IRS questions Hinn's tax-exempt status

Exclusive: Ministry says questions about finance, structure are routine

Dallas Morning News/July 6, 2005
By Mark Wrolstad

The IRS is questioning televangelist Benny Hinn's organization about its operations and finances – issues that underlie its tax-exempt status as a church.

The inquiry into the flamboyant faith healer's ministry began a year ago, and the IRS has asked for dozens of detailed answers, according to documents provided to The Dallas Morning News by a watchdog group. The Trinity Foundation has investigated Mr. Hinn for more than a decade and condemns his leadership as autocratic and his lifestyle as lavish.

The IRS wouldn't discuss the case, and it's unclear whether the agency's concerns about the ministry, which is estimated to raise more than $100 million annually, are close to being resolved or will open an audit.

A representative for Benny Hinn Ministries confirmed that the inquiry is under way and characterized it as routine, but an IRS spokesman said the agency is "extremely careful" in questioning churches and starts an inquiry only when it believes an organization "may have stepped over the line" of tax regulations.

Separately, The News found that another watchdog group's complaint to the IRS – that the ministry lacks financial oversight and independent governance – may have led the agency to question the operation through what's called a church tax-inquiry letter.

While detractors argue that Mr. Hinn improperly profits from a ministry that hasn't met the IRS definition of a church for years, his public-relations contractor dismissed the possibility that the tax exemptions – worth millions a year – could be at risk. He repeatedly warned The News should "be very careful about what it reports."

Hinn spokesman Ronn Torossian said the ministry has "fully cooperated with the IRS" and is not being audited. He said the agency each year sends "thousands of letters of inquiry to a sampling of nonprofits."

Mr. Hinn's ministry, formally renamed the World Healing Center Church in 2000, has had its administrative and mail-processing headquarters in Grapevine since a year earlier, when the persuasive, self-trained Pentecostal sold his church complex in Orlando, Fla.

He and his family soon moved to Orange County, Calif., and although he promised to build a $30 million shrine to faith healing in Las Colinas and raised money for it, the World Healing Center never materialized.

Respect and ridicule

Mr. Hinn, 52, has few peers and many imitators in televangelism's realm, and he's both revered and lampooned for his money-and-miracle-based brand of preaching.

Known for his eccentric swirl of hair and a touch that topples the faithful like dominoes on stadium stages, the Israeli-born son of Greek Orthodox parents has built a worldwide ministry, one of the most popular and most profitable, as well as one of the most panned.

His ubiquitous This Is Your Day TV show and nonstop globetrotting to lead lucrative crusades have attracted millions of followers, as well as long-standing accusations of unverified healings, unrestrained spending and unaccountability.

Mr. Hinn and his attorneys, who declined to be interviewed, have regularly denied criticisms of concealed finances and such ostentation as his mansion parsonage, maintaining the ministry uses proper accounting.

"I love my precious Lord too much to ever trifle with the money entrusted to me by His dear people," Mr. Hinn said in a March statement after the latest network news report detailing the ministry's alleged exorbitance.

Some of the organization's secrecy appears to have been penetrated by the dedicated digging – literally – of the Trinity Foundation, self-styled televangelism monitors based in Dallas.

Hinn ministry responses to IRS questions and a purported salary list for ministry officials are among many documents that Trinity members said they salvaged recently from trash bins outside Hinn-related offices.

The salary document lists Mr. Hinn as CEO and his annual earnings as $1.325 million. Attorneys for the ministry, in a letter to The News , said the document was either a fake or had been stolen.

Mr. Hinn acknowledged two years ago that his ministry took in donations of $89 million in 2002, including TV, crusades and direct-mail, and said the annual figure was growing at double-digit rates.

Last month on his program, produced at the ministry's studios in Aliso Viejo, Calif., Mr. Hinn said his TV ministry "costs me $1.8 million every five days," not counting his crusades. "Nobody wants that burden," he said.

He indicated he spent $7 million for recent crusades to India and the Philippines and another $4 million in Nigeria, where attendance reportedly was far below the 6 million to 8 million people a day that Mr. Hinn had predicted.

Churches don't have to pay taxes or make their finances public and don't even have to apply for tax-exempt status – they can simply claim it.

