Misplaced reliance on the “corporation sole” has struck another pastor. The Tax Court sustained an IRS assessment of over $100,000 in income and self-employment tax in the case of Ronald W. White, pastor of World Evangelism Outreach Church in DeFuniak Springs, FL. Then there are the penalties for not filing and not paying which add about 50% to the total tab.
About Corporation Sole
Corporation sole works well for churches with hierarchical polities. It allows title to property to be vested in an officeholder. The title to a Catholic parish, for example, will usually be in the name of the Roman Catholic Archbishop of ___________, a Corporation Sole. Corporation sole does not work for one man ministries, since there is an identity between the office holder and the individual.
In 2001, Reverend White arranged with WWEOC to reorganize to have an office vested in The Office of Presiding Head Apostle, Held By, Wayne White, And His Successors (sic), A Corporation Sole, which was organized in Nevada. (You’ll find quite a few apostles if you do a search of Nevada entities). He followed that up with a vow of poverty.
The biggest problem with his theory was that he controlled the checkbook of the corporation sole. It was up to the Tax Court to decide whether White’s vow of poverty insulated him from being taxed on payments made for his benefit by WEOC. It did not go well for him.
Petitioner appears to rely on the Internal Revenue Service’s original official public pronouncement regarding the vow of poverty, O.D. 119, which was published in 1919. See O.D. 119, 1919-1 C.B. 82. In part, O.D. 119 stated: “A clergyman is not liable for any income tax on the amount received by him during the year from the parish of which he is in charge, provided that he turns over to the religious order of which he is a member, all the money received in excess of his actual living expenses, on account of the vow of poverty which he has taken.” Again, petitioner’s argument is misguided. Rev. Rul. 77-290, 1977-2 C.B. 26, supersedes O.D. 119. Rev. Rul. ]77[-290, supra, states that income earned by a member of a religious order on account of services performed directly for the order or for the church with which the order is affiliated and remitted back to the order in conformity with the member’s vow of poverty is not includible in the member’s gross income. As was the case with the taxpayers in Cortes and Rogers, the critical difference in this case is that petitioner did not remit income to WEOC pursuant to his vow of poverty. Petitioner had signatory authority over the WEOC apostolic bank account, and the payments WEOC made on his behalf served only to benefit petitioner in meeting his living expenses. The compensation petitioner received from WEOC—in the form of payments WEOC or its related entities made on his behalf—must be included in his gross income.
Some Comments
I found this case interesting having covered similar cases such as that of Bruce Gunkle and the really sad case of Thomas Chambers, so I thought it would be worth reaching out to my “establishment clause” brain trust.
Professor Edward Zelinsky of Yeshiva University wrote me:
In response to your email, I have looked at this case again and come to the same conclusion as the first time I read it: It is an easy and not terribly important case. Despite his vow of poverty, this clergyman took significant resources for his personal living expenses. Its like Rev. Creflow Dollar’s use of the church airplane: income.
Professor Adam Chodorow of Arizona State University wrote:
This case gets it right. Under our tax laws, ministers are subject to income tax, just like everyone else. The one exception is housing allowances under the parsonage exemption, and that is currently being challenged in court. In most cases, the person who earns the income is taxed on it, even if he transfers it to someone else. These are typically referred to as assignment of income cases. However, in some limited cases, the IRS will permit those who have contracted to turn over their income to others to avoid tax on that income. One example is a law professor who works in a legal clinic and is awarded legal fees. Most schools have a rule that the fees must be transferred to the school, and it could be viewed as unfair to tax the professor on such income. Another example is those who have taken a vow of poverty and turn their income over to their religious order. Here, the petitioner did not remit income he earned to his religious order. Rather, he received income from the religious order for work done on its behalf, which he must pay taxes on. That he has taken a vow of poverty is beside the point.
Finally, Professor Samuel Brunson of Loyola University of Chicago weighed in:
The court’s conclusion here is entirely unsurprising. It’s clearly a tax scam–the fact that the reorganization of the entity, his vow of poverty, and his decision to stop filing tax returns all coincide are clear evidence of that.
And yet he still could have succeeded. I’m personally not sure about the IRS’s reasoning in Rev. Rul. 77-290, but the ruling exists and provides a roadmap for pastors who want to take a vow of poverty to avoid paying taxes: basically, they have to mean it. Here, if Pastor White had given up signatory authority over the bank account, he probably wouldn’t have had to pay taxes.
