Mansion Owner Fights Taxes With Church Exemption

April 5, 2010 — -- He says he converted part of his home into a chapel and became ordained as a minister by signing up with an online program. But is that enough to exempt Illinois real estate agent George Michael from tens of thousands of dollars in taxes on his multimillion dollar lakefront property?

Michael, of Lake Bluff, Ill., has been locked in a dispute with state and local government officials for three years over whether he qualifies for a property tax exemption provided to religious organizations.

One state judge has called Michael's tax exemption application "a sham," arguing that Michael's professed faith -- the Armenian Orthodox religion -- is at odds with the church that licensed him online, the Church of Spiritual Humanism.

But Michael contends that all he was trying to do was help his wife, who has multiple sclerosis, and his disabled daughter worship at home instead of traveling miles to the nearest Armenian church. He chose online ordination, he said, because it was faster than spending years at a theological school.

Michael said he's fighting for the tax exemption on "principle."

"If I didn't live in a property facing Lake Michigan worth millions of dollars, [there would be] no problem," he said. "There are thousands upon thousands of churches in the U.S. that have never had a single appeal against them."

As Michael pursues his battle for the exemption in court, local government officials say it's time to pay up: Next month, the county will send him a property tax bill of roughly $225,000 for 2007 through 2009, said Lake County chief assessment officer Martin Paulson.

"I've not seen anything like this in my 20 years doing this type of work," Paulson said. "It's just too bad that it happened the way it did."

There are decades' worth of cases where authorities accused people of inappropriately claiming religious tax benefits after being ordained in untraditional ways. Among the most high-profile examples: In the early 1980s, the Internal Revenue Service pursued criminal charges against several pilots with now-defunct Braniff International Airlines.

The pilots had been ordained through a "mail-order ministry" -- a religious organization that, sometimes for a fee, allowed would-be ministers to be licensed through mailed-in applications -- and later claimed they were exempt from income taxes. In 1983, seven Braniff pilots, along with the head of their church, the Basic Bible Church of America, were convicted of tax fraud.

Ministers Ordained Online Claimed Tax Deductions

The Universal Life Church in Modesto, Calif., which ordains people through the mail and online, has faced a number of run-ins with the IRS. Between 1979 and 1981, the IRS audited some 3,000 ULC ministers who established their own congregations and then claimed tax deductions for donating money to those congregations.

Andre Hensley, president of ULC International Headquarters, said some of the congregations in question "were on paper only" and the church, which reached its own tax settlement with the IRS in 1999, was glad to get rid of them.

"We don' t want that type of negativity," he said.

Church Tax Schemes Less Common Today

Though the proliferation of church ordination Web sites might make getting ordained easier than ever before, tax lawyer Frank Sommerville says illegal claims have actually become less common. Both the IRS and state and local taxing authorities today are more sophisticated in catching fake church leaders hunting for tax benefits, said Sommerville, who works largely with religious organizations.

In the case of religious property tax exemptions, he said, states may ask applicants to provide copies of their articles of incorporation and church bylaws as well as information on their congregation sizes.

"Those are the types of detailed questions that they're asking now that they did not ask in the '60s and '70s," he said.

Of course, a would-be scammer could still obtain an exemption, Sommerville said, if he lied.

"Most of the time, the local taxing authorities aren't going to go out there and verify what you're swearing to under penalty of perjury is true," he said.

Michael and his lawyers argue that he has met all the statutory requirements for a tax exemption.

In 2007, Michael applied online for his certification from the Church of Spiritual Humanism and establshed the Armenian Church of Lake Bluff, converting part of a racquetball court on his property for the chapel, he said. That same year, according to court documents, his wife, Susan Michael, transferred ownership of their Lake Bluff home to the Armenian Church of Lake Bluff.

Cross 'Drawn ... With a Marker'

As part of his application for a tax exemption, Michael submitted photographs of the home, samples of the Armenian Church of Lake Bluff's church bulletin, a sworn affidavit by George Michael and other documentation, according to court filings.

In 2008, the Illinois Department of Revenue granted the tax exemption, allowing the Michaels to avoid an estimated $65,000 in property taxes for the 2007, according to Lake County chief assessment officer Martin Paulson.

But the exemption came over the objections of Lake County officials who, along with the Village of Lake Bluff and a Lake Bluff school district, asked the Department of Revenue's administrative hearings division to intervene.

Last year, a division judge agreed with the local officials' objections and revoked the exemption.

"One could conclude from the record in this case that the Applicant's request for an exemption for the residence is a sham," Illinois Department of Revenue administrative law judge Kenneth Galvin wrote in his ruling.

Michael is now appealing the decision in Illinois' Cook County Circuit Court.

Galvin listed among his concerns that one of the photos submitted by Michael showed his home with a cross installed on its exterior. But the cross, the judge wrote, "was drawn on the photograph with a marker and did not physically exist at the time the photo was taken of the building."

Mark D. Belongia, a lawyer who represented the Michaels in the administrative case, said that George Michael testified that the cross was "aspirational" and was, in fact, later installed at the home.

Galvin also cited another court case -- one related to an alleged church zoning violation by the Michaels -- in which the couple "deny that they are operating a 'Church' which is open for public worship services on the subject property."

Belongia dismissed the concern. There's a difference, he said, between the way a church is defined in zoning cases and in tax exemption cases.

"This is someone glomming on to a hypertechnical definition and really nothing more than that," he said.

A Question of Faith

Galvin also argued that the tenets of Armenian Orthodox religion contradict those of the Church of Spiritual Humanism, the church that ordained Michael.

"The Michael family has always practiced the Armenian Orthodox religion. The Armenian Church is based foundationally on the Christian faith," Galvin wrote, later adding that "The Church of Spiritual Humanism is a humanist church, and does not endorse Christian theology."

Michael and his lawyers said Galvin had no business analyzing Michael's faith.

"I don't really think that it matters if you are ordained as a reverend there or a Buddhist here or Jew there," Michael said. "I think under freedom of religion, it's your choice what you pray to or who you're confirmed to be or what you're organized with or without."

Michael may not be long for Lake Bluff. He said he's put the home on the market. The sking price is $10 million because he's fed up with the village's treatment of him. In addition to fighting the tax exemption, the village has also sued Michael for zoning and building code violations.

Michael also alleges that the village has stopped his garbage pickup and mail delivery -- accusations staunchly denied by the village attorney, Peter Friedman, the head of the local government group at the Chicago law firm Holland & Knight.

"The village has not interefered at all with any garbage pickup ... nor does the village have anything to do with mail delivery since that's the U.S. Post Office," Friedman said.