Exempt Organizations Church's Airplane Leaseback Deal Generates CREW Complaint to IRS

13 Feb 2007 // Citizens for Responsibility in Ethics in Washington (CREW) Feb. 9 filed its second complaint against a Minnesota church, asking the Internal Revenue Service to investigate its tax-exempt status because of alleged "insider" dealings by the church's senior pastor and founder.

CREW alleged that James Hammond, senior pastor of Living Word Christian Center (LWCC), may have violated tax laws by purchasing a plane from the church in a leaseback deal, and by allowing the church to pay for maintenance costs of another plane he owns.

CREW filed an earlier complaint against the church in October alleging it had violated the prohibition against electioneering by churches.

CREW's latest complaint alleges that the church engaged in illegal financial transactions with Hammond. CREW said Hammond "personally benefitted from the church due to his 'insider' status as a senior pastor and member of the board of trustees," according to a CREW release.

Hammond and his wife are two of the seven members of the LWCC's board of trustees, making them insiders under federal tax law, CREW said. Tax law prohibits insiders from benefitting from a 501(c)(3) organization.

CREW said it obtained the loan documents from the blog Minnesota Monitor. The loan documents showed that LWCC "showered Hammond with favorable financial deals, including a scheme under which Hammond purchased a plane, partially on credit, from the church, then leased it back," CREW said.

"The church then paid Hammond twice the amount per month to rent the plane that Hammond paid the church to buy it," CREW said.

The plane remained in Hammond's possession while the church paid all of the related expenses, including rent to store the plane in Hammond's own hangar, CREW said in the release.

'Favorable' Loan Rates

CREW also alleged that, from 1999 to 2004, LWCC made Hammond eight loans totalling $1.9 million at "very favorable rates and terms." Two of the loans were related to the purchase of the plane Hammond then leased to the church; three were unsecured in any way; and another was for Hammond to buy a private house in Florida, the legal watchdog group said.

"Pastor Hammond and the LWCC have shown a disturbing pattern of violating federal tax law and the IRS has done nothing," Melanie Sloan, CREW's executive director said in a release. "The IRS has not hesitated to target liberal organizations. When will enough be enough and the IRS finally step in and investigate a conservative church that has repeatedly demonstrated its contempt for federal law?"

Stunt Plane

CREW Feb. 9 supplied IRS with additional information from the loan documents it received from the Monitor blog suggesting that LWCC also may have been paying for a stunt plane that Hammond owns.

CREW said that, under the terms of the deal, the church paid all fuel and maintenance costs associated for both planes, one of which was also used for transporting Hammond and guests to and from church events throughout the United States.

CREW said Federal Aviation Administration registration records reveal that Hammond currently owns a 1995 Flugzeugbau EA-300L, a small two-seat "stunt" plane, which the manufacturer described as "without a doubt, the premiere aerobatic, sport and professional aircraft on the market today," according to CREW.

The organization said it was unclear how long Hammond has owned the plane and whether LWCC paid for any of its related costs.

The leaseback deal may violate tax law inurement rules barring financially favorable deals to insiders like Hammond, as well as prohibitions against using charitable resources to compensate insiders for activity not related to the organization's exempt purpose, CREW said.

Sloan said that, if LWCC was paying for costs associated with a stunt plane, the church would be in violation of federal law.

"Simply put, Mr. Hammond's church should not be supporting his aerobatic flying hobby. It is long past time for the IRS to investigate LWCC and resolve whether or not its financial dealings are as illegal as they appear," according to an organization release.

LWCC Response

Hammond could not be reached for comment. However, the law firm of Lindquist & Vennum, which represents the Marshall Group, LWCC's mortgage broker, demanded that CREW remove a confidential information memorandum on the transactions involving the church from CREWs Web site.

Crew refused. It said the law firm had identified no binding legal authority and it knew of none that would require it to comply with the law firm's demand. It said there was nothing improper about the way CREW acquired the memorandum or its posting of it on the Web site. It added that CREW was not the only entity in possession of the memo.

Lindquist & Vennum attorney Ansis Viksnins said the document and its contents were "confidential" and "proprietary" and prepared by The Marshall Group and disseminated "to a limited number of persons who were potentially interested in participating in a loan transaction involving The Living Word Christian Center in Brooklyn Park, Minnesota," according to a letter from the law firm to CREW.

The confidential information in the memorandum reported "detailed financial information of The Living Word Christian Center, described its borrowing history and future plans, reports information concerning the leadership of the church, and includes information that was provided to the Marshall group solely for purposes of obtaining financing," the letter said.

"These restrictions most certainly apply to CREW and any other persons or entity that receives a copy of the CIM," it said, threatening further action in the form of injunctive relief.

The Marshall Group memo said the lease arrangements for the plane "are no more expensive than if secured from an independent provider," and that the airplanes are used "to transport the senior staff to national events and speaking engagements and to transport guests, speakers, educators and others to and from the LWCC's main campus in the Minneapolis area."

The CREW complaints, the letter from Lindquist & Vennum, and CREW's response to the law firm, are at http://www.citizensforethics.org/.