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Updated 1/10/2013
2011 Form 990

Updated 6/22/2011
3ABN sued
over Tommy!

Added 3/14/2010
Can 3ABN Survive?

Added 11/16/2010
Judge Rejects
Plea Deal

Updated 4/2/2010
Tommy Shelton
Arrested!

Must Read:
Mom in Pain #1

Mene, Mene,
Tekel, Parsin

The Actual Lawsuit
IRS Criminal Investigation

3ABN's Property Tax Case Appeal

Reply to Appellees' Opposition to Its Appeal Brief

Part Two

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Typographical errors may actually be copied from the original.

Statements of Interest in Part Two

Some statements in this part are of particular interest in light of the present lawsuit over Save3ABN.com, since the lawsuit claims that 3ABN is a non-denominational ministry that is unaffilated with the Seventh-day Adventist Church. Also of interest are all the statements about the 3ABN Board being independent and having oversight, something we wonder if Attorney Nick Miller would feel comfortable signing on to now, since he was allegedly forced to resign when he chose to do his duty as a board member by being independent.

Other statements in this part are of interest in light of the fact that Attorney Mike Riva, who signed this document that claims that there is no evidence of private inurement, is the same attorney that prepared the documents whereby Danny and Linda Shelton sold a house for $135,000, a house they had bought one week earlier from 3ABN for $6,139.

  • There is "no evidence of primary or even significant fundraising efforts at these events" connected with Danny and Linda's weekend travelling to Adventist churches.
  • "... the mutual agreement that Three Angels and the Seventh-day Adventist church have to cooperate on missionary efforts around the world and the activities that flow from that agreement."
  • "... there is no evidence to support the judge's findings of inadequate board oversight."
  • "... the board's ... general oversight role."
  • "... the board's make-up and independence were in dispute."
  • "... the board consisted of two Sheltons and ten other independent persons during the period at issue."
  • "... the issue of Three Angel's board membership and oversight role ...."
  • "... the important question is, what is done with that net revenue."
  • "No evidence exists of any private inurement of Three Angels revenue, whether in the form of royalty or other payment."
  • "... no royalty ever came from Three Angels ...."
  • "... the complete absence of any real evidence they have showing private inurement."

It may be true that no royalties came from Three Angels, but if 3ABN bought more than $150,000 worth of books from Danny Shelton in just two years time, as Note 14 in the 2003 and 2004 financial statements indicate, then the payments Danny Shelton received from 3ABN were possibly far in excess of what he would have received if 3ABN had paid royalties instead.

3ABN's Assets

Notice carefully the sums that appear below:

  • "Appellees are fond of talking about Three Angels $42 million in accumulated assets ...."
  • "About $12 million is the portion that relates to buildings, land, equipment, uplinks, etc. ...."
  • "Another large sum, about $24 or $25 million, represents the amount held in trust for donors, either in revocable trusts or gift annuities."
  • "Of the remaining six million, about $2.8 million is in investments, mostly money from 'charitably related unit trust agreements. . . . and they cannot be used until the donor dies.' "
  • "The other half, about 3.3 million is current assets, but there were also about 2.5 million in current liabilities."
  • "So when it comes down to it, there was only about $800,000 that was actually available for use at the end of 2001."

Now consider what Danny Shelton himself said in an interview in April 2007, the same interview in which he announced to the world that they had filed a lawsuit against two people.

Re: UHF Channels
Danny Shelton Apr 23 2007 06:48 AM

No, It seems we have the best of both worlds in some cases. Let me give you an example. We have a UHF station in St. Louis that has an incredible potential viewing audience. But since it is considered low power even though it reaches all of St. Louis and beyond, it cost us very little to operate. Our power bills for instance are usally hundreds of dollars a month versus thousands of dollars a month for full power transmitters.

These UHF stations have proven tremendously effective over the years for the saving of souls, not to mention that many if not most are worth $1,000,000 and more. If we choose to sell them we believe that some of our class A stations could bring $2,000,000 to $3,000,000 apiece!

  Forum: Interview with Danny Shelton · Post Preview: #122450
Re: UHF Channels
Danny Shelton Apr 23 2007 06:48 AM

Also, I believe 3ABN owns close to 100 of these stations. The math on their worth is fairly simple to figure.

