Life Surge founder Joe Johnson is facing a lawsuit brought by the U.S. Department of Justice (DOJ) to permanently prevent him from engaging in “abusive” real estate transactions that led to nonprofits claiming excessive charitable deductions.
Life Surge and Surge U both claim to help educate Christians to steward their financial resources for Kingdom impact, often through real estate transactions. While many well-known Christian speakers and worship leaders are a part of the Life Surge events, Life Surge is not a charitable organization. It is a for-profit limited liability company.
The lawsuit, filed in August, claims that Johnson, through his other entities—the Welfont Companies and Mercy Foundation Group—has abused a section of the Internal Revenue Code that allows for a charitable deduction after the sale of property to a charity.
Life Surge is not named in the lawsuit.
Beginning in 2013, Johnson began his practice of getting property owners to sell their real property to tax-exempt charities at bargain sale prices, the lawsuit claims. He would choose appraisers such as Andrew and Christopher Bryant—also named in the lawsuit—to prepare an inflated opinion of value.
He then solicited charities to purchase the property at the bargain sale price. The transactions included Johnson’s employees and representatives who collected fees, finance costs, and commissions, according to the court documents.
The sellers then could take a charitable deduction based on the difference between the bargain sale price and the appraised value.
The lawsuit includes an example of such a transaction involving an assisted living facility in Virginia in 2013.
The assisted living property was listed for sale at $599,000 for over a year. The owners entered an agreement with Johnson to sell the property to Mercy Foundation for $20,000, but the appraisers prepared an opinion of value at the inflated price of about $1.4 million, which would allow the sellers to take a charitable tax deduction of over $1.3 million.
Eventually, in 2014, Mercy purchased the property for $16,000 and furnished the sellers with a tax deduction form showing the inflated property value of $1.4 million.
The property was then transferred from Mercy to another Johnson-controlled holding company, MFGI 245 LLC, which sold the property for $183,750 and received $155,000 in cash at closing. The property has been sold two more times since then, for between $600,000 and $700,000.
According to the lawsuit, Johnson and his fellow defendants engaged in at least 52 abusive bargain sale transactions from 2013 to 2015.
Starting in 2015, the DOJ alleges that the Welfont entities were formed and became involved in facilitating the transactions. By the end of 2015, Johnson was no longer using Mercy as part of the abuse sale transactions, but “recruited charities operated by friends and colleagues to participate in abusive bargain sale transactions.”
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The DOJ argues that Johnson’s abusive bargain sale transactions have used valuable government resources and estimates that the 99 total transactions that overstated the charitable deduction could have resulted in a tax loss of over $46 million.
Additionally, “participants in these abusive bargain sale transactions are harmed because they are liable for any unpaid tax, plus interest and penalties, after having participated in a tax-motivated real estate transaction that failed to deliver the promised tax benefits.”
The lawsuit seeks a permanent injunction to stop Johnson and his employees and representatives from engaging in the abusive bargain transactions and accompanying actions.
In October, Johnson filed a response to the lawsuit which mostly denied the allegations and asserted a few defenses, including that the lawsuit is barred by the statute of limitations – a time bar that requires the government to bring its case within a certain number of years.
Johnson also demanded a jury trial.
Christopher Bryant, one of the co-defendants involved in the appraisals, agreed to a permanent injunction in November. The injunction prevents him from engaging in any bargain sale transactions and from claiming charitable contribution deductions.
MAIN PHOTO: Joe Johnson / Video screenshot
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