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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

Must Read:
Mom in Pain #1

Mene, Mene,
Tekel, Parsin

The Actual Lawsuit
IRS Criminal Investigation

3ABN's Property Tax Case Appeal

Opening Brief of Appellant 3ABN

Part Three

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Typographical errors may actually be copied from the original.

The first point we want to make is that while this part emphatically states that there is no evidence that 3ABN sells items at more than cost, it fails to point out that the thousands of dollars of books 3ABN purchases each year from Danny Shelton are not purchased from him at his cost. Not only has Danny sold them at a good profit margin, but his publishing companies, at least for some years, have not carried an inventory, which is a pretty nice arrangement.

Some may find troubling that both Larry Ewing and Alan Lovejoy testified in a court of law that there is no private inurement going on. Larry Ewing testified in his affidavit in support of sealing the lawsuit forever, "For the fiscal years of 2001 through the present, I have always been involved in some manner with preparation of 3ABN financial statements ...." Therefore, one would expect that Larry Ewing would know that in 2003 and 2004, 3ABN purchased a total of nearly $153,000 in product from Danny Shelton's publishing companies, according to Note 14 of the financial statements for those two years. And since Alan Lovejoy's accounting firm not only audited those financial statements but also prepared Danny's tax returns for at least 2001-2003, one might also expect him to have known about these large sums being paid to Danny for his publications.

On the other hand, it could be pointed out that the 2003-2005 financial statements were prepared and audited after the hearing that led to Judge Barbara Rowe's January 28, 2004, decision, and of course that should be true. But it could also be true that 3ABN's 2001 and 2002 financial statements reported (or should have reported) around a total of $200,000 in purchases for 2001 and 2002 from D & L Publishing, if 100% of D & L's sales for those two years went to 3ABN.

However, it is also possible that both Ewing and Lovejoy disclosed everything they knew about the book deals at the hearing, and thus the trial transcript really ought to be consulted rather than just going by the brief synopsis of their testimony found in this document.

"... there are no other facts or evidence that show any other inurement or improper benefit flowing to a private person from Three Angels." That just seems like a stretch, especially in 2005 when this Appellant Brief was filed.

The hearing judge reached the "conclusion that [3ABN] was not run by an independent board of directors, but was operated as a closely held business for the personal benefit of the Sheltons." Similarly, the Nick Miller story raises questions as to just how independent of Danny Shelton the 3ABN Board has been.

And if there hasn't already been enough damage done to the lawsuit's claim that 3ABN is not affiliated with any church, denomination, or organization, in this part of the Appellant Brief 3ABN admits that the president of the Illinois Conference President of Seventh-day Adventists is an ex officio member of the 3ABN Board.

Part Three of 3ABN's Appellant Brief

G.  Pricing and Revenue of Religious Materials.

Along with its TV broadcasts, Three Angels also distributes its message via video and audio tapes, CDs, books, and other types of literature that are all consistent with the Adventist message. TT 117-118. At times these items are given away, at other times, a

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nominal fee is charged to cover a portion of the costs of the item. RD par. 5; TT 118, 171-172. If an item is sold, the price is set based on affordability to the donors rather than based on the need to cover the costs of the item. TT 169-170. If a caller cannot afford the item, it is given away. TT 169. There is no evidence that any items are sold at more than cost, and there is only evidence that items, including satellite dishes, which Three Angels makes available for persons living in areas where the broadcast is not available on cable or the airwaves, and airtime, are sold at or below cost. TT 161,166-167.

Revenue attributed to the sales of books, tapes, videos, CDs, satellite dishes, or any other material Three Angels sells did not exceed the expenses associated with purchasing, promoting or distributing those items. TT 449-450, 476-477. The sale of airtime covers only a fraction of the expenses associated with the broadcast of that airtime, when equipment costs, satellite fees, and other direct overhead are factored in. TT 436, 441-444; Appl. Exh. 14-15. The gross amount of revenue associated with these sales is only a few percent of Three Angels total revenue. TT 433, 435-436. Between 75% to 85% of Three Angels' revenue comes from charitable donations made by its viewers and listeners. TT 139-140.

H.  Salaries and Issues of Personal Inurement.

The board sets the salaries of the President and Vice-President of Three Angels. TT 144-145. The salaries are guided by the equivalent salary, including benefits, of a minister of the Seventh-day Adventist Church. TT 145. President Danny Shelton received about $50,000 per year in 2000 and 2001, and Vice President Linda Shelton received about $45,000 in 2000 and $47,000 in 2001. TT 141, 144. The Sheltons, along with the other salaried employees of Three Angels, received health benefits and one-half dental benefits, and the use of a company car for business purposes. TT 141, 144.