  Forum: Interview with Danny Shelton · Post Preview: #122451

So which figure is correct? $12 million, or $100 million or more?

Part Two of 3ABN's Reply

  B.   The scope of Three Angels missionary activity, domestic and international, is overlooked and misstated.


Another factor, which Appellees badly misstate, is the type and amount of missionary work, the third Inter-Varsity factor, carried out by Three Angels. In a rather remarkable instance of internal contradiction and misstatement, the School Districts say that "Three Angels does not conduct any religious teaching, apart from its broadcasting or the travels of Danny and Linda Shelton, whose primary focus is fundraising." SD 33.

But consider that Three Angels broadcasting consists of 24-hours a day, seven-days a week religious programming, the majority (75 to 80%) of which it produced. TT 84-87; Record Below 1720. Combine that with the fact that Danny and Linda's travels were more than half the weekends of the year, to preach, pray and sing gospel songs at formal worship services around the country, with no evidence of primary or even significant fundraising efforts at these events. TT 130-132.

Then consider the Board of Review's statement again. It is essentially saying, to paraphrase meaningfully, that "Three Angels does not conduct any religious teaching, except for its 24-hour a day, 7-day a week, religious broadcasting, and its every-other week-end, day-long church-based, worship services." And this does not even take into account the overseas missionary trips by Three Angels teams, the thousands of baptisms in India and Russia, the permanent ministry teams in Russia and the Philippines, or the mutual agreement that Three Angels and the Seventh-day Adventist church have to

[page 8]

cooperate on missionary efforts around the world and the activities that flow from that agreement. TT 133-135, 136, 97.

Three Angels exceeds the level of missionary activity carried out by the entity at issue in the Inter-Varsity case, as the entity there was the literature division, which was located in Downers Grove, Illinois. That division did not itself carry out field missionary work, but rather prepared "numerous religious publications."5 In contrast, Three Angels itself, using the buildings at issue in this case, directly carries out missionary work, as well as supporting a wide ring of missionaries and missionary work.


  C.   Defendants arguments would penalize large and financially successful religious organizations.


The fourth Inter-Varsity factor is the issue of sales, revenue and assets. Appellees all claim that the magnitude of Three Angels' revenue and/or assets disqualifies it from being a religious ministry. SD 16; B R 34-35; DR 4-5, 14. But this is to misread Inter-Varsity and the record below. Appellees' argument would mean that all religious ministries must remain small and insignificant in size and finances to qualify for tax exemption. The penalty for growth and success is, according to their logic, loss of tax-exempt status.

Appellees are fond of talking about Three Angels $42 million in accumulated assets, as though this princely sum was sitting in a bank account or investment properties. The truth is much less spectacular. It takes significant operational assets to run an international media ministry. About $12 million is the portion that relates to buildings, land, equipment, uplinks, etc., that is dedicated to the day-to-day functioning of the



5 Id.804.

[page 9]

ministry. (These figures are drawn from Applicant's Exh. 15, the audited financials for 2001.)

Another large sum, about $24 or $25 million, represents the amount held in trust for donors, either in revocable trusts or gift annuities. In other words, this money is NOT Three Angels' at the present, and only a small portion of it will ever become Three Angels'. Some of the trusts will be revoked. Some represent only a partial gift to Three Angels, of possibly as little as 25%. The gift annuities have to stay funded so they can be paid out to the donors.

Of the remaining six million, about $2.8 million is in investments, mostly money from "charitably related unit trust agreements. . . . and they cannot be used until the donor dies." TT 491. The other half, about 3.3 million is current assets, but there were also about 2.5 million in current liabilities. Exh. 15, p. 3 So when it comes down to it, there was only about $800,000 that was actually available for use at the end of 2001. This represented an emergency reserve of about one month's operational costs. This is actually a dangerously thin reserve, and cannot be remotely characterized, in any fair way, as an inappropriate accumulation of capital.

Inter-Varsity is concerned with "substantial profits flowing into a capital surplus."6 A capital surplus is an amount that increases the stock value of a company. It is equivalent to pure profit, which is set-aside for the shareholders or some future purpose.

