Corporation sole cannot shelter pastor from tax trouble.

• Author: Beavers, James A.

A pastor's use of a "corporation sole" structure to avoid "government interference" and a vow of poverty were not enough to shelter his income from federal tax, the Tax Court held in a recent decision.

Facts

Bruce and Sherilyn Gunkle served as pastors to the City of Refuge Christian Fellowship in San Antonio. City of Refuge had been formed as a nonprofit corporation in 1990 and was granted tax-exempt status under Sec. 501(c)(3) in 1991. In 2002, after attending a church leadership conference, Bruce Gunkle decided to stop operating City of Refuge as a nonprofit and to discontinue its Sec. 501(c)(3) status because he was concerned that this status allowed for government interference with the organization and because the "business model" of a corporation allows the directors a say in its operation.

Therefore, in 2004, the City of Refuge Inc., was dissolved, its Sec. 501(c)(3) status was terminated, and the Office of Presiding Pastor, Bruce W. Gunkle, and His Successors, was formed in Nevada as a corporation sole. A corporation sole is described as an "[u]nusual type of corporation consisting of only one person whose successor becomes the corporation on his death or resignation; limited in the main today to bishops and heads of dioceses" (Black's Law Dictionary (West 1979)).

The Gunkles also signed a "vow of poverty" in 2004, and City of Refuge resolved (before it was dissolved) that "City of Refuge Christian Fellowship will provide all their needs as Apostle and as pastors of this church ministry. A check will be placed in the church pastoral account every two weeks according to all the needs of the pastors."

In 2007, the Gunkles set up "The City of Refuge Christian Fellowship Pastoral Expense Account" at Wells Fargo Bank. Deposits made into this account included payments by church members and nonmembers and Bruce Gunkle's Social Security payments. All withdrawals from the account were made by the Gunkles and were used for personal expenses. There was also an account at a credit union, which was funded by deposits made by the Gunkles from the Wells Fargo bank account.

On their joint return for 2007, the Gunkles reported Bruce Gunkle's military pension and Social Security benefits, but they did not report any income from the City of Refuge ministry. The IRS sent them a deficiency notice, determining that they had over $72,000 in unreported income (concessions reduced the amount to $62,456.64).

The Tax Court's Opinion

The Gunkles argued that the...