if it means that this type of supporting organization needs to give 50% of its income, 20%, 10%, 5%, 70%. What we do know, or I guess we don't even know this, but it would make sense that 0% is not commensurate in scope. So if the organization has invested this money, has kept this money, has grown this money and has never given any of it back either to the Mormon Church or to any other charitable organization, that probably doesn't, I mean that probably ... I'm an attorney, I can never say anything definitely. But that probably doesn't meet the commensurate in scope requirement.

Glader: Your comments are raising, I think, another point which is about gray areas. There are several things we don't yet know despite the fact I've been working on this [story] for a month… We, in our story, decided to focus on the things that we could verify or that were concrete… During my reporting, I came across a paper that you had written in recent years at the “Dialogue: A Journal of Mormon Thought.”

Brunson: Yeah.

Glader: You walked through some of the present, past and future of LDS financial transparency. I quote some of that paper in our story and I'm just curious now, maybe you just want to talk a bit about what you went through in that piece and how it relates to this story out today about the LDS Church.

Brunson: Right. Historically, I mean up until say the 1890s, the Mormon Church didn't have ... Well it had off and on commenced an amount of assets, but in the 19th century ownership, capitalism was kind of relatively new and they did weird things. In the 20th century, the church started to discuss its finances with members in public. So the Mormon church twice a year holds what they call a general conference, which is essentially, I mean it's like old Methodist conferences of the 19th century that has transformed into basically a worldwide meeting. Early on there was some disclosures. Someone, the speaker, the church president or someone high up in the hierarchy would say, "Hey, over the course of the last year or over the course of the last 10 years, in one instance, we've raised this much money in tithing. We own these many cows, this much land, this much information. We've used that money to support this many missionaries and to build this many buildings," and stuff like that. It would lay out the various finances, the intakes and the outputs of money. Those were more and less specific over time. It wasn't really a pattern. There wasn't a strong pattern to it. It's not like every year they gave the exact same format, the exact same information. And it may well not have been a comprehensive look at the finances. But it was at least a look at the finances. It was a look at how much the church had brought in, how much it had gotten rid of. That went down during some periods. In the 1950s there was a church leader who was pretty specific about providing a lot of detail. The detail he provided tended to run four to six printed pages.

Glader: Wow.

Brunson: But then when he was no longer part of the top of the hierarchy, suddenly in 1959 the Mormon Church stopped talking about its finances. It stopped publicizing the finances. It never said why it did that. Most people believe that it did it because it turns out that it had been running a deficit... and that it was in debt. The church is gun shy about debt for normal reasons, but also for historical reasons. There have been some bad situations it had with debt. So suddenly 1959 the church stopped making those disclosures. Today instead of that, it still makes a financial disclosure, but the financial disclosure is essentially done by an in-house accountant who says, "We've audited the books and everything is in order."

Glader: Okay, and that person reads one statement every April you said. Yeah. Right?

Brunson: Yes. I don't know if it's word for word the same, but it's virtually the same every year. It just tells us that the church is in compliance with best practices GAAP accounting.

Glader: Right. Why this is interesting, and two, relevant to the story of today, is around the tithing issue. I mean, a lot of religions want donations from their members and that's part of the practice of religion is people give tithes or 10% of their income. For the Mormon or the Church of Jesus Christ and Latter-day Saints, it's a particular practice around tithing that I want you to describe in a minute. But I also want to make something clear here in the conversation that Religion Unplugged and myself are not anti-religious or anti-Mormon. In fact, we understand very well that the Mormon church has, and its people have experienced terrible persecution in the history of the United States. I just want to make that clear. At Religion Unplugged, one of our beliefs is that press freedom and religious freedom are two important values in the First Amendment and in general and for the good of society. I just want to emphasize that over and over in this conversation and any conversations that we have on these topics. But back to this issue of tithing, could you explain to us how the LDS Church approaches tithing differently maybe than other denominations or American religions?

Brunson: For the LDS Church, tithing has changed over time. In its current iteration, it's a payment of 10% of a member's income. The church is actually not ... has not spent any time and has actually refused to define what they mean by income.

Glader: Is the LDS Church more stringent on how it requires tithes and how, in terms of this, I've heard about the temple recommends.

Brunson: Right.

Glader: And what that brings. What does that mean?

Brunson: To hold a temple recommend, which is basically permission to go into the temple. The Mormon church has normal meeting houses, anyone's welcome, anyone can come in for meetings, and temples, which are limited to certain members who do certain things. One of the things required to go to a temple is to be what the church calls a “full tithe payer.” Full tithe payer means essentially you pay 10% of your income in tithing. But even there there's significant ambiguity. Essentially it turns out that the church doesn't have the ability to audit its members. So full tithe payer is a self-reported thing.

Glader: Okay.

Brunson: The church ... I get paid by Loyola University Chicago, which is a Jesuit University. The church doesn't see my pay stubs. I can't ... They can ask and I can say no. Though essentially they take my word that I pay a full tithe.

Glader: Okay, and yeah, and just I saw in your bio that you went to Brigham Young University.

Brunson: I did. I'm a practicing member of the Mormon Church.

Glader: Okay. I was curious. Yeah. I think that helps us know that you know what you're talking about too.

Brunson: Hopefully.

Glader: Yeah. Then back to this story, one of the issues raised is if tithe money is flowing into Ensign Peak Advisors, the name of this fund via the Office of the President of the Mormon Church. There was two reported uses of the fund. One was to pay for $1.4 billion, the whistleblower alleges. I've seen slides and have evidence to suggest it could be or is accurate that $1.4 billion from this fund went to help the City Creek Mall development project in downtown Salt Lake City. That mall was competing with other retailers, a project called Gateway in a downtown Salt Lake City. There were public statements by leaders of the LDS Church that no tithe money was used in building of that mall in several newspapers like both Salt Lake Tribune, Deseret News and others.

