Sunday, September 17, 2006

2nd Circuit Interprets 1998 Charitable Donation Protection Act

While a decision earlier this month by a Bankruptcy court judge on charitable donations in bankruptcy proceedings garnered a good deal of attention, an equally important case on the issue decided several weeks ago by the Second circuit seems to have gone largely unnoticed. In Universal Church v. Geltzer, (2nd Cir., July 26, 2006), the Second Circuit Court of Appeals held that treating some contributions to churches as fraudulent conveyances in bankruptcy does not violate the Free Exercise of Establishment clauses. It went on to interpret various provisions of the Religious Liberty and Charitable Donation Protection Act of 1998. It held that the statute's shield for charitable donations of up to 15% of a debtor's annual income applies to aggregate annual transfers, not to individual donations. The court held that in this case, the Church had waived its claim that it should be able to retain amounts donated to it under the 15% limit. Finally it held that on remand the church could raise the statutory defense that donations in excess of 15% "were consistent with the practices of the debtor in making charitable contributions."