Church Settles with SEC

[Just_A_Guy]

KSL news story

SEC settlement order

SEC press release

Church press release

Thoughts:

1) Given the size of the funds at play, $5 million is a slap on the wrist,

2)  Lesson to self:  never assume the Church’s lawyers know what they’re doing.

 

 

[laronius]

Coming from a tax background, often when laws are made there are lots of gray area that aren't specifically addressed by the law and only get settled once the government decides to take legal action against someone who interpreted that gray area differently than they do. This is where much of the details of law get hashed out and precedence is established. But until then individuals and institutions have to do their best at interpreting the law. 

[The Folk Prophet]

My thoughts:

1. Bureaucratic nonsense.

2. Taxation is theft.

[Carborendum]

3 hours ago, The Folk Prophet said:

My thoughts:

1. Bureaucratic nonsense.

2. Taxation is theft.

I was going to point out that this was a fine rather than a tax.  But it made me realize that this wasn't about the paper-pushing at all.  It was about the Feds getting a clear look into the assets of the LDS Church.

I did a quick lookup on three of the major charities I'm aware of.  None of them have nearly as many assets as the Church does.  The closest one (among my small sample size) was the Bill & Melinda Gates Foundation with nearly $50B in assets.

Has any charity acquired assets comparable to the Church?  I'm asking.

I would guess that the IRS is going to make some changes to tax laws pretty soon.  They aren't going to tax "the wealthy" or for profit "corporations."  They're going to limit the assets of charities to a certain cap before they have to consider their "income" as "profits" which will be subject to corporate tax rates.

This is a double edged sword.  So far, the IRS has been the whip to keep the Church silent on political matters to a large degree.  Take that away, and, yes, a lot of our tithing funds will end up going to the government.  But it may also free the Church's tongue on political matters.

OMT.  The Church has been wise in saving money for a VERY long time.  One thing that taxing a corporation does is that the corporation is thus encouraged to spend more to increase economic activity.  But the purpose of the Church is not to improve the economy (at least not directly).  Funds and assets are to prepare for the Lord's Second Coming.

Well, I happen to know someone who can design entire cities from farms and houses to commercial areas and industrial complexes.  And he'd be happy to be a part of that plan.

Edited February 22, 2023 by Carborendum

[The Folk Prophet]

11 minutes ago, Carborendum said:

I was going to point out that this was a fine rather than a tax.

It was a fine because of taxes though, ultimately, wasn't it? I mean I haven't looked into it that thoroughly, but wasn't it a law-suit related to hiding income related to taxable income? Maybe I'm wrong.

[Carborendum]

1 hour ago, The Folk Prophet said:

It was a fine because of taxes though, ultimately, wasn't it? I mean I haven't looked into it that thoroughly, but wasn't it a law-suit related to hiding income related to taxable income? Maybe I'm wrong.

No.  

While I subscribe to the notion that, at the end of the day, taxes and fines often amount to the same thing, it was a fine, and an appropriate one. 

A fine is a tax for doing something wrong.
A tax is a fine for doing something well.

The filings did, indeed violate the law as they were done.  The lawyer goofed.  There really is no gray area here (from what I read in the settlement order).  They were attempting some creative accounting.  And they goofed.  And as @Just_A_Guysaid, it was a slap on the wrist considering the funds in question.  It was about 4/1000 of 1% of assets in question.  And 80% of that was paid by the accountants/lawyers.  Only 20% of the fine will be paid from the return on Church investments.

That tells me that the Church is paying less than 1/1000 of 1% of the assets, and some accountant(s) at EPA will be fired.  You can't lose $4MM on a single decision and not have some consequences... Unless it was one of the Principals at the company.  Even then, he may be required by the other principals to pay something out of his own pocket.

Edited February 22, 2023 by Carborendum

[scottyg]

31 minutes ago, Carborendum said:

Has any charity acquired assets comparable to the Church?  I'm asking.

