Tax case dismissed against Morris Cerullo

DOWNTOWN SAN DIEGO – The tax evasion indictment against San Diego-based evangelist Morris Cerullo has been dismissed by a judge who ruled federal prosecutors and IRS agents misled the grand jury on the key legal issue in the case.

Cerullo was scheduled to go to trial Aug. 21 on three counts of tax evasion. The ruling issued Wednesday by San Diego federal Judge Roger T. Benitez means that there will be no trial for Cerullo, an internationally known evangelist.

Cerullo based his global ministry in San Diego and has lived in a lavish Rancho Santa Fe estate, but it could not be determined yesterday if he still lives in the county.

Blab it and Grab it

Morris Cerullo promotes the teachings of the Word-Faith movement, which theologically is a cult of Christianity.

Like many Word-Faith teachers, he emphasizes so-called ‘prosperity teachings’ (also known as “Name it and Claim it,” and – more realistically – as “Blab it and Grab it”)

Cerullo’s message also includes claiming that he is God and Jesus.

Benitez ruled the case had to be dismissed because grand jury members were not told that the distinction between whether money given to religious ministers is earned income subject to tax or a gift depends on the intent of the person handing over the money.

Grand jury members asked several times about how to make that distinction, but each time the prosecutor, Assistant U.S. Attorney George Hardy, did not tell them the most critical factor was determining the donor’s intent, the judge wrote.

Internal Revenue Service agents who testified also answered the queries incorrectly. In one response, IRS Agent Sue McGuire gave an answer that stated the exact opposite of the law, according to the ruling.

“I understand it is confusing, but we’re not looking from the donor’s standpoint; we’re looking from the recipient’s standpoint,” McGuire said, according to grand jury transcripts Benitez excerpted in the ruling.

Gregory Vega, Cerullo’s lawyer and a former U.S. attorney in San Diego, said it is well-established law that the intention of the donor has to be determined to distinguish whether money was earned or a gift.

The tax laws do not define what constitutes a gift to religious ministers and offers little guidance. In 1960, the U.S. Supreme Court established the benchmark legal concept that intent was the determining factor.

“The tax statute is silent,” Benitez wrote. “The grand jury asked repeatedly how to distinguish a gift from earnings. It was incumbent on the prosecutor to correctly inform the grand jury as to the Supreme Court’s approach to this penultimate question. Yet, the prosecutor and the revenue agent witnesses failed to tell the grand jury that the donor’s intent is the most critical factor.”

Benitez ruled that the misleading information compromised the independence of the grand jury and prejudiced Cerullo so much that the case could not go forward.

Hardy could not be reached to comment yesterday. The current prosecutor on the case did not respond to messages.

It was unclear if the government can or would seek another indictment against Cerullo.

The July 2005 indictment against him alleged that he filed false tax returns between 1998 and 2000, understating his income by a total of $550,000 in those years.

In his ruling, Benitez said prosecutors were arguing that all the money Cerullo received after delivering a speech or sermon was earned income and not gifts.

Defense lawyers tried to get the case dismissed on other grounds earlier but Benitez turned aside those moves.

It was only when transcripts of the grand jury proceedings were turned over to defense lawyers recently that they recognized the errors and again sought to have the charges dismissed, Vega said.

Grand jury proceedings are secret, and transcripts normally are not turned over to defense lawyers until just before trial.

Court records show that the government was alleging Cerullo under-reported his income from personal speaking appearances paid to him by religious groups across the country.

One way to determine the intent behind money given to ministers would be to interview donors, Vega said.

“Not a single donor was interviewed,” he said.

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