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Continued: Aug. 22, 2008: Pastor, Brooklyn Park church fight rare IRS audit

  • Article by: JON TEVLIN , Star Tribune
  • Last update: August 21, 2008 - 11:48 PM

Facing complaints about his church's tax-exempt status in February 2007, the Rev. Mac Hammond took to the pulpit on live television and said he would "almost welcome an IRS audit."

About two months later, Hammond got his wish, according to documents recently filed in U.S. District Court in Minneapolis.

The Internal Revenue Service is conducting an unusual investigation into whether compensation and loan deals between the Living Word Christian Center of Brooklyn Park (LWCC) and its pastor violated laws for tax-exempt organizations.

The IRS has asked the court to force the church to comply with a demand for detailed financial information. The church failed to respond to a March summons.

"We have complied with everything the IRS has asked us to do," said the Rev. Brian Sullivan, spokesman for the church. He said LWCC is concerned that the IRS is not following procedures designed by Congress to protect churches from politically motivated inquiries.

According to the petition, the IRS wants to examine Hammond's compensation, benefits and deals in which the church financed an airplane for him, which he in turn leased back to the church. The IRS also is asking for details on loans for Hammond's residence that were later forgiven by the church.

If the IRS is successful, the probe could have national implications. Sen. Chuck Grassley, ranking member of the Committee on Finance, has asked six media-based ministries for information regarding their finances to make sure tax-exempt organizations are accountable to donors.

One of those ministries is run by the Rev. Kenneth Copeland of Texas, a mentor to Hammond. Hammond serves on Copeland's board, and Copeland's son, John, serves on the board of the LWCC.

In January, Copeland rejected the Senate Finance Committee request for records. "It's not yours, it's God's, and you're not going to get it -- and that's something I'll go to prison over," Copeland said at a meeting of ministers that Hammond attended.

Copeland has still not cooperated and "we are weighing the next steps," said Jill Gerber, a press secretary to Grassley.

Audit rare

Jon Pratt, executive director of the Minnesota Council of Nonprofits, said it's rare for a nonprofit to be investigated by the IRS.

"If they suspect tax avoidance, it's going to be a big sweep," Pratt said. "This is a point where church board members might be concerned. Regardless, the process is very painful."

Hammond first drew attention for his financial dealings in October 2006 when a legal watchdog group, Citizens for Responsibility and Ethics in Washington (CREW), accused him of violating his tax-exempt status by endorsing Michele Bachmann for U.S. Congress from the pulpit.

The IRS first notified the church of an investigation on April 20, 2007, according to court documents. The church has repeatedly denied an investigation was under way.

Sullivan, the church spokesman, said Thursday that because the church has been corresponding with the IRS, its officials didn't feel that an investigation was under way until recently.

He said the IRS decided to not further investigate the church's political activities, which dismisses the complaint about the Bachmann endorsement.

"We've been completely cleared," Sullivan said.

CREW also questioned the plane deal between Hammond and the church. It said the church paid Hammond twice the amount per month to rent the plane than Hammond paid the church to buy it. The lease-back deal may violate tax law "inurement" rules barring financially favorable deals to insiders, CREW argued.

Pratt said those charges could mean steep fines or even the removal of tax-exempt status from the church if they are proved.

The IRS delivered a summons to Hammond on March 21, asking for his employment compensation records, fringe benefits, documents detailing outside businesses, expense and travel reports, and evidence of repayment of a $539,000 loan and a $117,000 loan. The IRS also asked for all financial agreements over his aircraft.

On April 4, LWCC's attorney notified the IRS that the church did not intend to comply with the summons, arguing that the notice of inquiry was not made by "an appropriate high-level IRS official," using "reasonable belief."

"We don't feel we have anything to hide," Sullivan said. If the court rules against the church, it will comply fully, he said.

On Aug. 12, a U.S. magistrate ordered Living Word to appear in court on Oct. 2 and argue why it should not be compelled to obey the IRS summons.

Earlier this year, with his church struggling, Hammond told his congregation and colleagues that his jet was up for sale. Sullivan said that plane is grounded and for sale. Meanwhile, Copeland has donated a Citation I airplane to LWCC.

Hammond has two planes, the other being a stunt plane. He has said he needed the jet because he ministers at churches across the country. Last year, he also acknowledged that he sometimes used the plane to travel to his two homes in Destin, Fla., and a review of public flight plans shows numerous trips each year. Hammond said he reimburses the church for personal trips.

This is not Hammond's first brush with the IRS. After an air cargo company he owned failed in the 1980s, Hammond owed more than $100,000 in back taxes and interest, which he ultimately paid.

Hammond said in court documents in 1988 that, "We had no personal assets of any significance [in 1981], and still have none: we do not own a home, we do not have an investment/retirement/savings accounts."

Hammond has since prospered. Last year, records show, his Destin homes were worth more than $3 million. He pays no taxes on his Plymouth home, and has a number of luxury vehicles and boats registered in his name.

Hammond has expressed disdain for the IRS, including an allegation in 1988 court files that "the IRS has conducted itself in a disgusting manner, with arrogant disregard for the moral, ethical and legal standards that no office of government should be above."

A former board member of Hammond's church, Robert Beale, was convicted this summer of tax fraud and fleeing to avoid prosecution. The church distanced itself from Beale after he was arrested, saying Hammond disagreed with Beale's antitax philosophy.

Hammond's church's creed, often called the "prosperity Gospel," says that following God's word will lead not only to spiritual salvation but also earthly wealth.

"I think it's important that I not be embarrassed about the increase the Lord does bring me," Hammond said last year.

Jon Tevlin • 612-673-1702

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