Glader: Is that concerning? One could say, well maybe money is fungible and was it tithe money or investment money? But does that part of the story concern you as a member of the LDS Church?

Brunson: I love that you beat me to the money is fungible point.

Glader: Okay.

Brunson: You're absolutely right. For me, I tend to be less concerned about the City Creek thing, about things like that. I understand what people's concern is. I'm not convinced that there is a problem with this. There may be a reason that it shouldn't have been done, but the church, the investment fund can certainly invest more money into an investment, invest more money into a project. I saw in the Post reporting that the whistleblower alleges that it wasn't listed as a loan or as an investment. I think if I'm not wrong about that, honestly, I don't know what that means. If they put money in and they're not getting it paid back then it's an additional capital call. It's an additional investment. Should the church have invested in a shopping mall? I personally tend to be anti-mall, but I live in a big city as do you where malls are maybe not so cool. So I don't love it as an investment strategy. But the fact that they're investing in a for-profit endeavor doesn't strike me as wrong.

Glader: Right. Okay. Interesting. I know you have to go fairly soon and I wanted to ask, on the top of your paper that I referred to, it says, "Sunlight is said to be the best of disinfectants. Electric light, the most efficient policeman." I'm curious about your take on financial disclosure or transparency for the religion in this story, LDS religion, but also other religions in America. As an expert and a lawyer on the topic, I'm curious to hear your take on that, and if this story gets to that in some way.

Brunson: Right. I don't think that there's a compelling reason why churches and other religious organizations shouldn't have to disclose and file the IRS form 990 like all other tax-exempt organizations. I can understand some people have made the argument that doing this would be oppressive for small churches without a lot of assets and who may not have the ability to hire someone. But frankly, that's true for any small tax-exempt organization. In fact, tax exempt organizations, I forget the exact numbers, but below a certain level of revenue and assets, they file a very, very simple version of the form 990. I think that the arguments that small churches won't be able to do it kind of misses the point because small churches have to do something less. I don't know. I mean I don't think most people are going to be reading their church form 990 for pleasure reading and for fun. I don't think most people understandably would really understand what it has. People have higher priorities than figuring out how to read obscure IRS documents. But I think that there is value. Many people, myself included, donate money to religions and to other organizations. Even if I don't look at the form 990 for say the Harris Theater, a dance and music theater that's a nonprofit here in Chicago, the fact that I could, and the fact that there are probably eyes on it helps me be comfortable that they're probably doing good things with the money.

Glader: Yeah. And did you look at the 990-T’s that Ensign Peak Advisors has filed? Because it was also puzzling… both the Post story and my story on Religion Unplugged note that is interesting. They list the book value as for several years it was at $1 million and then at one point they said over $1 million book value and then in 2017 stopped putting a book value. But there were other indicators that I had showing that it (the organization) was that same year worth in the billions of dollars… I think some of us are puzzled the 990T didn't seem like a) either it was not filled out properly or b) it was filled out properly and it's not a great representation perhaps of the size and scope of the organization if the whistleblower is correct.

Brunson: That is a real problem. The 990 doesn't give us all the information you could possibly need about an organization. I haven't looked at the 990-Ts. Now that you mention them I have my next project to do. But keeping it at book value, it would make sense that they stay roughly the same because the book value is essentially not the fair market value, not the current value, but the value, the amount that you paid for them. I don't know why it would drop off. I don't know if the filing requirements changed or if they got lazy or if they got a new accountant.

Glader: Okay. Last question. I saw you quoted somewhere by someone who was trying to write about the Catholic Church and the assets of the Catholic Church a few years ago. You were quoted saying something about how the U.K. and another country do have different disclosure requirements. I wondered if you could explain that again? The American disclosure requirements for religious organizations compared to other countries? And related to that, what do you think would be a better model or the IRS might want to think about doing in a way that couldn't harm religion or religious freedom but might improve visibility?

Brunson: I know the U.K. and Canada require all nonprofits to provide financial disclosures. They're slightly different. The UK version has charts and is a lot easier on your eyes honestly than the U.S. version. And those two countries don't have exemptions for religious organizations. For instance, there is a Mormon church kind of subsidiary in the United Kingdom and it files disclosure for its finances. Basically the money that it raises in the United Kingdom plus money contributed by the central church minus money that it contributes back. Canada has roughly the same thing. Those can give us a picture of various church finances. The Mormon Church is kind of unique in this in that it's all centralized. The Catholic Church, for instance, every diocese is a separately incorporated organization that owns its own property. The Vatican may be over everything, but the Vatican doesn't own the property owned by the Archdiocese of Chicago. In the Mormon church, the central church owns all of the church property.

Glader: Right. Okay. Interesting. Well, thank you so much for joining us. Any final thoughts before you have to run?

Brunson: No, it's an interesting story. I think it raises really interesting questions. The tax questions highlight the ambiguity and my students always come into tax law thinking finally they're going to get something that's just black and white easy. It's nice to illustrate that even we have a lot of ambiguity in the tax law. I think it illustrates a certain amount of discomfort that we have with the idea of religion and money. It's not a discomfort that we necessarily need to get over, but it's a discomfort that we need to confront in a way that you guys are doing a great job of raising these issues, but that Americans in general aren't super comfortable talking about religion or about money, much less the two together.

Glader: Right.

Brunson: I think that we lose out when we don't combine those things.

Glader: I agree with you. Thank you so much for joining us, Professor Brunson. Great to talk with you today.

Brunson: Thank you. Have a great afternoon.