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If Chief Justice John Marshall was correct when he observed in 1819 that "the power to tax involves the power to destroy," then the power to take money out of a church offering plate by court order has the same destructive potential. That is what federal appellate courts will be considering this fall in two unprecedented cases arising in Illinois and Minnesota. At stake is the financial security and autonomy of every church, parachurch ministry, and secular charity in the nation.
The first case involves fraudulently obtained money that was donated to religious organizations. Michael Douglas, something of an expert in bilking investors, was at least charitable enough to donate more than $1.5 million to 16 religious charities. When he was sent to prison for mail fraud, however, investors started looking for ways to recoup their losses. This summer they convinced a federal court in the case of Scholes, Receiver v. World Vision to order the ministries to pay back the amounts donated by Douglas. Seven Christian ministries have appealed that order. It is essential to understand that at issue is not that the funds were tainted by fraud, but rather that the donor was insolvent. Under the ruling, when an insolvent donor gives money to a nonprofit organization, the church or charity has received a "fraudulent conveyance."
The case of Christians, Trustee v. Crystal Evangelical Free Church does not involve tainted donations but rather a generous Christian couple in Minnesota who faithfully tithed to their church. When they filed for bankruptcy relief, the trustee representing their creditors sued their church for repayment of all offerings received from the couple during the year prior to the bankruptcy filing. The church has appealed the lower court decisions ordering repayment.
These are watershed cases that could expose church offering plates and nonprofit coffers to the reach of every donor's creditors, including the IRS. They also reveal the potential frailty of the First Amendment ...