Originally published on Forbes.com.
Kent Hovind believes he was wrongly convicted of tax related crimes in 2006. Now he is is facing new charges. One of his responses has been to go on the telephone interview circuit. I gave a partial rundown of his appearances yesterday. Today I would like to discuss Kent’s innocence claims on the original charges, which are understandably the focus of his interviews. For some context I’m going to give refer to his interview with Pastor James David Manning which is no longer available on Youtube.
Pastor Manning raises some of the key issues. Starting around 49:00 Pastor Manning distinguishes Kent from Al Sharpton noting that even though Sharpton owes a lot, he had filed. He goes on to note that as a pastor he knows that you can pay people as independent contractors, but it needs to be clear that they are not employees. Pastor Manning does not get very deeply into the issue with Kent, but his is the only interview I have heard that raises it at all.
Why Kent Hovind ? Why Anybody ?
Kent Hovind and his supporters will often give you the impression that he is being persecuted by the government because he was doing such a good job of exposing the lies of evolution. Nick Lally of the Creation Science Hall of Fame told me that he was sure that Kent was acting out of principle.
The thing about tax related crimes is that the vast majority of them go unprosecuted. It’s not like people think about unsolved tax crimes in the way that they think about unsolved murders. The purpose of prosecuting people for tax related crimes is to encourage compliance by the rest of us.
Jack Townsend explains the activity of the Criminal Enforcement Section of the Department of Justice Tax Division this way.
Given the limited resources through the criminal tax enforcement system, CES must coordinate and prioritize. CES does that by prosecuting relatively few cases each year (in recent years from 1100 to 1800 per year), but focusing on the strongest cases where conviction is virtually assured and by picking targets with a sufficiently high profile (for whatever reason) that the conviction might be publicized and encourage compliance by persons who become aware of the convictions.
I’m thinking that it may well be the association with Glenn Stoll, who was the trustee of Creation Science Evangelism at some point, that got the IRS interested in Kent Hovind. In a press release dated April 27, 2005 Department of Justice announced:
The Justice Department announced today that a federal court in Seattle has barred Glen Stoll, of Edmonds, Washington, from promoting a tax-fraud scheme using sham trusts and a corporation to help customers evade federal taxes. The preliminary injunction order, entered yesterday by Judge Ricardo S. Martinez of the U.S. District Court for the Western District of Washington, states that Stoll continued to promote the fraudulent scheme after the Justice Department filed the suit earlier this year to stop it.
The court found that Stoll sold a fraudulent “corporation sole” and “ministerial trust” scheme, falsely telling customers that conducting their personal and business activities through a corporation sole and ministerial trusts, and treating them as churches, eliminates obligations to file federal tax returns and pay federal tax. The court stated that the ministerial trusts Stoll created for his customers were not created for religious reasons, but were instead used to operate secular businesses, such as pest-control and carpet-cleaning firms. The order states that Stoll sells the scheme through a website and falsely claims to be a lawyer.
More ominously
The court’s order also requires Stoll to give the government his customers’ names, mailing and e-mail addresses, and Social Security and telephone numbers. The court also ordered Stoll to notify customers of the injunction, remove materials about the banned promotions from his website, and post a copy of the injunction on that site for the duration of the case.
So Kent hitched his ministry to a notorious tax protester and is himself rather prominent. That likely accounts for his prosecution. The relative harshness of his sentence may well be connected to his continual insistence that he has not broken any laws.
But Kent Hovind Had A Ministry!
The theory, apparently inspired by Glenn Stoll, that Kent has embraced is that his ministry was not a 501(c)(3) organization but rather a 508(c)(1)(A) organization. To be charitable, I would call this a misunderstanding. The title of Section 508 is “Special rule with respect to section 501(c)(3) organizations”. What 508 provides is that churches do not have to apply for 501(c)(3) status. A church automatically has 501(c)(3) status. Kent, however, is not totally consistent in how he talks about Creation Science Evangelism sometimes referring to it as a “ministry”. If it is a ministry, not a church, it would have to apply for exempt status and file Form 990, which is the approach that Kent’s son Eric has taken with the successor ministry. Whether an entity is a church is a question of facts and circumstances which is discussed here. Kent has an issue with the IRS getting to have an opinion on whether or not an organization is a church, but in order to exempt churches you have to define them.
Churches Are Not Exempt From Employment Taxes
Ministers are exempt form withholding, but that is not the case with other church employees. Dan Busby of the Evangelical Council on Financial Accountability in an article title Before the IRS Calls on Your Church pays particular notice to payroll matters:
Recognize all employees as employees. Does the church have clear policies to determine which workers are employees v. independent contractors? Does the church err on the side of classifying workers as employees? This topic is a hot-button with the IRS. They will tend to classify all workers as employees. If the church has classified workers as independent contractors and the IRS views them as employees, the IRS will assess FICA taxes (both halves—15.3%) and federal income tax withholding, plus penalties and interest—often going back three years.
