by: Peter Kershaw, © 2004, All Rights Reserved
The corporation sole is experiencing explosive growth as a direct result of aggressive promotional efforts, primarily through the internet, by dozens of corporation sole sales companies. Thousands of new corporation soles have been formed in the past several years, and that growth continues.
The corporation sole is being recommended by its promoters as a way of organizing churches and for other ecclesiastical purposes. If really used for such purposes, one may be able to justify doing so on a purely "legal" basis, since the corporation sole is a valid and legally recognized corporate entity.
A major problem, however, lies in the fact that all the corporation sole promoters misrepresent the legal attributes of the corporation sole. Rather than recommending it for exclusively legitimate religious functions, corporation sole peddlers also sell it as an attractive vehicle for personal and business use. This allegedly includes tax immunity, asset protection, estate planning, etc. Of the thousands of corporation soles that have been formed in recent years, the vast majority appear to be shams that have little if any legitimate religious purpose.
No doubt there is at least a small percentage of recently formed corporation soles that have been organized by legitimate pastors and ministers who have no intention of using the corporation sole to game the system. In point of fact, corporation sole peddlers often specifically target real churches because they provide multiple sales opportunities. After they convince the pastor to reorganize as a corporation sole, then they turn their attention on selling individual members of the church their own corporation soles, as well.
Corporation sole peddlers claim that anyone who has a "ministry" legally qualifies to have a corporation sole and, thereby, obtain all the alleged tax benefits. But what is a "ministry?" According to corporation sole peddlers "ministry" includes just about every conceivable activity that a Christian or, if you're not a Christian a "religious person" (corporation sole peddlers aren't especially picky about their clientele), would ever engage in, including investments and profitable business ventures.
Upon an exhaustive review of a plethora of corporation sole marketing materials, it quickly became apparent to me that the terms "church" and "ministry" are really just being used for a cloak, as a front, as window-dressing to disguise (and not so cleverly) the actual intentions of the corporate sole peddlers. The claims being made about the corporation sole by its touters often have little or nothing to do with real churches, and more to do with twisting and completely redefining well-understood words and phrases.
There's nothing new about this hoax. Corporation sole promoters are just putting a new twist on an old tax scam -- the religious ordination mill. For many years people have sought so-called religious ordinations from religious ordination mills, such as the Basic Bible Church Of America, generally for no other reason than to obtain some mythical tax advantage.
The IRS began issuing Revenue Rulings some years ago (e.g. Rev. Rul. 78-232, Rev. Rul. 81-94, Rev. Rul. 89-74), warning about religious ordination mills and "mail order churches." The IRS has long made it clear that participation in sham ministerial ordinations, and sham church schemes, would result in the most unpleasant of consequences.
The theories that corporation sole promoters are peddling today are no different than the theories that the clients of mail order churches tried using decades ago. Many of those folks went to jail, and many more lost all their assets to the IRS. The results are proving no more favorable for purchasers of the corporation sole.
It is not my intention here to pass judgement upon the ideology of corporation sole promoters. Some of them (at least those few that aren't common hucksters and swindlers) have a genuine passion for personal liberty and the reestablishment of constitutionally-constrained and limited civil government. On that point we would have something in common.
However, corporation sole peddlers universally suffer from an inability to think logically or to reason cogently and in a way that is intellectually honest. They suffer from reasoning that is driven by ideological wishful thinking, rather than objective thinking. Drawing any conclusions based upon wishful thinking often has disastrous consequences.
Another form of logic commonly employed by corporate sole peddlers is known as "hasty generalization" and "weak analogy." Here's just one example, in the form of a syllogism:
Both position statements are true. The conclusion, however, is false. It should be apparent why such logic is flawed; but many folks who purchase a corporation sole have missed it altogether.
Given the intense frustrations that millions of Americans have with the federal income tax system, any claims corporation sole peddlers make of being able to obtain personal tax immunity are bound to elicit considerable interest. Even former President Ronald Reagan was openly critical of the personal income tax system:
President Ronald Reagan, Williamsburg, Virginia (May 1983)
Mr. Reagan gave some wonderful and inspiring speeches, but he often didn't do a very good job of delivering on promises. Under his leadership, the federal income tax code became far more complex than it had ever been, and the tyrannies of the tax authority were not in any way reined in. Taxpayer frustrations have only increased since the Reagan Administration, and millions are looking for a way to "get out of the system."
Emotions are running high for the multitude of Americans who view the federal income tax system as corrupt, unconstitutional, socialistic (if not communistic), and the antithesis of government of the people, by the people, for the people. Along come the tax protesters with a new "silver bullet" that they claim will slay the tax monster -- the corporation sole. One might easily be caught up in all the excitement and fervor. After all, what could be more exciting than the opportunity of finally being delivered from oppression and tyranny, into a status of liberty and personal freedom?