As far as I can see, only the Catholic Church is more valuable in monetary terms. Others like Novo Nordisk or the Gates foundation are both less than the LDS church, but those are foundations...not charities. Not much of a difference by definition, but still less.

Edited February 22, 2023 by scottyg

[LDSGator]

The SEC has thousands of fun ways to fine people. This isn’t a big deal-sometimes all companies have to do blink the wrong way and the SEC gets fussy. 

Edited February 22, 2023 by LDSGator

[The Folk Prophet]

12 minutes ago, Carborendum said:

No.  

While I subscribe to the notion that, at the end of the day, taxes and fines often amount to the same thing, it was a fine, and an appropriate one. 

A fine is a tax for doing something wrong.
A tax is a fine for doing something well.

The filings did, indeed violate the law as they were done.  The lawyer goofed.  There really is no gray area here (from what I read in the settlement order).  They were attempting some creative accounting.  And they goofed.  And as @Just_A_Guysaid, it was a slap on the wrist considering the funds in question.  It was about 4/1000 of 1% of assets in question.  And 80% of that was paid by the Ensign.  Only 20% of the fine will be paid from the return on Church investments.

That tells me that the Church is paying less than 1/1000 of 1% of the assets, and some accountant(s) at EPA will be fired.  You can't lose $4MM on a single decision and not have some consequences... Unless it was one of the Principals at the company.  Even then, he may be required by the other principals to pay something out of his own pocket.

Fine. (Pun intended). 

I acquiesce.

[Just_A_Guy]

This isn’t technically a tax issue; it’s an investment disclosure issue.  

I am not an expert in securities law; but I think the fundamental rationale behind these kinds of requirements is that the market wants to know who the high rollers are and corporations want to know who their (voting) shareholders are (or, in the light of various acquisition/buyout offers, are likely to be).  I don’t think it’s THAT big of a deal for an investor like the Church, whose strategy is usually to buy and hold for the long term and (as far as I know) doesn’t tend to get very aggressive about the business plan or intra-managerial politics of the corporations it holds shares in.  But in the world of venture capital, it could be more of an issue.

Edited February 22, 2023 by Just_A_Guy

[Vort]

1 hour ago, Just_A_Guy said:

This isn’t technically a tax issue; it’s an investment disclosure issue.  

I am not an expert in securities law; but I think the fundamental rationale behind these kinds of requirements is that the market wants to know who the high rollers are and corporations want to know who their (voting) shareholders are (or, in the light of various acquisition/buyout offers, are likely to be).  I don’t think it’s THAT big of a deal for an investor like the Church, whose strategy is usually to buy and hold for the long term and (as far as I know) doesn’t tend to get very aggressive about the business plan or intra-managerial politics of the corporations it holds shares in.  But in the world of venture capital, it could be more of an issue.

I was under the impression that the SEC put laws in place almost a hundred years ago to prevent monopolistic behavior, one of which was that you can't hide assets from the governing bodies by hiding them (the assets, not the governing bodies) in shell companies.

This appears to be exactly what happened—though I openly concede that I don't really know what I'm talking about and am just trying to make sense of what I read. It sort of looks to me like the First Presidency and Quorum of Twelve level were very concerned about keeping the Church's assets from public knowledge*. I can picture some well-intentioned, young-ish up-and-comer at Ensign Peak Advisors hatching a plan to stay juuuuuust inside the legal lines by dividing things up among a bunch of smaller corporations to minimize the total dollar amount on the spreadsheet and convincing his superiors that this plan would work just fine, to everyone's satisfaction. I can then see the First Presidency (President Hinckley at the time, I believe) saying, "Okay, if that fulfills our desires and is legal, let's go with it." And then things start to go sideways, until here we are. At least, that's my perspective on it.

