Originally published on Forbes.com.
By all appearances, Presley Family Ministries is an admirable organization. Here is an example of what they do.
Each summer, Presley Family Ministries travels overseas to share the love of Christ and provide glasses to 1000’s of people. In 2017, we traveled to northern Peru and provided free eye care and glasses to approx 1,200 people while also planting a church in Canasbamba, Peru and praying with nearly 300 to receive Christ!
So maybe you’re an atheist. Now you can go there and do something even more helpful and they will already be able to see well enough to read the copies of God Is Not Great that you hand out. As Kent Hovind often remarks, don’t criticize them. Go do something better.
There are also regular services and family retreats. Some of the support for all this comes from a pick your own blueberry farm and donations from supporters, but a large proportion seems to have come from Richard Presley who runs an optometry practice. The tangled relationship between Richard Presley and the ministry is what had him and his spouse, Martine, in Tax Court. It did not go well for them.
About Presley Family Ministries
Detailed financial information about PFM is available for 2005 and earlier at Guidestar. That stops in 2006, because, as Guidestar notes – “This organization is not required to file an annual return with the IRS because it is a church.” At the end of 2005, total assets was $472,957 – mostly fixed assets. The public support percentage was 38%, barely keeping the organization out of private foundation status. That is how it stood when it disappeared into church status. According to the Tax Court decision, in the years at issue (2010 and 2012), 95% of the support for the ministry came from Mr. Presley.
Conversion to church status involved Mr. Presley being ordained. In June 2004, there was a certificate of ordination from the Universal Life Church. This put Mr. Presley in distinguished company. He can count among his fellow ULC ministers, Conan O’Brien, Paul McCartney and Lady Gaga. There was also a certificate from World Christianship Ministries. They are a little less ecumenical than ULC:
What is the difference between The WCM’s ordination and the ordination provided by other ordaining ministry’s on the internet like Universal Life Church, The Monastery and The American Marriage Ministry AMM?
We, The WCM, are a Christian Ministry and ordain Christian Clergy only, and we only authorize Christian services.
One of my theories is that given their education requirements, I can think like a Revenue Agent. And I started thinking that maybe we don’t have an actual church here, but it turned out, apparently, that that would not have been fair. There was much church-like activity.
Mr. Presley spent about 20 hours each week on certain activities and certain events relating to PFM, which generally took place in petitioners’ residence. For example, he conducted weekly worship services of PFM, which approximately 12 to 40 people attended. Approximately 30 to 40 people participated regularly in the activities or the events that the Presleys hosted for PFM. In addition, Mr. Presley at times performed weddings and baptisms and distributed communion. He also met with young adults, taught classes, and conducted Bible studies three evenings each week. Ms. Presley spent about four to five hours each week on certain activities and certain events relating to PFM. For example, she taught Bible studies and prepared meals for attendees of certain activities or certain events of PFM that the Presleys held at petitioners’ residence.
There was some very clever, perhaps too aggressive tax planning, and that is what ended up in Tax Court. We have here an illustration of Reilly’s Fourth Law of Tax Planning – Execution isn’t everything but it’s a lot.
The Problem
The deficiencies for 2010 and 2012, which with penalties came to over $100,000 relate to charitable contributions. The 2010 donation was a little convoluted. Mr. Presley had started the blueberry farm on land leased from the ministry. In 2010 he claimed a deduction for a charitable contribution of a tractor used on the farm and improvements that he had made to the land. The 2012 donation was more straight forward, but perhaps more eyebrow-raising. The Preselys donated their residence to the ministry, even though they would continue to reside there without paying any rent.
Both those donations were denied. Interestingly the grounds for denial were matters of execution rather than substance.
The 2010 Donation
A basic requirement of a more than negligible charitable deduction is contemporaneous acknowledgement. The Ministry struggled with that.
Around the same time in late September 2010 when Mr. Dryer prepared the October 20, 2010 minutes at Mr. Presley’s request, he also prepared at Mr. Presley’s request and sent to him (or his designee) an undated and unsigned letter that was addressed to PFM Farms (Mr. Dryer’s draft 2010 letter No. 1). The body of Mr. Dryer’s draft 2010 letter No. 1 stated: “This is to acknowledge and thank you for your support of Presley Family Ministries during 2010. You donated the beautiful water ponds to the ministry enabling our youth and others to enjoy water sports, fishing, wildlife, and the beautiful setting. This provides a wonderful ministry setting and we thank you.”