Stay current on employment tax filings. Are payroll tax returns (Forms 941) timely filed each quarter and payroll tax deposits made when due? If the church is running close on cash, never borrow from the funds that are due to the IRS for payroll tax.
In his interview Kent mentions the ministry having “45 people on staff”. It would be an unusual operation that could qualify that many people as independent contractors under the twenty factor test. Reverend Manning started honing in on that issue a bit around 50:00 in his interview, but Kent pretty much indicated that other people were taking care of it.
Kent Hovind As A Tax Protester
When asked about whether he is a tax protester Kent will deny it and say that, to his knowledge, he has paid every tax that he owes. That is just a tad disingenuous. Presumably that means that he does not know that, by the standards of many people, he would be thought to owe the $3.2 million that was in the Tax Court order in May of 2013 from the individual income tax returns that he did not file for the years 1998 through 2006. Going on the “seen in the company of ducks” standard Glenn Stoll and Paul John Hansen tend to make Kent look like a tax protester. On his website Hansen states:
I file no Federal Income Taxes (1040 Form) since the year 2000. (No filings in any form.)(Always demand a 6203 Assessment when confronted.) I do not pay STATE income tax, or sales tax on major purchases. I pay no COUNTY property taxes though I owned over 28 properties (28 buildings). ( I believe I have discovered a “filing for record” process that takes my Land off the tax roles. ) I do not vote for UNITED STATE, or NEBRASKA STATE, County, or City governing officers. I am a sovereign American by birth right. (Not a US citizen.) I believe in full support of the “perpetual Union” as found in the second of four constitutions, “Articles of Confederation”. I have discovered that a “free American” has the lawful standing to choose to live independent of the corporate US governments, and its legislative statutory courts in the vast majority of his daily life, and to be forced to do otherwise is slavery.
What About The Structuring?
Robert Baty, who comments quite a bit on this site and has guest posted on my alternative blogs, runs a site called Kent Hovind and Jo Hovind v USA-IRS. He is not real popular with Kent’s supporters, so it is ironic that he found a case that indicates that the structuring indictment might have been flawed. I ran it by Professor Samuel Brunson of Loyola University Chicago. The discussion is here. Professor Brunson does not believe that the decision in question can be retroactively applied to Kent’s case, but that if it were it would void his structuring charges. The flaw is that the government considered each $9,500 or $9,600 withdrawal a single structuring count. The court in a case subsequent to Kent’s ruled that if you have, for example, $19,000 that you break into two deposits to avoid currency reporting, there is only one structuring count. Kent was not reporting withdrawals and he may not ever have spent more than $10,000 in cash on a single transaction. So when it comes to the structuring, there is a big question as to the validity. Perhaps, considering the source, Kent’s supporters have not picked up on this part of the discussion.
Is This Going To End Well?
I fear it may not. In his interviews, Kent has not foreclosed what I, as a layman, see as his best defense. That would be to plead that he has gotten some really bad advice from Glenn Stoll and now realizes that he was mistaken. I used to think that Kent could never admit he was wrong about anything, but in his interviews he indicates that he was wrong about the pre-Tribulation rapture (I’ll leave explaining that to my theologically inclined commenters). I would try to pull in someone like Robert Howze, The Pastors CPA, who would be able to relate many instances of churches and ministries that have been misled by charlatans. I’ve reached out to some white collar defense experts, but have not found any interested in commenting so I’ll have to leave it at that.
As I noted in yesterday’s post Kent Hovind’s team as represented by Ernie Land will be going with a “sovereign citizen” type of defense. Ernie believes that a few people have actually succeeded with those types of defenses, but their records are sealed. That type of scenario puts my bs detector into high gear, but I don’t doubt Ernie’s sincerity. Here is what he has to say on the matter.
You may note I issued open challenges to all the patriots on several broadcast that have been downloaded by tens of thousands of people. That challenge, was for anyone with actual documentation that any of these arguments hold up in a federal court show me the documents. I got hundreds of communications, and yes, some with proof in lower courts their traffic case or lower court case was dismissed. That said I got 1 document filed in the International Court, 1 document from Lynda Wall, and 2 private documents with parties not wanting their names out. Those 4 documents all have Federal Court cases with all their documents sealed, except the final document, which are an order to dismiss and recall all warrants from U.S. Marshalls., again which is the only document one can open and see. I do, however, believe I have the original authored documents that lead to the dismissal and all 4 have “private and special” noted on them and all 4 have U.C.C. notations in their arguments, as does this letter from Kent to the DOJ.
One outcome of the movement so far that Ernie and I will have to agree to disagree on is this.
Many Churches are becoming aware of the 501c3 trap and some I know about are dissolving the Corporations to set up other entities. Many Pastors have been enlightened because of the radio broadcast about Kent.
Classification as a church exempt under 501(c)(3) is about pretty much the most enviable tax status that an organization could have. I hope any pastor who is persuaded to examine alternative structures will check in with the Evangelical Council on Financial Accountability before making a move. Congregations with a strong pastor governance model that adopt structures like corporation sole risk confusing the property of the church with that of the pastor opening themselves up to problems similar to Kent Hovind’s.
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