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Apart from erroneous finding by the trial judge that Linda Shelton received royalties from the sale of her CDs and that Three Angels board was made up of only four members of the Shelton family, which will be discussed and disputed in the next section, there are no other facts or evidence that show any other inurement or improper benefit flowing to a private person from Three Angels. Indeed, the testimony of both the internal treasurer, Larry Ewing was that there was no personal inurement of Three Angels revenue to private persons. This also was the conclusion of the testimony of Three Angels' independent, external auditor, Alan Lovejoy, of Gray, Hunter, & Stenn, LLP, as it would be a violation of basic not-for-profit corporation standards. TT 453-54, 476,486.

Neither the state nor the interveners called any witness or submitted any evidence regarding the operations, mission, financial matters, personal matters or board operations of Three Angels. The interveners called a single witness who testified to the simple and largely irrelevant claims that prior to the assessment year 2000, the subject property had been assessed as vacant ground, and that new construction in 1999 had caused it to be re-assessed as taxable. TT 656-658. Thus, the testimony of the Three Angels' witnesses was essentially unchallenged and unrebutted.

2. Disputed Factual Findings.

The hearing judge made certain erroneous factual findings, and erroneous applications of the law to the facts, that this Court should overrule. The Illinois Administrative Review Law provides the following description of the standard of review for questions of fact:

§ 3-110. Scope of review. Every action to review any final administrative decision shall be heard and determined by the court with all convenient speed. . . . The hearing and determination shall extend to all questions of law and fact presented by the entire record before the court.

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The code also says that "the findings and conclusions of the administrative agency on questions of fact shall be held to be prima facie true and correct." Id. But this has come to mean different things depending on whether a "pure" question of fact is at issue, or whether the question involves the application of law to fact.

For "pure" questions of fact, the appropriate standard of review is whether "they are contrary to the manifest weight of the evidence."2 "Factual findings are against the manifest weight of the evidence" where all "reasonable and unbiased persons would agree it is clearly evident the administrative agency erred and should have reached the opposite conclusion."3 Only if "the record contains evidence supporting the agency's decision" should it be affirmed.4

As opposed to a "fact" question, a question of mixed fact and law involves "the examination of the legal effect of a given set of facts . . ."5 The standard of review in the case of mixed fact and law was recently discussed by the Illinois Supreme Court, where they noted that if:

the issue presented cannot be accurately characterized as either a pure question of fact or a pure question of law and, therefore, will be treated as a mixed question, subject to an intermediate standard of review. Under the clearly erroneous standard, we give somewhat less deference to the agency than we would if the decision related solely to a question of fact, because the decision is based on fact-finding that is inseparable from the application of law to fact.6

2 Bd. Of Educ. of Gibson City-Melvin-Sibley Community Unit School v. The Illinois Property Tax Appeal Board, 2005 WL 293638 at *3 (Ill.App. 4 Dist.); See Hasco, Inc. v. Roche, 299 Ill.App.3d 118 at 126, 700 N.E.2d 765 at 773, 233 Ill.Dec. 240 at 245 (Sept. 11, 1998) (as the court was dealing with "pure questions of fact" the court stated "our standard of review is whether the court's decision is contrary to the manifest weight of the evidence.")

3 See La Salle Partners, Inc. v. Illinois Property Tax Appeal Board, 269 Ill.App.3d 621, 632, 207 Ill.Dec. 101, 646 N.E.2d 935, 942 (1995).

4 Abrahamson, 153 Ill.2d at 88, 180 Ill.Dec. 34, 606 N.E.2d at 1117. Caterpillar, Inc v. Illinois Commerce Com'n, 348 Ill.App.3d 823 at 828, 283 Ill.Dec. 482, 485-86 (Ill.App. 1 Dist., 2004).

5 AFM Messenger Service, Inc. v. Department of Employment Security, 198 Ill.2d 380, 391, 261 Ill.Dec 302, 763 N.E.2d 272 (2001).

6 Carpetland U.S.A., Inc. v. Illinois Dept. of Employment Sec., 201 Ill.2d 351, 369, 267 Ill.Dec. 29, 41 (Ill. 2002):

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Under these circumstances, the Court noted, they would reverse if, "after review of the entire record, we are 'left with the definite and firm conviction that a mistake has been committed.' "7

The hearing judge made a number of findings below, some of which are "pure" fact, but most of which involve application of law to fact, that are against the manifest weight of the evidence and/or otherwise clearly erroneous. These findings are central to the issues in this case. They relate to the existence and legitimacy of the Three Angels' board, whether certain persons receive private benefit or inurement from Three Angels' operations, whether Three Angels makes donations or gives away materials and airtime, and whether its officers are actively engaged in religious ministry. The conclusions reached by the hearing judge on these topics are not supported by and, in a number of instances, are directly contrary to the trial record and the manifest weight of the evidence.