But it's just that sort of emotionalism that often gets people into very serious trouble, because emotionalism can often undermine clear thinking. Americans today are more of an emotional lot, and far less of a thinking, rational people, than at any time in our history. This is not by accident, but by design. Most of us have been conditioned that way by our public schools, our television, magazines, books, movies, music, recreation, politics, and seeker-friendly purpose-driven entertainment-obsessed churches. Advertising permeates all of it, and advertising is mainly about eliciting an emotional response.
Emotionalism sells. Rationalism jeopardizes sales. Advertisers would rather that you not think. They'd rather you part with your hard-earned money as an "impulse buyer," based upon some happy feeling they hope to conjure out of you.
It's just that sort of hyped emotionalism that is responsible for the rapid growth in the corporation sole industry; and where there's money to be made, you can be sure there will be salesmen there to sell it. Given the kind of easy money that can be made, it's little wonder that so many common peddlers (and even a few common hucksters and charlatans) have jumped into the fray to hype the corporation sole. Many of them are relatively new to "the freedom movement." In their ignorance, they believe they're offering and doing something that has never been done before:
Little do they realized that there have been dozens of other "silver bullets" marketed from long ago, decades before they ever learned that the personal federal income tax was "voluntary." None of those silver bullets worked any better (or worse) than the corporation sole silver bullet. This is not a slam against tax protesters. Tax protesters are doing an admirable job of exposing the injustices of not only the tax system, but unconstitutional government, in general. However, they have much to learn when it comes to offering the typical American family a viable solution for living outside the system. The reality is, there is no silver bullet.
Ethical and Competency Problems
The corporation sole is being puffed by a plethora of peddlers via the internet, as well as by MLMs and network marketers, various seminar companies and, as we've mentioned, tax protesters. While we have no animus towards salesmen in general, we need to point out that when dealing with inherently complex subjects, such as the technical attributes of legal entities, taxation, jurisdiction, etc., it would be most unwise to take the word of a mere salesman.
Furthermore, many salesmen are prone to puff the product they sell, disclosing only the "benefits" but hiding from the customer the pitfalls. This is especially apparent in all the hype about the corporation sole. There are numerous pitfalls to the corporation sole, but we have yet to see a corporate sole peddler mention even a few.
Many salesmen not only puff their product, but they also puff themselves, claiming they possess certain skills and aptitude, which they simply do not have. This too is widespread among the corporate sole peddlers. Many of them claim they possess legal expertise when, the reality is that few, if any, of the corporate sole peddlers retain any genuine legal acumen at all. Few of them could negotiate their way around a law library, or know how to perform competent legal research. As such, few of them have personally performed any serious research on the corporation sole for themselves. Most of the corporate sole peddlers have just stolen and plagiarized their materials from others.
One example of this thievery hits all too close to home for me personally. I speak here of the plagiarist and self-proclaimed "Prophetess," Elizabeth Gardner of Beth-El Aram Ministries (or Bethel Aram Ministries and Beth Aram Ministries). Elizabeth Gardner used without my permission, and without any attribution whatsoever, some ten pages of my book, The Modern Church: Divine Institution Or Counterfeit? (published in 1993) in her booklet, Corporation Sole vs. 501(c)(3) Corporation. In the publishing world this is referred to as "plagiarism." Referring to someone, such as Elizabeth Gardner, as a plagiarist is a polite way of calling them a thief.
Years ago I confronted Elizabeth Gardner, and her husband Ric Gardner, over the matter. However, they denied doing anything improper, nor would they heed my demands to cease using my writings. Not only is Elizabeth Gardner a plagiarist, she used my writings in order to profit from an agenda that I am hardly in agreement with. Elizabeth Gardner has done so to line her own pockets, yet she has not ever paid me a dime in compensation for the ten pages of my book that she stole.
Elizabeth Gardner is not the exception, but rather, tends to be the norm among corporate sole peddlers. Little in the way of honor or original thought (as evidenced by all the plagiarism) is apparent among corporation sole peddlers. One should give careful consideration before working with an industry that is fraught with people so lacking in ethics.
Moreover, when it comes to legal acumen, corporation sole peddlers are renowned for claiming expertise which they do not possess. Again, Elizabeth Gardner is a perfect example. Here is a woman who claims to be a "legal researcher," a "paralegal," and "author." Apparently her idea of "research" and being an "author" is to steal the papers and books of others and then republish them as her own, and then hold herself out to the public as an "expert." This pattern is commonplace among corporate sole peddlers.
