One Big Scam for Churches to Avoid
By Raul Rivera
Today, I want to talk to you about a scam that has been circulating for several years, causing severe legal and tax problems for pastors and churches across America. I call it the "SCAM OF CORPORATE SOLE." Just ask Pastors Bruce and Sherilyn Gunkle of San Antonio, TX.
They started City of Refuge Christian Fellowship in 1990. Yet in 2002, after attending a church leadership event, they were persuaded by a sole corporation promoter to dissolve their church in its current existence, revoke their 501(c)(3) status, and form a corporation sole.
A concern many pastors have
Like many ministers in America, Pastor Bruce was concerned that having 501(c)(3) status might cause "government interference." To the contrary, we teach at all of our conferences how having 501(c)(3) status is actually the best tactical move your church could make. However, because Pastor Bruce and his wife had already dissolved their church and 501(c)(3), they decided in February of 2004 to form a corporation sole in the state of Nevada. They also took a vow of poverty, opened a new checking account in the corporation sole's name, and transferred the deed of their home to the corporation sole. They operated the church and their new legal entity as the promoter instructed them. What ended up happening to them and their church was devastating. Additionally, how the Department of Justice dealt with this problem is a cause for serious concern, as I show you below.
Discerning fact from fiction
What follows is the true account of one pastor and his church pursuing the legal foundation of a corporate sole. Their story, like many victims who buy into this scam, leads to a place of pain and heartbreak, and jeopardizing what we love and hold dear. The goal in this article is to help you discern fact from fiction, and to also empower you with the necessary wisdom to know more than just what to avoid, but what to pursue. Yours can be a different story. Unfortunately, for the Gunkles, it was their story.
Trouble for the Gunkles a few years later
Thinking they were now free from government control, Pastors Bruce and Sherilyn Gunkles proceeded to operate their church under the new corporation sole setup; that is, until they ended up in the United States Tax Court and realized that their "supposed" free-from-government-interference life was being scrutinized in court for evasion of taxes, and for promoting abusive tax shelters. Moreover, the tax court declared the church not to have tax-exempt charitable status, which in effect meant that all the tithes and offerings given to the church during the years of the corporation sole were declared non tax-deductible, bringing harm to the members, too.
They were ordered to report a deficiency of $62,456.64 as income, and pay the taxes in addition to paying the 20% penalty under sections 6662(a) and (b)(1) and (2). Finally, after examining their defense, the court stated that their defense was "poorly organized and less than satisfactory . . ." and also " . . . lacking in merit or irrelevant . . ."
False promises of the corporation sole
Promoters of the corporation sole make fraudulent, too-good-to-be-true promises that appear to be based on sound law. They often refer to cannon law and other outdated publications from the old law of England and other law dictionaries that have become irrelevant to today's jurisprudence. Knowing that their claims are shams, they still continue to peddle their claims, relying on Christian affinity and patriotism. Below is a short list of promises they make.
1. No tax return filing requirements of any kind.
2. The government is unable to interfere in any way and the corporation sole is not subject to any government agency, including the IRS.
3. The corporation sole has complete immunity from disclosure to the government.
4. The corporation sole is only subject to the "private government" of those who create it.
5. All workers are no longer classified as employees, but instead as ministers of the corporation sole.
6. Courts are afraid of and highly respectful of this type of set up.
How government deals with this scam is scary
As I stated earlier, the government's way of dealing with this scam is scary. First of all, they began by placing the corporation sole tax scam on the "dirty dozen" list of tax scams. In 2004, it was ranked number three. To further their efforts to curb the growth of this abusive tax shelter, the IRS and the U.S. Department of Justice have taken on the promoters of corporation sole. The Department of Justice successfully obtained a permanent injunction against the people that promoted the corporation sole to Pastor Bruce, barring them from participating in promoting, encouraging, instructing, advising, or assisting others to violate the tax laws. They were also ordered by the court to notify their customers of the injunction and to give the Justice Department a list of their customers' names, addresses, phone numbers, and Social Security numbers. The Department of Justice submitted that list to the IRS to follow up on each and every one, while busting over 315 promoters. This is a great cause for concern to those that have already participated, but a great relief to those who were considering starting their church through a corporation sole but had not, as of yet, made that mistake.
It can happen to you
Zeal without knowledge is often the culprit for entering such scams. Many pastors rightly have the zeal to protect their church from governmental intrusion. But if that zeal is not based in real knowledge of the law and the rights it provides it can cause unnecessary pain and loss. Jesus said, "You will know the truth, and the truth will set you free." The opposite of that is true as well - listening to false claims can blind you. I want to encourage you to discern the spirit that is behind these "secretive ways" to legally set up your church. Often times, you will sense a level of rebellion and an un-submissive spirit about these claims.
StartRIGHT and StayRIGHT
For years now, we at StartCHURCH have taught churches the importance of legally launching their ministries the right way. There is nothing more freeing than to know that your church is started in a way that provides freedom to preach the gospel and to engage in activities according to the vision and call of God in your life. Our StartRIGHT Program gives you all the legal foundation you need to protect what God has given you to lead, and is based on the 1,000's of churches we have helped get established. You do not have to go it alone or wonder if you are doing things correctly. Call us now at 770-638-3444 to find out if the StartRIGHT Program is right for you.