A church pastor's income and benefits also are tax-exempt as long as they're deemed reasonable. Like all nonprofits, however, churches must follow federal rules in financial and other matters.

Starting an inquiry requires triple approval – from an IRS lawyer, a three-person committee and the director of the exempt organizations division, now located in Dallas. Besides ordering that violations be corrected, the IRS can revoke tax exemptions, seek back taxes and impose penalties.

"There has to be solid evidence of wrongdoing before the IRS looks at removing tax-exempt status," said Kenn Vargas, an IRS spokesman in Austin. "It's not done often, especially with churches."

The "probe and response" of an inquiry can go back and forth for many months, resulting in the IRS either satisfying its concerns and closing the case or undertaking the next step and auditing the group.

A revocation means donations are no longer tax-deductible. "That's the most devastating problem," said Connie Smith, a lawyer for a Denver law firm that represents scores of religious organizations.

For churches, a primary tax-exempt no-no is known as inurement – one or more persons getting substantial financial benefit from the operation. Other common complaints include conducting prohibited political or for-profit business activity.

'Extremely sensitive'

The IRS wouldn't provide an official to talk about tax-inquiry dealings with churches. "It's just extremely sensitive," said Phil Beasley, a spokesman in Dallas.

During an inquiry, the IRS can also use 14 recognized factors to determine whether a group constitutes a church and, by definition, should be tax exempt. Those flexible criteria include having regular congregations, services and places of worship, members not associated with other churches and religious instruction for its ministers and youngsters.

Mr. Hinn's critics contend that his ministry falls short on all those counts, that he keeps tight control of his small board by nominating and dismissing the other two or three directors and that he has relatives in highly paid jobs.

The ministry has been the subject of critical news reports for years. Detractors of Mr. Hinn's controversial prosperity theology, vast TV fundraising and a lifestyle of private jets and hotel suites view the IRS action as an overdue accounting.

Wall Watchers, an advocacy group for religious donors, recently issued an alert about the Hinn ministry through its Ministry Watch Web site.

"The IRS should examine the organization and revoke its church status," said Rod Pitzer, Wall Watchers' research director. "The organization is set up for Benny Hinn, for his private inurement."

Wall Watchers, based in North Carolina, sent a letter to the IRS early last year calling for an investigation of the Hinn Ministry, Mr. Pitzer said.

"It's set up fraudulently as a church," he said. "It's akin to a dictatorship, and when there's no accountability and one person is in charge, it leads to a lot of abuses."

In August, the IRS announced an initiative to stop what it called the increasing abuses by tax-exempt groups that pay excessive compensation and benefits to insiders. The agency planned to contact nearly 2,000 organizations as part of the enforcement project, which started at the end of July.

The Hinn ministry received a tax-inquiry letter dated June 30, 2004, according to a 17-page draft of its February response to the inquiry – a document the Trinity Foundation said it found in the trash bin of the ministry's attorneys in Irving. The ministry also has accountants in the Dallas area. Trinity has a track record of digging through trash bins as a strategy against televangelists.

Ole Anthony, Trinity's director, said the group has sent copies of the recovered documents, as well as briefs of its own, to the IRS, answering the questions posed to the Hinn ministry and arguing, point by point, why the ministry should lose its tax exemptions.

"Every red flag in the universe will go off when the IRS sees what he really gets," Mr. Anthony said.

But church tax issues aren't black and white, said Milt Cerny, a former IRS officer in the exempt organizations division. Churches aren't necessarily "contained within four walls," he said.

"If the pastor lives in an expensive house and gets a million-dollar salary ... the service would have to establish that it was unreasonable," said Mr. Cerny, who was not told of the Hinn inquiry.

The draft response from Hinn attorneys shows that the IRS asked about operations that would support its church designation.

The inquiry asked, "Who controls the organization?" It questioned financial oversight and whether officers sell books, videos and CDs. The IRS also asked about a ministry subsidiary holding title to the oceanside parsonage, which Dateline NBC reported in March to be worth $10 million. As for regular services and a place of worship, the draft refers to employee gatherings at the Grapevine headquarters and at the California property where This Is Your Day is taped.

"Are there live audiences for some of these shows?" asks a note in the ministry's response, one of many internal questions that hadn't yet been answered.