A.  Issue of Inurement and Board Makeup.

The hearing judge mistakenly ruled that the evidence showed that the only board members during 2000 and 2001 were persons with the last name Shelton. DR par 8, fn 2. From this clearly erroneous finding, the judge reaching the equally erroneous conclusion that the company was not run by an independent board of directors, but was operated as a closely held business for the personal benefit of the Sheltons. DR 35-36. The Administrative Law Judge reaches this erroneous conclusion based on the name of the four individuals listed as the original incorporating directors on the Three Angels' 1985 Articles of Incorporation, all of which had the last name Shelton and listed the same address. Extraordinarily, the

7 Id., quoting, AFM, 198 Ill.2d at 395, 261 Ill.Dec. 302, 763 N.E.2d 272, quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746, 766 (1948).

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Administrative Law Judge made this finding despite having acknowledged that Dr. Thompson, the chairman of the board, was a board member, during 2000 – 2001. RD 7, fn. 2.

Indeed, at trial, there was no testimonial or documentary evidence that Kenneth Shelton and Emma Lou Shelton were members of the board of directors in 2000 or 2001. They were only identified as founding directors in the 1985 Articles of Incorporation. On the contrary, Danny Shelton testified that during 2000 and 2001, there were twelve directors on the Board. (TT 92. Of the twelve, nine directors were identified at trial. In addition to Danny and Linda Shelton, Dr. Walter Thompson, a doctor living in Burr Ridge, Illinois, testified that he had been a member of the board since approximately 1986 or 1987, and had held the position of Chairman of the Board from approximately 1994 to the present. TT 494, 497-499.

Dr. Thompson confirmed that May Chung was also a member of the board. TT 527. Danny Shelton testified as to the identity of five additional board members. He testified that the Illinois Conference President of the Seventh-day Adventist Church has a standing position on Three Angels' board of directors, and during 2000 and 2001, that position was filled by Elder Wayne Coulter, who was also an ordained minister. TT 92-93. Elder Coulter's replacement, Elder Ken Denslow, the current Illinois conference president and Three Angels board member, also testified at the trial regarding his board involvement. TT 551. Mr. Shelton further testified that the Under Secretary of the General Conference of the World Church of the Seventh-day Adventist sat on the board and was an ordained minister, although this individual was not disclosed by name. Id. In addition, Mr. Shelton testified that: Owen Troy, an ordained minister and the Communication Director for the North American Division of Seventh-day Adventist; Larry Welch, an ordained minister; and, Ellsworth McKee, also sat on the board during 2000 and 2001.

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Moreover, this Court may take administrative notice of Three Angels' federal form 990, which lists the directors and their compensation, because the forms are a matter of public record pursuant to §6104(b) of the Internal Revenue Code. In Muller v. Zollar8 the Illinois Appellate Court held that judicial notice of a public record is proper and may be taken despite the fact the public document was not offered at the administrative hearing:

Notwithstanding the limitations of section 3-110 [of the Administrative Review Act], Illinois courts recognize that documents containing readily verifiable facts capable of instant and unquestionable demonstration may be judicially noticed. [citation omitted] Judicial notice is proper where the document in question is part of the public record [citation omitted] and where such notice will aid in the efficient disposition of a case. [citation omitted] Moreover, this court may take judicial notice regardless of whether such notice was sought at the trial court level.

Applicant therefore requests that administrative notice be taken of Three Angels' federal form 990 for the years 2000 and 2001. These forms were made available to the State and Interveners during the discovery period of this case, and there is no reason that they should not be considered by this Court in the interests of justice. Copies of the federal forms 990 are marked as Applicant's Exhibit 25 and attached as Exhibit A.

In light of the testimonial evidence alone (or in conjunction with Three Angels' federal form 990), it was erroneous for the Administrative Law Judge to find as a factual matter that Three Angels had "only submitted the names of Danny Shelton, Linda Shelton, Kenneth Joel Shelton, and Emma Lou Shelton as the four directors of 3 ABN" for 2000 and 2001. RD. at 7, n.2. The erroneous conclusion that the board of directors was biased and partial (because it allegedly consisted exclusively of four family members) led the Administrative Law Judge to commit further error by concluding that Three Angels was a "closely held business with profits

8 267 Ill. App. 3d 339, 341. 642 N.E.2d 860, 862 (1994) (emphasis added), See also Country Cos. V. Universal Underwriters Ins. Co., 343 Ill. App. 3d 224, 229; 796 N.E.2d 639, 643 (2003).

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inuring to the [Shelton] family." RD 35-36.

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