In January, the National Religious Broadcasters (NRB) formally established its Ethics and Financial Integrity Commission (EFICOM), giving NRB members three months to comply or lose their membership. But according to those in charge of implementing the EFICOM program, the effort to ensure financial accountability among religious broadcasters has not progressed as swiftly as was hoped.

“The path we have undertaken is a very complex program,” said Thomas Zimmerman, the NRB official in charge of overseeing EFICOM. “We’ve made progress,” he said, but added that the three-month deadline was “very optimistic.”

One of the first tasks faced by EFICOM administrator Arthur Borden, who is also the president of the Evangelical Council for Financial Accountability (ECFA), was to identify the actual membership of NRB. In the organization’s 1989 Directory of Religious Broadcasting, the organization is described as “a 1,450-member association of religious radio and television broadcasters.”

However, Borden says that number “refers to broadcast outlets [individual stations] of NRB members.” Actual membership is 825 organizations, according to Borden.

Of these, by press time only 64 had applied for and received EFICOM accreditation. An additional 96 were granted EFICOM approval by virtue of their membership in ECFA, whose standards are similar to EFICOM’s. Borden said 127 organizations have been identified as for-profit corporations (see “Corporate Primer,” right) and an additional 27 as foreign corporations. Neither of these two groups of broadcasters is required to abide by EFICOM standards.

Borden is still seeking information on 361 NRB members, the majority of which he suspects are profit-making corporations; this would explain why they have taken no initiative to seek EFICOM certification. Finally, some 150 organizations are at some stage of pursuing such approval. In many cases, organizations have asked for more time to align their practices with EFICOM standards.

Corporate Primer

Not-for-profit corporation. An organization is classified as not-for-profit (or nonprofit) if it is not publicly owned; that is, if it issues no stock and thus distributes no profits to shareholders. A nonprofit organization is not required to pay taxes on its profits. It does have to pay taxes on income unrelated to its essential purpose.

There are many categories of nonprofit organizations, including labor unions and social and recreational clubs. Charitable organizations compose the largest category; rules applying to charities are found in Section 501(c)(3) of the IRS Code.

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501(c)(3) organizations. All parachurch organizations, including many television and radio ministries, are classified as charities, or 501(c)(3) organizations. Unlike the other categories of nonprofit organizations, donations to 501(c)(3) groups are tax deductible.

These organizations are required yearly to file a Form 990 with the IRS. The form requires financial information on the organization, including the salaries of its top employees. Compensation and benefits of these employees may not be “excessive” in the judgment of the IRS. About two years ago the IRS required organizations to make Form 990 available at their headquarters for public inspection.

A 501(c)(3) may do an “insubstantial” amount of lobbying, defined in terms of the percentage of its income spent on lobbying. If an organization chooses to become a 501(c)(4) organization, it may do an unlimited amount of lobbying. Donations to 501(c)(4) groups, however, are not tax deductible. Under no circumstances may a charitable organization of any kind participate in partisan politics.

Churches. Technically a church is a 501(c)(3) but enjoys benefits not extended to other charities. Churches, for example, need not file with the IRS for 501(c)(3) status; neither must they file a 990 form. Thus the government has no vehicle through which to monitor churches. Churches also receive tax benefits not given to other 501(c)(3)s.

The organizations of some well-known religious broadcasters are incorporated as churches. The IRS, however, is in the process of trying to define what legitimately constitutes a church.

Another Approach

The NRB is not the only entity seeking to hold religious broadcasters financially accountable. The U.S. government appears to be moving in the same direction, according to Nancy LeSourd, an attorney for the Washington, D.C.-based law firm Gammon & Grange, which specializes in nonprofit corporate law.

Last year, Congress requested that the IRS issue quarterly reports on its investigation of over 20 television ministries. In its March report, the IRS suggested its probe could result in the revoking of the tax-exempt status of some ministries. The IRS, LeSourd said, is looking more closely into several areas, including:

Private inurement. Those who control charitable organizations may not receive what the IRS considers “excessive compensation,” which encompasses salary and benefits. This is perhaps the major focus of the hearings initiated by U.S. Rep. J. J. Pickle (D-Tex.) and the Subcommittee on Oversight of the House Committee on Ways and Means. One major concern, said LeSourd, is the issue of book royalties. Some religious figures achieve financial gain from the sale of books promoted by tax-exempt ministries.

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Unrelated business income. Nonprofit corporations must report income from the sale of goods or services not related to their tax-exempt purpose so that such income can be taxed. Nonprofit organizations paid $120 million in taxes on unrelated business income in fiscal 1987, up from $54.9 million the year before. This indicates that not-for-profits are increasingly competing with their for-profit counterparts. Small businesses have put pressure on Congress to verify whether nonprofits are claiming all their nonrelated business income. The IRS has modified the information gathering process, requiring a more specific justification of expenses claimed as related.

Political activities. LeSourd believes that during last year’s election season, some charitable organizations violated the prohibition against partisan political activity by masking such activity, for example, as educational. Lobbying regulations were released by the IRS late last year for the purpose of curtailing such abuses.

Disclosure practices. Last year the IRS embarked on a special effort to monitor nonprofit organizations’ fund-raising practices. A major issue is the practice of issuing premiums to donors. Legally, it is the donor’s responsibility to determine the market value of a premium received for a donation, since that portion of the donation is not tax deductible. But some organizations are not up-front about informing donors of the value of premiums.

LeSourd credited ECFA with being “forward thinking” in this area, noting that ECFA has consulted with the IRS in developing policies addressing this concern.

Defining A Church

The emphasis by the recently departed Reagan administration on decentralization, according to LeSourd, has spelled bad news for religious organizations, as some states have moved to cancel these groups’ property-tax exemptions. “This is the government’s right,” said LeSourd, adding that Christian organizations must simply live with this reality. LeSourd is concerned, however, about what she perceives as the IRS’s view—shaped by the PTL debacle—of religious organizations as mere commercial enterprises. “I’m not convinced the IRS understands parachurch organizations,” she said.

And as the IRS seeks to determine whether religious organizations deserve tax-exempt status, she adds it is “trying to figure out who’s a church and who isn’t.”

Some Christians have even been asked to provide pictures to IRS auditors of churches to which they contributed. “The IRS looks for steeples and choir robes,” said LeSourd, adding that these believers eventually succeed in convincing the IRS that their churches are legitimate.

By Randy Frame.

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