And, in that way, right or not, the IRS’s standard is remarkably clever. It says, “If you’re actually willing to give up your rights to the money, we’ll believe your vow of poverty, and treat you like you didn’t earn the money.” But the thing is, that’s a really steep price, and White was apparently unwilling to pay it. So he lost, and rightly.
Professor Brunson’s comment on Revenue Ruling 77-290 is interesting. The ruling reflects a certain reality. Some, but not all, Catholic clergy and other religious take real vows of poverty. Being the brother of one of them, I can attest that they are not kidding. Most Protestant denominations do not have the type of polity that can support that. If you want to see a more detailed explanation of how it works in real life you can scroll to Part III of Schedule J of Form 990 for the College of the Holy Cross and read the note about how they pay the Jesuits who work there.
But That’s Not All
A minister trying to avoid taxes with a vow of poverty in the Florida panhandle just rang too much of a bell for me. Close readers of this blog will recall that with the sentencing of Kent Hovind’s co-defendant Paul Hansen, I called an end to coverage of L’affaire Kent Hovind on this platform. It turns out that besides the vow of poverty and the general location Wayne White has a bit more in common with Kent Hovind.
Reverend White put up on a fairly significant legal effort to prevent the IRS from even looking into his affairs relying on special rules that require the IRS to jump through hoops before starting a church examination. A federal magistrate ruled that an IRS summons should be enforced and Reverend White appealed to district court. He lost there too (White v US 108 AFTR 2d 2011-6813) and the judge who ruled against him was none other than Margaret Casey Rodgers. On the Free Kent Hovind site, they get quite passionate about Judge Rodgers and not in a nice way.
As it happens Kent Hovind is still claiming that his brilliant legal consultant, Brady Byrum, will soon be filing something that will overturn his conviction and entitle him to compensation. Kent’s consigliere Ernie Land has given me some hints as to what is coming and it is very much related to the special status of churches.
As you can see a can of worms is soon to be opened on the Judge and DOJ for their fraudulent actions. And the future looks like we get to introduce the DOJ to a case they will wish they never brought and one that will remind them of the Scientology case, but the nice thing is their Attorneys paved the way with recent rulings.
I asked Ernie to comment on the Tax Court decision in the case of Reverend White, but I have not heard back from him. Regardless, I thought this would be a good time to update my forbes.com readers on Kent Hovind’s post-prison career.
Doctor Dino Update
Kent Hovind is an Independent Baptist minister who holds the Young Earth Creationist viewpoint that the world is about 6,000 years old. One of the implications of YEC is that humans and dinosaurs must have coexisted, the basis for Kent’s theme park Dinosaur Adventure Land. The way DAL ran got Kent into a lot of trouble with the IRS resulting in a long prison sentence from Judge Margaret Casey Rodgers.
Since his release just over a year ago, Kent’s ministry has mainly been on his youtube channel, which seems quite popular. Ernie Land has assured me that there is a conventionally compliant tax structure in place for the ministry. Kent had a fairly nasty dispute with his wife and son about the assets of the old ministry and is now divorced – but not for long. The ministry has acquired a fairly large tract of land in Lenox, Alabama (Conecuh County) where Kent now lives and with the help of a floating band of volunteers is building a new DAL. Some of the neighbors are a bit nervous about that. The big news, lately, is his upcoming marriage to anti-vaccine crusader Mary Tocco, another source of controversy in YEC circles, since they are both divorced. I’ll be sure to let you know when the long-predicted legal action makes more progress, but that’s it for now.
Other Coverage Of The White Case
I picked up the case from Lew Taishoff’s piece – Is There For Honesty Poverty?. Joe Kristan also covered it –“It’s not poverty when you have the checkbook” writing:
I expect Forbes blogger Peter Reilly, who often writes on clergy compensation issues, to have thoughts on this one soon.
Since Paul Caron has dropped his Weekly Roundup, I think that Joe Kristan’s coverage might now qualify him as the dean of the tax blogosphere (Meaning no disrespect to Bob Flach’s Buzz, which is often more colorful but not quite as thorough.) Regardless, that comment by Joe made my coverage of the case almost mandatory.
Ed Zollars also had something on Current Federal Tax Developments.