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Clergy CPA tax accountant discusses Corporation Soles for religious leaders | Corporation Soles | Publication 1828, Tax Guide for Churches and Religious Organizations

Clergy CPA tax accountant. Pastor CPA tax accountant. Corporation Soles. Publication 1828, “Tax Guide for Churches and Religious Organizations”.

As a Clergy CPA I field calls on Corporation Soles. For a free consult call (910) 399-2705.

Clergy CPAs field questions from clergy about Corporation Soles.  I subscribe to a wide variety of tax magazines with emphasis on Clergy CPA, Minister CPA issues, Rabbi CPA issues and Rabbi CPA issues. Why? I have a lot of respect for religious leaders, most of whom work tirelessly for little financial compensation.

Sources of tax help for Clergy:

  • Publication 1828, Tax Guide for Churches and Religious Organizations.
  • Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

I had a Pastor Client who said that 10 different CPAs would generate 10 different tax return results. So it pays to do your homework, No sense in paying Caesar one cent more than required.

Per the IRS: Used as intended, Corporation Sole statutes enable religious leaders — typically bishops or parsons — to be incorporated for the purpose of insuring the continuation of ownership of property dedicated to the benefit of a legitimate religious organization. Generally, creditors of a Corporation Sole may not look to the assets of the individual holding the office nor may the creditors of the individual look to the assets held by the Corporation Sole.

“Corporation Soles always get including in the annual IRS dirty dozen list.”
– Gary Bode, Clergy CPA and tax accountant

Why would a Clergy CPA be careful about Corporation Soles?

We hear lots of stories like this. The criminal division of the IRS prosecuted a NC for “promoting” 163 taxpayers in 34 States to setup Corporation Soles.  Apparently at an average cost of $1779 for the service.  The story says nine of the 163 victims have had a tax audit, so far. Some states expand use to certain non religious types of organizations like performing arts groups.

So while Corporation Sole is legitimate,e it raises IRS flags. That doesn’t mean it’s not a valid tax strategy for the Clergy. It just means you have be in IRS tax regulation compliance. Talk to your Clergy CPA. I typically send in more explanation and documentation with a Clergy tax return.

Legitimate Corporation Soles

Religious freedom actually expands to all recognized forms of worship.  Soles refers to a single person holding the post at a time.  Continuation means the orderly transfer of property, intact, through a succession of church leaders holding the post, all with identical powers.  This avoids by laws and corporate boards.  A legal concept going back to English common law.  Supposedly the Catholic Church is organized under multiple Corporation Soles.

Deliberate Misuses of Corporation Soles – Tax Fraud

Our previous post on the IRS’ Dirty Dozen Tax Scams included deliberate misuse of Corporation Soles.  Most approaches exploit America’s broad religious tolerance, typical American dislike of taxation, and greed. Sometimes Vows of Poverty are advised.  Claims of asset protection, inheritance law avoidance, control of assets without tax consequence, ability to make taxable income tax exempt etc., draw in folks.

These claims are almost all false, some even with legitimate use of Corporation Soles.  Corporation Soles aren’t bulletproof even when legit and in in IRS compliance.

“An example of Corporation Sole deficiencies is the Catholic Church. Court awards over the past few years show their assets aren’t really protected.”
– Gary Bode, Clergy CPA tax accountant.

Tax Scams in General

It seems like even well known tax schemes find short term success, until the IRS examines them.  Even when red flags are raised by an income tax return, it takes time to initiate an IRS tax audit.  But then the tax scams implode during the tax audit, leading to original taxes becoming due along with tax penalties and interest.  Other similar issues were raised by the heavy Trust promotions years back, with predictable IRS reaction.  A promised tax refund turns out to be a nightmare, complete with IRS tax audit. The IRS has lots of issues they closely monitor. Another one is ROBS, where you can take out your pension plan funds tax free to start a new business.

If you need an initial free Clergy CPA consult with please call us at (910) 399-2705.  Of course we offer small business tax preparation, financial accounting, QuickBooks bookkeeping and payroll services too.  All performed with a friendly mix of CPA expertise and customer service.

Here’s a verbatim 2004 IRS article on Corporation Soles:

IR-2004-42, March 29, 2004

WASHINGTON — The Internal Revenue Service today issued a consumer alert advising taxpayers to be wary of promoters offering a tax evasion scheme that misuses “Corporation Sole” laws. Promoters of the scheme misrepresent state and federal laws intended only for bona-fide churches, religious institutions and church leaders.

“This scheme shamelessly tries to take advantage of special tax benefits available to legitimate religious groups and church leaders,” said IRS Commissioner Mark W. Everson. “Unscrupulous tax promoters always look for ways to game the system and prey on unsuspecting victims. Taxpayers should be on the look-out for these and other scams.”

Scheme promoters typically exploit legitimate laws to establish sham one-person, nonprofit religious corporations. Participants in the scam apply for incorporation under the pretext of being a “bishop” or “overseer” of the phony religious organization or society. The idea promoted is that the arrangement entitles the individual to exemption from federal income taxes as an organization described in Section 501(c)(3) laws.

The scheme is currently being marketed through seminars with fees of up to $1,000 or more per person. Would-be participants purportedly are told that Corporation Sole laws provide a “legal” way to escape paying federal income taxes, child support and other personal debts by hiding assets in a tax exempt entity.

While fraudulent Corporation Sole filings have happened sporadically for many years, the IRS has recently seen signs the scam could be starting to spread with multiple cases seen recently in states such as Utah and Washington. The IRS is concerned about this increase and is taking steps to pursue Corporation Sole promoters and participants.

Used as intended, Corporation Sole statutes enable religious leaders — typically bishops or parsons — to be incorporated for the purpose of insuring the continuation of ownership of property dedicated to the benefit of a legitimate religious organization. Generally, creditors of a Corporation Sole may not look to the assets of the individual holding the office nor may the creditors of the individual look to the assets held by the Corporation Sole. Currently, 16 states permit Corporation Sole incorporations. The IRS suggests that individuals considering becoming involved in any kind of tax avoidance arrangement obtain expert advice from a competent tax advisor not involved in selling the arrangement. Do not rely on legal opinions obtained or provided by the arrangement’s promoter. Start by asking the following questions:

• Is the arrangement designed to hide income or assets?

• Is the arrangement designed to evade income taxes?

Answering “yes,” or even “maybe,” to either of these questions should raise red flags for taxpayers.

Additional information on Corporate Sole and the rest of the “Dirty Dozen” tax scams and schemes is available on IRS.gov.

Tax guidelines for churches and religious institutions can be found in Publication 1828, “Tax Guide for Churches and Religious Organizations”.

I don’t know of any Wilmington NC tax scams like the Star News story delineates.  Most CPAs believe in full exploitation of existing tax laws.  Sometimes we’ll look beyond the current laws and examine the trends the tax courts and Private Leter Rulings indicate.  Proactive tax positioning may be possible or maybe even early use of expected tax Regs.  But few CPAs ever promote scams.

Wilmington NC CPA firms are plentiful.  Please read a few posts to get a feel for our expertise and proactive attitude.   We’re also a CPA firm that believes your QuickBooks bookkeeping and accounting data can be used for managerial decisions.  Your choice of CPA really makes a difference!

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11 comments to Clergy CPA tax accountant discusses Corporation Soles for religious leaders | Corporation Soles | Publication 1828, Tax Guide for Churches and Religious Organizations

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