What Three Angels has accumulated is more akin to retained earnings, where the net revenue from a year is put back into the company to further expand its religious and missionary activities. The net revenue over the years has been placed back into items that



6 Id. 804.

[page 10]

are used on a daily basis to carry out religious programming and broadcasting. There is no meaningful capital surplus, only a small amount in reserve, sufficient only to cover a single month's operating expenses. Appeal Brief p. 42.

The Appellees are similarly confused on the issue of revenue. They argue that it is unclear whether Three Angels' net revenue comes from donations or from the sale of ministry related CDs, videos, etc. It is not clear why the distinction matters, as there is no legal distinction between net revenue either from donations, or sale items, or both. Rather, the important question is, what is done with that net revenue.

Yet the School Districts find it significant that "up to 25 percent of 3ABN's total $14 million of annual revenues is derived from activities other than charitable donations." SD 23. Well, that means that about 75% of its revenues comes from charitable donations. And this figure is significantly higher than in Inter-Varsity, where only 55% of the revenues came from charitable donations.7

Indeed, an acid test to answer the question of whether items were sold at a profit would be to deduct donations from the income line, and see whether the income of goods and services sold would exceed expenses. Well, it would not. If this were done for 2000 and 2001, Three Angels would move from net revenue of 1.2 and 1.9 million respectively, to a net loss of around 9.6 and 9.1 million for those same periods. (Applicant's Exhs. 14 and 15).

Clearly, Three Angels relies almost entirely on the free will, charitable donations of those who are blessed by and believe in its religious ministry and outreach. To characterize its modest sales of ministry items as the primary, commercial purpose of the



7 Id. at 803.

[page 11]

organization would be to have a very small tail wag the quite large dog. Such a distorted view is not required by Inter-Varsity or other Illinois law.

III.  The Opponents focus on a number of items that are peripheral to the main issues and are not supported by the record.

Appellees would like to pull a number of issues from the periphery, or beyond, of the case and make them THE central issue. The Board of Review spends about one half of its factual section talking about Three Angels' board make-up and oversight, when this was never an issue in dispute either prior to or at the hearing. Further, never has so much been made of such a small amount of money, that of a $20 alleged "royalty" payment, which is the only evidence cited of personal inurement. Even if these issues were factually as appellees claim, they would not disqualify Three Angels from tax exemption. But the facts do not support Appellees' construction, and they certainly should not be barriers to tax exemption.

For both of these points, it is important to remember that, while the hearing officer can weight credibility, that she cannot lawfully make findings of fact for which there is no evidentiary support. "The taxing authorities must decide the question from a consideration of the facts stated, and not from the conclusion of any person . . . ." The court may not choose to ignore and disregard certain factual evidence, when there has been submitted no evidence to the contrary.


  A.   The identity and make-up of the board of directors was not disputed at trial, and there is no evidence to support the judge's findings of inadequate board oversight.


The perplexing issue regarding the question of board make-up is that this issue was never raised or disputed prior to or at the hearing of this matter. It was first raised by



8 The People v. Deuthsche Gemeinde, 249 Ill. 132, 136, 94 N.E. 162 (1911).


[page 12]

the hearing officer in her opinion almost a year after the trial. None of the case law suggests that a necessary burden of proof in a tax-exemption case is to name the board members.

What is required is proof of organization and operation as a not-for-profit entity. This was demonstrated by the entry of appropriate articles and bylaws, and testimony regarding the board's regular meetings and general oversight role. It was testified that the board meets three or four times a year, and that it governed and oversaw the finances and operations of Three Angels. Trial Transcript 94-96. The board chairman testified as to the board meetings and policies regarding travel and compensation, including for the years in question. Trial Transcript 500-501. There was no evidence given to the contrary on these points, and there was no sense, either before or at the hearing, that the board's make-up and independence were in dispute.

Had it been understood that board make-up was a disputed point, Three Angels would have certainly submitted a full list of board member names and descriptions, and could have called other board members to testify. As it was, four board members testified, three of them from the period in question, and nine board members were identified in total, either by name or position. All but one was identified, either explicitly or implicitly, as serving during the 2000 and 2001 period in question. TT 92-93.

It would be remarkable to take a point over which there had been no dispute, and little attention paid to, and elevate it to be the determining factor in the case. If this Court believes that the issue of board make-up is of crucial importance, the appropriate response would be to remand for further findings of fact on this point. To honor a finding of fact that said there were only four, related board members, when the only available

[page 13]

evidence on the point for the time in question said there were twelve board members with no evidence of family relations between all but two for the time in question, would be plain error.