"What is the basic evolution ... from a bricks and mortar church in Orlando to the facilities in Texas and California to the television/broadcast ministry ... ?" asks another of the internal notes.

The document has handwritten initials throughout, matching the names of ministry attorneys and officials who ostensibly were to provide the necessary answers.

Each page is labeled "2/1/05 DRAFT." David Middlebrook, an attorney for Mr. Hinn, called the document "a working draft" in "a routine tax inquiry" in a court affidavit during an earlier fight to keep it from being publicized.

Expenses documented

The ministry's temporary restraining order against a Houston TV station – while Mr. Hinn held a crusade there – was quickly overturned, but the station didn't report the IRS inquiry. Trinity later showed what it said were the original documents to The News and gave copies to the paper.

One document shows that the ministry has paid more than $112,000 a month on the 10-year lease of a Gulfstream III jet.

Other documents indicate that Mr. Hinn was paid $360,000 last year as a consultant for Clarion Call Marketing, which was incorporated in 2003 with Mr. Middlebrook as its registered agent.

The salary document, which Trinity said it found in February, had been shredded into long strips but was reassembled by Trinity. The sheet shows 12 ministry employees making between $135,000 and $180,000 a year.

Mr. Hinn's wife, Suzanne, is referred to as the pastor's assistant at $166,000 a year. Their daughter, Jessica Koulianos, is listed as "assistant" at $65,000; her husband, Michael, a "partner relations specialist" at $90,000.

Other documents show Mr. Middlebrook's firm billing the ministry for 373 hours of work in a one-month period last fall.

Though the attorney didn't want to be interviewed, he has written about tax-inquiry issues repeatedly in a column for Church Executive magazine.

"The IRS has contacted one or more of our church clients recently" at least partly due to its initiative examining tax-exempt compensation, Mr. Middlebrook wrote in October. "Having the IRS penalize your church or remove its church designation could have profound financial consequences. You do not want your member-donor base to come to believe that you or your pastor makes too much money or that the church is not being operated in proper nonprofit fashion."

In November, he wrote about how the IRS defines a church and a case in which a designation was revoked, partially because its structure "tended to personally benefit the founder's family."

"The lack of regular church services with a body of believers that assemble regularly," he wrote, "dictated the IRS response."

And in last month's issue, he warned church lawyers and accountants to take care to destroy documents because often those "thrown in the trash dumpster are considered abandoned."

"Beware of 'dumpster divers' – people who look through trash dumpsters for confidential documents," Mr. Middlebrook wrote.

Paul Nelson, head of the Evangelical Council for Financial Accountability, said the Hinn ministry seems to have invited IRS scrutiny.

"If I was their counsel, I would say that," he said. "I don't think anybody envisioned a $10 million parsonage.

"That's absolutely grotesque."

TIMELINE

1970 – As a high school senior, Benny Hinn leaves his family's Greek Orthodox faith for Pentecostalism.
1983 – He establishes Orlando Christian Center in Florida.
1990 – Mr. Hinn begins monthly faith-healing crusades in the U.S. and abroad.
1999 – He makes a surprise announcement that he is moving his ministry to Dallas-Fort Worth.
1999 – Mr. Hinn announces that his Orlando center has been sold to a neighboring church. He promises a $30 million faith-healing memorial in the Dallas area that is never built.
2000 – He opens new administrative offices for World Healing Center Church in Grapevine.
2001 – He begins construction on a multimillion-dollar oceanside parsonage in Orange County, Calif.
2003 – Mr. Hinn acknowledges that his ministry took in a record $89 million in donations in 2002.
2004 – His ministry receives a tax-inquiry letter from the IRS.
2005 – A spokesman confirms that the inquiry continues but hasn't become an audit.

BENEDICTUS 'BENNY' HINN

Occupation: Senior pastor, president and chairman for life of Benny Hinn Ministries in Grapevine; operates World Media Center in Orange County, Calif.

Born: Dec. 3, 1952, in Jaffa, Israel

Education: Attended Catholic schools in Israel and public high school in Toronto; did not graduate and has no formal religious training

Family: Wife, Suzanne, and four children

Residence: Dana Point, Calif.

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