Over the past several years, I have spoken with more than a few pastors and church leaders who have purchased materials from promoters who advocate something called – “Corporation Sole.” It has been presented as, “THE ULTIMATE 501(C)(3) ALTERNATIVE”. Plain and simple – THIS IS A SCAM. You can read a well written critique about this subject, by Attorney Jay D. Adkisson on his web site. I won’t even attempt to repeat here in this article what Mr. Adkissin, an Attorney, has already very well set forth on his site. Click here to read.
Please be advised that Corporation Sole promotions had, for many years been named in the IRS annual consumer alert of the “Dirty Dozen” as tax scams taxpayers are urged to avoid. Corporation Sole continues to be mentioned in the footnotes. A previous list [Yr. 2006] of the “Dirty Dozen” tax scams can be found by clicking here.
AND – in 2004, the Department of Justice filed suits in federal courts in California, Colorado, Oklahoma, Missouri, and North Carolina to stop a nationwide abusive tax scheme in which customers are advised to create, and claim church status under “Corporation Sole.”
The primary problem with the idea of “Corporate Sole,” [aside from the fact that nearly 100% of what is promoted and sold is a scam and a lie], from a spiritual/scriptural perspective, there is no accountability. After all, that’s the whole point of someone setting one up in the first place. No accountability by the Pastor/Leader to the congregation, or to any other church leader. It is in fact, a plan for Financial Dictatorship.
Today, more than ever, God is calling His church to relationships of accountability. This is true at all levels within the church – but accountability should really begin with church leadership. Accountability, with one another, will keep us walking a straight path of honesty and integrity according to God’s ways and principles.
Before I came to the Lord Jesus Christ, I was somewhat interested in the tax resistance movement. However, I resolved long ago to put all my energies into what God has called me to do, training warriors for Jesus Christ, and winning souls; And now we are serving His ministries with the intellect and understanding He has given us. We simply can’t walk in two “camps.” ie: fighting government, and fighting taxes, and still be effective for the Lord.
The primary reason the church incorporates – is for legal [Liability] protection from ‘Shark’ Lawyers.I recently heard an interesting statistic [at an estate planning seminar, moderated by an attorney] that 90% of the attorneys in the entire world, are practicing in the good ole US of A; And that there are presently that many more in Law School, training to be Lawyers. Do we have to [are we required to] incorporate? No! Is it a good idea to incorporate? In light of the fact that we live in the most litigious nation in the world, and there are so many ‘Sharks’ out there? Yes, we believe so. By the way – the American Bar Assn. continues to do Seminars on “How to sue the church.” See our online article Why does the church incorporate?
The secondary reason the church incorporates – is so that we have a legal entity in which to take title, when we purchase property. Without a legal entity [a corporation], who would be recorded on the Title Deed? I have discovered several cases where the pastor and other ‘elders’ were the owners of the church property. This is really bad news – for this is “co-mingling” [mixing] exempt monies with personal assets, and this would greatly excite the IRS.
Promoters of the Corporate Sole say, “an incorporated church is subject.” I guess what they are saying is that the ‘state’ can look at the corporation anytime they like? This statement has an element of truth to it, but this can be done only if there is a compelling reason to do so. In reality, this is a rare event.
Let me call you to remembrance of the TV Evangelist in the late 90’s who promised everyone who sent in an offering of $1,000, that he would personally pray over his or her letter and needs. This was one of those ‘ministries’ that was exposed on TV – and a State Prosecuting Attorney persuaded the Attorney General to force him to open his books. In my opinion, he was a real charlatan – and needed to be looked at. By the way, that is the process. No one from the ‘state’ [not even the IRS] can just arbitrarily decide to investigate the church. You might want to read and learn what the process is for the IRS to audit the church. See my Article - IRS Inquiries and Audit Restrictions
As regards to “Tax exemption.” They quote, “That a church does not need to file a 1023, and get an exemption ruling letter” Yes – that is true! The church IS tax exempt, without filing the IRS Form 1023, and without having a ruling letter – so long as they are structured and operating according to the 14 point criteria found in the tax code under the ‘address’ of section 501(c)(3). To see our On-Line Article about the501(c)(3) – What it is, and what it is not.
If the desires to be exempt from paying taxes on it’s income [whether it incorporates or not] the leadershipwill adhere to the criteria found under Section 501 (c)(3)b of the Internal Revenue Code. The IRS caninquire [look into the activities and finances] of any church, because the monies the church received, and the receipts they gave which will reduce the taxpayer’s taxable income, are allowed by the provisions of501(c)(3).
What about the “Unincorporated Church? Can the IRS look at the church that chooses to not incorporate? Yes – because there are a lot of phony ‘House churches’ out there [structured and functioning as money launderers], the IRS can review it to determine if it is a legitimate church, and that a ‘scam’ is not occurring.
The above information is provided as a service to the Body of Christ by ADMINISTRATIVE ASSISTANCE
If you would like more information about similar issues, please consider “The Church Administration ‘How To’ Manual.” This Manual, endorsed by three CPA’s, an EA and two attorneys, was updated again in January, 2011, for the 12th time, since its original publication in 1991.
- Some Say Don’t Incorporate! WHY?