Frederic and Elizabeth Gardner ran Bethel Aram Ministries (BAM). Frederic was “Elder, Teacher, Certified Estate & Financial Planner”. Elizabeth was “Prophetess, Teacher, Pastor and Certified Paralegal”. The ministry was organized as a “corporation sole”. The corporate name was really something – THE OFFICE OF PRESIDING HEAD PROPHETESS of Elizabeth A. Gardner after The Order of the Lord Jesus Christ, the High Priest and King after the Order of Melchizedek, and her Successors, a corporation sole. As Don Imus often says, “You can’t make this stuff up.” The corporation has had its status revoked, but for four hundred bucks it could be reinstated. The transactions of BAM were the subject of a recent Tax Court decision.
BAM was not the petitioner in the case. The Gardners were the petitioners. Their position was that they had taken a vow of poverty and transferred all their property to BAM. BAM would then provide for their needs as pastors of the church ministry. My sister has a deal like that. She is a Pallottine nun. When it came to the Gardners though, there was a bit of a problem. As the IRS saw it there was really no distinction between them and their ministry:
They together had unfettered control over BAM’s operations and finances. They had the same telephone number as BAM and communicated with others on behalf of BAM. Mrs. Gardner did “all the writing * * * on behalf of the church”, and Mr. Gardner handled its books and records. They did not have any personal bank accounts; instead, they used BAM’s business accounts at Community First Bank, Bank One, and Wells Fargo as their own. They were the sole signatories on the accounts and used funds from the accounts to pay their personal expenses, including groceries, clothing, medical care, utilities, housing, dining at restaurants, and food and veterinary care for their dog.
Corporation Sole
Corporation sole actually has valid applications. It is meant to vest title to property in the hands of an officeholder. If the officeholder is someone who is appointed and can be dismissed by some authority, it makes a lot of sense. If it is a made up office that you appoint yourself to, it doesn’t even make good nonsense.
The Gardners did not just do this for themselves. Promoting the corporation sole concept was a focus of their “ministry”. Then there was this injunction thing that shut the whole thing down. Don’t you hate when that happens. Of course, there were over 300 people who would have been a lot better off if it had happened sooner. Among them were the Gunkles, who had an actual church. The could have had a board set a salary for the pastor, much of which could have been designated a housing allowance. Reverend Gunkle could have elected out of the self-employment tax. Churches overall get very favorable tax treatment, but somehow the Gardners convinced pastors to convert to corporation sole and hopelessly tangle their own property with that of the church.
The Case
You have to give the Gardners credit for at least drinking their own KOOl-aid. They used the corporation sole argument to deny IRS access to books and records. So the Service reconstructed their income from bank deposits. Total deficiencies for 2002 – 2004 were over $200,000. The Tax Court had no use for the “vow of poverty” argument:
Like the taxpayers in Woods and Gunkle, petitioners had unfettered control over their church’s bank accounts. Petitioners did not have any personal bank accounts; instead, they used BAM’s accounts as their own and for their own benefit. They deposited the payments they received from setting up corporations sole, LLCs, and trusts into BAM’s accounts and withdrew funds from BAM’s accounts to pay their personal expenses. Furthermore, there is no evidence that petitioners were accountable to anyone for the funds in BAM’s accounts. Because petitioners exercised dominion and control over BAM’s accounts, all taxable deposits into those accounts are includible in their gross .
It Can Get Worse
Kent Hovind ran his “Creation Science” ministry as a corporation sole. He ended up in federal prison, primarily for “structuring” – dealing in cash amounts somewhat less than $10,000 purportedly to avoid reporting requirements. A lot of people think he got a raw deal and is being persecuted for his views. I think the persecution theory is a little off but when you compare him to the Gardners, it does seem a little unfair. He just ran the scheme for himself. The Garnders convinced over 300 people to buy into corporation sole and just got an injunction telling them to stop and bills for their own taxes.
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Originally published on Forbes.com Mar 27th, 2013