It would be a travesty of justice to have this case turn on a finding of fact which is so plainly wrong as that the board only consists of four Sheltons. The truth is the board consisted of two Sheltons and ten other independent persons during the period at issue. This court should either reverse the hearing officer's finding of fact on this point, or, remand the case for further factual findings regarding board make-up and oversight.

When an appeals court is presented with an issue where there has been an insufficient factual development, it should remand the case for further findings on that question. See Grundy County Agricultural District Fair v. Dept. of Revenue, 346 Ill.App.3d 1075, 1080, 806 N.E.2d 695, 699, 282 Ill.Dec. 398, 402, (Ill.App. 3 Dist.,2004). ("the record is insufficient to permit us to make accurate findings... thus, we must remand to the department to determine the factual bases of these issues."); Bd. of Educ. Minooka Comm. v. Ingels, 75 Ill.App.3d 334, 337, 31 Ill.Dec. 153, 156 (Ill.App. 3 Dist., 1979) ("Because the record is inadequate in this regard, the circuit court should have remanded this cause to the bearing officer so that he might reconsider his decision . . ."); Columbia Quarry Co. v. Dep't. of Revenue, 34 Ill.2d 46, 47, 213 N.E.2d 497,497 (Ill. 1966) ("We have carefully examined the record but find ourselves unable to resolve the issues presented without further findings of fact. We therefore vacate the judgment and remand the cause to the Department of Revenue with directions to conduct an additional hearing, make appropriate findings, and, if necessary, redetermine the plaintiff's claim for [tax] credit.").

[page 14]


  B.   No evidence exists of any private inurement of Three Angels revenue, whether in the form of royalty or other payment.


The Appellees continue the fiction; either directly or through strong implication, that Linda Shelton received royalty payments from Three Angels for the sale or playing of her CDs. SD 16,22; BR 12; DR 3. There is no support to be found for this in the record. However, even if this were true, this should not disqualify Three Angels tax exemption. There is nothing that prevents an artist from receiving a commercially reasonable royalty, even if their product is produced and sold by a not-for-profit organization, as reasonable compensation for services rendered can be paid by not-for-profit organizations. The only evidence of an amount of any royalty is $20, which is less than trivial given Three Angels' revenue and assets. TT 619.

But the important point is this: no royalty ever came from Three Angels, but from a private company, completely unconnected with Three Angels, known as BMI. TT 619.

Thus, the royalty issue, which should not even be an issue if Mrs. Shelton did get some minor royalty from Three Angels, is even less of an issue, because the royalty actually comes from another source entirely that has no connection with Three Angels. Employees of not-for-profit corporations are not slaves or indentured servants, forbidden from selling their artistic or literary properties to outside organizations. Yet Appellees would argue that any royalty from any source to a Three Angels employee somehow strips the entire organization of its tax-exempt status. There is nothing in Illinois case law or statutes that would compel, or even suggest, such a result.

The fact that Appellees are so aggressive and insistent on attacking this alleged "royalty" shows the complete absence of any real evidence they have showing private inurement. This is the strongest evidence they have on that point, so they have to make

[page 15]

the most of it. Unfortunately for them, this evidence shows no such thing, and merely reveals the weakness of their case on this point.

Conclusion

For the reasons stated above, this Court should find that Three Angels is indeed a religious ministry, that it uses the subject property for religious purposes, and that it should be granted a property tax exemption. In the alternative, this Court should remand the case for further findings of fact on the issue of Three Angel's board membership and oversight role, to take the testimony of the previously excluded witnesses Dr. Denis Fortin and Elder Ted Wilson, and to allow discovery on the existence of other religious broadcast ministries in Illinois that enjoy tax exemption.

 

Dated this 30th day of August, 2005

By:   [signed]     Nicholas P. Miller      

 

Nicholas P. Miller,
Freedom Law Group
2352 Bond Street
Niles, MI 49120

And by:

  [signed]     D. Michael Riva      
D. Michael Riva
226 E. Main Street
West Frankfort, IL 62896

Attorneys for Plaintiff Three Angels Broadcasting Network, Inc.

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