*Gee. I wonder why. It couldn't be that hypocrites and liars would then try to paint the Church as primarily a money-making organization and seek to destroy them by falsely portraying the Church as a money-hungry capitalist venture. No, it must be because the Church was seeking to cover their nefarious acts and goals, such as feeding the hungry, clothing the naked, ministering to the sick and afflicted, building meetinghouses and temples for the Saints, and other such devilish activities.

[askandanswer]

I suspect that an element of the church's approach to investments and the management thereof will always be influenced by memories of what the government did to the church under the Edmunds-Tucker Act.

[Just_A_Guy]

2 hours ago, Vort said:

I was under the impression that the SEC put laws in place almost a hundred years ago to prevent monopolistic behavior, one of which was that you can't hide assets from the governing bodies by hiding them (the assets, not the governing bodies) in shell companies.

The impression that I get via the Twitter feeds of some knowledgeable folks is that this (shell corporations) does happen quite a bit in the for-profit world.  Maybe they are  more careful to make sure the shells are actually making independent investment divisions (unlike the Church’s shells, which were wholly directed by Salt Lake); or maybe this symbolizes a broader shift in the way the SEC is going to start approaching these kinds of situations.

The relatively minuscule size of the penalty suggests to me that the SEC is largely buying the Church’s protestations that it acted on legal advice in good faith.  

Edited February 22, 2023 by Just_A_Guy

[mikbone]

1 million USD is akin to Matthew 17:27 back in the day.  

This is our government's answer to a right to a speedy trial of what was discovered back in 2019.

Every news agency is treating this as a new finding.

 

Oh well.  

[LDSGator]

1 hour ago, mikbone said:

 

 

Every news agency is treating this as a new finding.

Slightly off topic-I’m going to guess that the overwhelming majority of Floridians have not heard about this story or just don’t care. Church news just isn’t a topic of interest down here. 

[Carborendum]

1 hour ago, mikbone said:

1 million USD is akin to Matthew 17:27 back in the day.  

I'd really like to see a million dollars pop out of a fish's mouth.  That would solve a lot of problems for me.

[JohnsonJones]

Despite people thinking this is a slap on the wrist, I think this was the maximum fine they could level.

Slap on the wrist or not, this is the highest amount they could fine from the little I know of the situation (haven't read the papers, or looked into it more deeply than what I've read on this thread).

[Carborendum]

1 hour ago, JohnsonJones said:

...this is the highest amount they could fine from the little I know of the situation (haven't read the papers, or looked into it more deeply than what I've read on this thread).

What statement(s) "on this thread" led you to believe this?

[askandanswer]

On 2/23/2023 at 11:13 AM, Carborendum said:

I'd really like to see a million dollars pop out of a fish's mouth.  That would solve a lot of problems for me.

And probably for the fish as well.

Have you been fishing lately? Remember, faith without works is dead. 

[Just_A_Guy]

2 hours ago, askandanswer said:

And probably for the fish as well.

 

Diner:  “This smoked salmon isn’t the life-changing experience you said it would be.”

Waiter:  “Well, from the fish’s perspective—it was!”

[NeuroTypical]

I once did a season at a tax office.  Looking for a possible retirement gig - I know a few people who travel around in their RV, stop in some random state and work a season, then move on.   Some things I learned:

- The tax code should never be confused for some sort of moral, just, or right thing.  It's a schizophrenic and flawed battle ground for politicians, strewn with discarded hulks of partially hollowed-out reforms, changes, and additions from a century of tinkering for the purpose of winning elections.  Much of it makes absolutely no sense, and flat out contradicts other areas.  It's an indecipherable mishmash of corporate welfare, individual/family welfare, assaults on corporations, and assaults on individuals and families.

- Whatever tinkering congress did the year before (or during the tax season) often makes conflicting and contradictory laws with no clear answer on how to pay correct taxes.  The code is so complex, so in conflict with itself, that the IRS routinely sues itself, in order to answer questions on taxation.  

- Tax law, tax lawyers, tax cases, and tax rulings should also never be confused for some sort of moral, just, or right thing.  It's a necessary thing so the nation's tax preparers can get some sort of actual answer on what the crap to do with various entities tax situations.