As such, the purchaser of the corporation sole should think through very carefully where they plan on getting their legal support for the many legal questions and issues that are bound to arise after they make their purchase. Chances are they won't be getting competent legal advice from the salesman they bought their corporation sole from. Salesmen serve an important role in our society, but our expectations of them need to be realistic.
Furthermore, the political philosophies of many (and perhaps most) of the corporate sole peddlers make them high-profile with the government. When government agencies put out news releases announcing another injunction, raid, asset seizure, or indictment against a corporate sole promoter, they almost always make mention of the fact that they are also a tax protester, or militia member, or white supremacist, etc. Many of them also have prior felony records.
Corporation sole promoters are certainly entitled to their opinions, even if their opinions are seriously flawed (indeed, their opinions are protected by the First Amendment). However, all corporation sole promoters are, by the very nature of their beliefs and practices, on the government radar screen and will attract government scrutiny. One should think through very carefully the company one keeps. The modus operandi of government investigations and prosecutions is often based upon guilt by association (prosecutors call it "conspiracy").
Corporation sole promoters claim that the corporation sole is the greatest thing since sliced bread (falls jelly-side-up every time) for "operating outside the system." However, an indispensable prerequisite for successfully "operating outside the system" is maintaining a low profile. In other words, if you plan on operating outside the system, don't ever engage in conduct which draws attention, scrutiny, or a government investigation, and keep your distance from those who are high-profile. Those who plan on exiting the system had better do so cautiously, quietly and unobserved.
The mere creation of a corporation sole makes it impossible to be low-profile. The moment you make application with your Secretary Of State's office and form a corporation sole, it becomes a matter of public record. There has been so much abuse of the corporation sole in the past several years, it would be naive to assume that "the system" isn't paying close attention, every time a newly-formed corporation sole is registered.
Even the press, and certain investigative reporters, are paying attention to the corporation sole, and what they've had to say of the corporation sole, and the character of the folks who promote them and who use them, hasn't been very favorable. For example:
Corporate sole peddlers are getting a lot of people into serious trouble with various state agencies, the IRS, and the Department Of Justice. If you have a corporation sole, and you use it in the manner in which most of the corporate sole promoters claim that you can, you will eventually have legal problems, and your legal problems could become very serious.
Even if you don't use your corporation sole in an "abusive" way (as the IRS terms it), the mere fact that you have a corporation sole makes it reasonably likely that you will be investigated. The corporation sole has been the subject of considerable abuse, particularly by tax protesters. It, therefore, looms very prominent on the IRS radar screen. Many of the states are also paying close attention to it. One should give careful thought to whether or not they want to be a "target of opportunity" on the government radar.
Many of the corporation sole peddlers speak of the corporate sole as though it's some kind of big "secret" that hardly anyone else knows about; but that's just more sales hype. The fact of the matter is that all those agencies of government that you don't ever want to lock horns with, such as the IRS, know all-too-well about the corporation sole, and they're monitoring the situation closely. The IRS has given fair warning that it's making the investigation and prosecution of abusive corporation sole promoters, and their clients, a high priority, and they've committed considerable resources toward that end. Note what the IRS states in its Brief In Support Of Temporary Restraining Order and Preliminary Injunction (pdf file at pg. 12) filed against corporation sole peddler, Eddie Kahn:
In the Eddie Kahn / Guiding Light of God Ministries injunction case, the court granted the IRS' motion to compel Mr. Kahn to produce all of his client records (federal judges usually give the IRS what they want). The likelihood is very high that the IRS will now use those client records as evidence when it brings criminal indictments against Mr. Kahn's clients. As Eileen J. OConnor, Assistant Attorney General for the Justice Departments Tax Division has stated:
It could be several years before you hear anything at all from the IRS, but when dealing with bureaucracy one should never believe that "no news is good news." Often just the opposite has been the case. Government investigations are often very slow -- that's an inherent characteristic of bureaucracy. But when you do hear from them, you may be surprised how quickly your life begins to unravel. Those who have paid into the so-called "legal defense funds" of abusive tax scheme promoters like Eddie Kahn (e.g. American Rights Litigators) may find out too late that their so-called legal defense program is every bit the sham as was their tax avoidance program.
Your legal problems will either be civil (which only costs you money, and usually lots of it) or criminal (which means jail time and big legal defense costs), or a combination thereof. If you're lucky, your problems will just be civil. If you're not so lucky... well, here are just a few examples:
For every one of these types of news releases there are hundreds of additional cases that are not publicly released. Those are the clients of the corporate sole peddlers. The clients come to the government's attention when the government subpoenas the peddler's client records, and/or raids their office. Those peddlers who refuse a court order to turn over their client records are held in contempt of court and jailed until they comply with the court order. No abusive tax scheme promoter wants to spend the rest of his life in jail so, sooner or later, they will turn over their client records.