There were two subsequent drafts.
Judge Chiechi expressed a good deal of skepticism about the transactions, since there were inconsistencies in the narratives of the various players and the documents. In the end though the deduction is denied based on acknowledgement.
Even if PFM Farms had paid the required land improvement expenses in 2010 and those expenses were directly connected with and solely attributable to the rendition of services to PFM by PFM Farms, we would find on the record before us that petitioners have failed to carry their burden of establishing that they satisfy the substantiation requirements in section 170(f)(8)(A) and (C) and section 1.170A-13(f)(1) and (3), Income Tax Regs. Those authorities, which apply to contributions of $250 or more, required petitioners to substantiate the claimed contribution relating to the required land improvement expenses with a contemporaneous written acknowledgement from PFM.
There was more, but that was enough.
The 2012 Donation
The IRS had three reasons to not like what the judge refers to as the purported donation of the residence (BTW pro tip when reading Tax Court decisions, when any form of the word “purport” appears, things are not going to go well for the taxpayer). The three reasons are:
(1) petitioners retained dominion and control over petitioners’ residence after they purportedly contributed it to PFM ; (2) when they made the purported contribution to PFM of petitioners’ residence, petitioners expected to, and did, receive a substantial benefit in return because PFM allowed them to reside in that residence without paying any rent to it; and (3) petitioners failed to comply or substantially comply with certain charitable contribution deduction substantiation requirements that apply to the claimed charitable contribution of petitioners’ residence.
The judge only considered the third argument, since this was a kind of one strike and you are out sort of deal. There were a couple of issues with the appraisal. It did not state that it was done for income tax purposes. Rather it stated that it was done for financing. The appraisal was not done until after the extended due date of the 2012 return. The appraiser signature portion of Form 8283 was not completed.
Penalties
Accuracy penalties were also upheld. The taxpayers had advice from an attorney and relied on a preparer, but they did not follow through to see that the preparer followed through on the reporting requirements that the attorney had highlighted. Reilly’s Ninth Law of Tax Planning – Tell the preparer what the plan is.
Too Bad
Setting up a church and then donating your house to the church while continuing to live there, presumably with all the expenses run through the church and the benefit of living there being excluded under Code Section 107(1) strikes me as a brilliant scheme . You could also throw in a property tax exemption depending on what state you are in and how hungry the local assessors are. I really would have liked to see how the plan would have flown, but the Tax Court never had to get to its merits, because of poor execution. What a shame. Execution isn’t everything, but it’s a lot.
Other Coverage
A case like this is irresistible to Lew Taishoff with Bearing Burdens Heavy To Bear. His focus is on the Tax Court proceedings rather than the story behind the story.
You can, if you wish, read all 103 (count ’em, 103) pages of Judge Chiechi’s deconstruction of the trial record. Richard’s and Martine’s crew of experts reminds me of G. B. Shaw’s remark about trying to grow roses on opera house seats by hiring expensive gardeners.
But the key is knowing what you have to prove and getting it into the record.
Mr. Taishoff thinks that the couple should have gotten a break on the penalties.
Editorializing, I think Judge Chiechi came down a wee bit too hard on Richard and Martine when it came to the accuracy chops. True, their experts may have been less than brilliant on the stand, and Richard may not have been the best of witnesses, but Judge Chiechi has assigned to Richard and Martine foreknowledge of the inconsistencies and contradictions IRS’ astute trial counsel brought out on the trial.
If Richard and Martine were capable of the cross-examination meted out to the experts by IRS’ trial counsel, chopping them might answer. To expect a preacher and a blueberry farmer to do so is loading too heavy a burden, and woe to Richard’s and Martine’s trial lawyer.
I can’t remember now whether I picked up the case from Lew Taishoff or from my own review of Tax Court decisions, which is less timely and less intense than that of Mr. Taishoff. My treatment was interrupted by our traditional post-tax season vacation, which involves travel to the west to visit with the half of my partner’s grandchildren that don’t live in our state. Then there were the oral arguments on parsonage in the Seventh Circuit, which absorbed a lot of my energy. I don’t know if there is some sort of cosmic connection in that this case tangentially has a parsonage angle.
There is a brief mention in Small Business Taxes & Management News and Tip of the Day, which has a very apt observation – “The larger the amount involved, the more care you should take.”