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	S.F. Accuses Church of Dodging Taxes By Marisa Lagos San Francisco Chronicle June 6, 2009 http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/05/MNJ0180DCU.DTL San Francisco's tax assessor believes the Archdiocese of San Francisco has moved the ownership of various assets to a new nonprofit organization in order to shield the properties from being seized or sold for potential lawsuit payouts. Yet the church has refused to pay the taxes for transferring the 232 properties, Assessor-Recorder Phil Ting said. The tax bill, which the church has appealed, could reach $15 million - one of the largest in city history. Both sides agree that the year-long battle, which will come to a head at a June 16 appeals hearing, isn't only about the millions of dollars at stake for the local Catholic Church and city coffers. It could also have wide-ranging implications for hundreds of other nonprofit groups. Nonprofits are exempt from property and federal income taxes but subject to property transfer taxes, which are collected if they sell or transfer properties. At issue is whether the church, in moving those San Francisco properties from one Catholic nonprofit organization to another, was transferring the assets to a separate entity, as the city argues, or simply undergoing internal reorganization, as the church contends. The properties in question include some of the diocese's most famous, such as Mission Dolores, Old St. Mary's Cathedral and St. Francis of Assisi, as well empty lots and commercial land throughout the city. At the upcoming hearing, Ting plans to argue that the church moved 233 properties into a new nonprofit created expressly to protect the archdiocese from losing those assets. The diocese has sold other properties in recent years to help pay out more than $40 million in settlements related to dozens of sexual abuse lawsuits, but church officials strongly rejected Ting's accusation. Archdiocese spokesman Maurice Healy said any past litigation is not germane to the tax issue and that the argument is "beneath" Ting and "shames the city of San Francisco." Ting, however, compared the practice to a private business creating a limited liability company or corporation in order to protect owners from bankruptcy or other legal judgments. He said the move is completely legal but that the church cannot have the asset protection and also escape the tax bill. "They claim this is a mere reorganization, but those are usually cosmetic - a company changing its name but the owners all staying the same," Ting said. "This is not the situation. They have a different set of board of directors, members, controls. In our opinion, this isn't just a change - these are separate legal organizations. "I don't care what their motivation is, but if they want separate legal entities they have achieved it and by achieving it they also owe the city and county of San Francisco a transfer tax," he said. In an e-mail statement, Archbishop George H. Niederauer argued that the reorganization is aimed at establishing "simple ownership models" that "clearly distinguish the canonical assets of the parishes and schools from those of the Archdiocese in general." He also wrote that counties throughout the state have allowed similar reorganizations. "This is a self-admitted cash-strapped recorder, and we think he is misinterpreting transfer tax law and infringes on religious organization's right to reorganize themselves," Healy said. But Ting pointed to a letter written by Niederauer in 2007 that stated that the restructuring of the San Francisco dioceses and others throughout the country is in response to "issues raised by the civil courts over the past several years." There was also a 2007 story in a church-sponsored newspaper, California Catholic Daily, that clearly states the changes are aimed at protecting "parish and parochial school assets from being used to pay court settlements." The story goes on to note that the question of property has been a "contested issue" since the Boston Archdiocese sold off millions of dollars worth of parish properties in 2004 to help pay its sex-abuse settlements. UC Berkeley assistant law professor David Gamage said cases such as this one are not as clear cut as both sides would like. "I would say an inquiry like this is very fact intensive," he said. "The law recognizes that taxpayers have the right to organize their affairs to minimize their taxes, but only within the bounds of what is legal." Both Ting and Healy, however, said the case could have wide-ranging implications for other churches and nonprofits who decide to reorganize their holdings. Ting said he has received calls from other religious organizations "who are thinking about doing similar things and are looking with quite a lot of interest at what happens in this case." Healy said the church also views the issue as one "that extends beyond the local Catholic Church." A city appeals board - made up of the city controller, treasurer and head of the real estate division - will hold the hearing on June 16 to determine whether the church owes the taxes. If his office is successful, Ting estimates the archdiocese could owe between $3 million and $15 million in taxes. The church could appeal a decision to the Superior Court. E-mail Marisa Lagos at mlagos@sfchronicle.com
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