New bankruptcy law to help churches. LDS Church is thankful.

5/14/98

A bill designed to protect religious organizations from having to return tithes and other contributions made fraudulently by bankrupt followers cleared the U.S. Senate in a 99-1 vote, and now heads to the House. Passage of the Religious Liberty and Charitable Donation Protection Act yesterday evoked quick praise from clerical groups, including the Mormon or Church of Jesus Christ of Latter-day Saints, one of many religious organizations which would benefit from the new exemptions.

“The (LDS) Church is pleased with the Senate’s action,” gushed spokesman Don LeFevre in a press statement last night, “which is a reaffirmation of the right of individual citizens to make unconditional charitable contributions.”

Despite the wide margin of passage, though, critics charge that the measure is less about “religious liberty” and charity, and more about fraudulent schemes whereby parishioners, anticipating bankruptcy, proceed to make large contributions to their respective churches. While bankrupt creditors are required to liquidate any nonessential items to provide partial relief to secular creditors, the act permits churches to keep those contributions, as long as they are up to 15% of the debtor’s gross income for the year.

The Mormon Church was the center of a recent dispute involving charges of fraudulent contributions, though. Last year, the LDS reluctantly announced that it would return $1.1 million in tithed money which had been given by former executives of the Bonneville Pacific Corp. Bankruptcy trustees had to work for nearly three years to collect the funds, donated to the church between 1986 and 1991 by the former corporate heads. The four pleaded guilty to federal criminal charges.

Introduction of the Religious Liberty and Charitable Donation Protection Act was sought by a coalition of churches, and prompted by the U.S. Supreme Court’s ruling against the Religious Freedom Restoration Act (RFRA) of 1993. Last year, in the case of BOERNE v. FLORES, the high court voted 6-3 to declare RFRA as an unconstitutional extension of congressional authority; it required government to demonstrate a “compelling interest” before “burdening” any religious group with a civil law. It was under the RFRA statute, though, that the Mormon Church and other religious groups argued against returning tithes and other gifts donated by members who were involved in bankruptcy proceedings.