- I was doing taxes the year Obamacare "got teeth", and the mandate that forced people to have insurance or pay a fine was in play.  I applied penalties two or three times - every time it was to some poor schmoe or lower class family that fell into a 'magic area' of not poor enough to pay zero taxes, but not well-enough employed to have employer-provided healthcare.   One guy and I spent about 45 minutes going over the massive list of exceptions to see how much I could reduce his obamacare penalty.  I managed to get him credit for two months he was behind bars.  

No really - if Biden was arrested tomorrow for tax fraud, I'd say "hold up now, did he actually do anything wrong though?"

[mordorbund]

5 hours ago, NeuroTypical said:

No really - if Biden was arrested tomorrow for tax fraud, I'd say "hold up now, did he actually do anything wrong though?"

Al Capone has entered the chat.

[Carborendum]

20 hours ago, askandanswer said:

Have you been fishing lately? Remember, faith without works is dead. 

The next time the Lord tells me to find money that way, I guess I will do that. Until then, I've seen how the Lord sustains me financially.  And it is certainly miraculous.  To others it would simply seem extremely lucky.  But for me, the near misses, the perfect timing, the level of unlikely sources, the frequency and quantity...

No, it has been miraculous.  The Lord has sustained me.

[Ironhold]

18 hours ago, NeuroTypical said:

I once did a season at a tax office.  Looking for a possible retirement gig - I know a few people who travel around in their RV, stop in some random state and work a season, then move on.   Some things I learned:

- The tax code should never be confused for some sort of moral, just, or right thing.  It's a schizophrenic and flawed battle ground for politicians, strewn with discarded hulks of partially hollowed-out reforms, changes, and additions from a century of tinkering for the purpose of winning elections.  Much of it makes absolutely no sense, and flat out contradicts other areas.  It's an indecipherable mishmash of corporate welfare, individual/family welfare, assaults on corporations, and assaults on individuals and families.

- Whatever tinkering congress did the year before (or during the tax season) often makes conflicting and contradictory laws with no clear answer on how to pay correct taxes.  The code is so complex, so in conflict with itself, that the IRS routinely sues itself, in order to answer questions on taxation.  

- Tax law, tax lawyers, tax cases, and tax rulings should also never be confused for some sort of moral, just, or right thing.  It's a necessary thing so the nation's tax preparers can get some sort of actual answer on what the crap to do with various entities tax situations.

- I was doing taxes the year Obamacare "got teeth", and the mandate that forced people to have insurance or pay a fine was in play.  I applied penalties two or three times - every time it was to some poor schmoe or lower class family that fell into a 'magic area' of not poor enough to pay zero taxes, but not well-enough employed to have employer-provided healthcare.   One guy and I spent about 45 minutes going over the massive list of exceptions to see how much I could reduce his obamacare penalty.  I managed to get him credit for two months he was behind bars.  

No really - if Biden was arrested tomorrow for tax fraud, I'd say "hold up now, did he actually do anything wrong though?"

There's a push to replace the federal income tax with a federal sales tax, in the logic that it's much simpler and also harder to dodge. 

The problem is that this would mean the bottom half of Americans, who pay little to no income tax, would find themselves being taxed, sometimes heavily. 

[Carborendum]

27 minutes ago, Ironhold said:

There's a push to replace the federal income tax with a federal sales tax, in the logic that it's much simpler and also harder to dodge. 

The problem is that this would mean the bottom half of Americans, who pay little to no income tax, would find themselves being taxed, sometimes heavily. 

There is a very easy way around that.  In several states, no sales tax is charged on items deemed as "necessities."  And they would also categorize many items as "luxuries" which would be subject to a higher sales tax rate. 

Since poor people spend a larger percentage of their income on necessities and virtually nothing on luxuries, it would be a naturally progressive tax in a way that actually makes sense.