Once the DOJ obtains the client records, they are then turned over to the IRS Criminal Investigation Division (CID). CID will make a determination, based upon any evidence it obtains, if civil action, criminal action, or both, is warranted against the clients of the corporation sole promoter.
The IRS often aggressively targets the clients of abusive tax scheme promoters, while they may, in certain cases, permit the promoters themselves to continue operating for months (if not years). This probably isn't by accident, but by design. The reason for this is only apparent to those of us who have critically observed the modus operandi of the IRS over a number of years. Why the IRS does so makes sense only if you try to put yourself in the place of a government bureaucrat (IRS agent) who is only interested in his own job security.
Many IRS special agents actually love abusive tax scheme promoters. As long as they're around, IRS special agents have job security. Here's how it typically works:
Sometimes just being on the mailing list of a corporate sole peddler could cause you to become the subject of an investigation. The government often collects names and addresses of the mail recipients of any organization they place under criminal investigation through what is called a "mail cover."
Far more is at stake here than just what occurs at a personal level. We would be remiss in not mentioning the fact that these kinds of legal problems do not bode well for the family unit. The odds of your marriage weathering the intense strains you and your spouse would encounter by a legal encounter with the IRS, DOJ, and possibly the FBI, are bleak. Such agencies are very effective at destroying people's lives, and they often find some very creative ways of doing so.
Sometimes corporation soles are actually formed for real churches and ministries, and not just as shams. One may assert that organizing a church as a corporation sole isn't as bad as organizing as a non-profit 501c3 tax-exempt religious corporation. But such an argument is just quibbling over different shades of gray.
The corporation sole church cannot be supported and defended biblically, any more so than can the non-profit incorporated church. They are both corporations, brought into existence by the State, regulated by the State, and made subordinate to the State. All corporations are "creatures of the State." They "render unto Caesar" that which the Lord Jesus Christ never delegated authority to the State to govern, regulate or render.
Corporate sole promoters claim that filing articles of incorporation with their Secretary Of State is nothing more than registering or putting the State on notice that we have formed the corporation sole. Such a claim is double-talk. The fact of the matter is that filing corporate articles is legally required by the State in order to form a corporation sole. The State authorizes, determines, specifies and regulates:
Filing articles of incorporation with your Secretary Of State to form a corporation sole is far more than merely putting the State on notice. The State cannot authorize something unless it has authority over that thing. The fact of the matter is that the State does have authority over all corporations sole.
By organizing your church or ministry as a corporation sole, you are seeking the permission of the State to organize your church. If you believe you can support that morally and biblically, you might as well just go ahead and organize your church as a regular non-profit religious corporation, and claim that as a church it's a mandatory exception under IRC 508c1A. There's not enough of a difference between a corporation sole and a non-profit religious corporation to worry about anyway.
Just like attorneys who only give one side of the story when they try to convince a pastor on why it's a good idea to organize his church as an incorporated 501c3, peddlers of the corporation sole aren't even giving pastors half the story.
The corporation sole peddlers are even more dangerous to Christ's church than are those attorneys who peddle the non-profit incorporated 501c3 status. Corporate sole peddlers, whether they are legal ignoramuses claiming to be experts (and many of them are), or just looking to turn a quick buck while offering no viable product to their clients (and many of them are), or even of those who may actually have the best of intentions (and there may be a few of those), are in reality wolves in sheep's clothing.
Corporate sole peddlers purport to be offering themselves as rescuers of the incorporated 501c3 church, claiming with all their marketing hype that they have the solution for setting churches free from government entanglements and subordination. Yet in reality, all they are doing is creating a "frying pan into the fire" syndrome. They are part of the problem, not part of the solution.
As the wise man once said, "If it sounds too good to be true, it probably is."
However, the one thing that doesn't seem too good to be true is the price tag associated with forming the typical corporation sole. Most of the corporate sole peddlers are asking a pretty penny, often multiple thousands of dollars, by the time you add up all their fees. In one case, we saw a peddler selling the corporation sole for 50% of your prior year's tax liablity. He gives an example that if you were to owe $300,000 in capital gains taxes on the sale of your house, you pay him $150,000 to form the corporation sole, transfer title of your house to the corporation sole, have the corp sole sell the house (thereby allegedly avoiding capital gains) and, thereby, save yourself $150,000 (what a bargain!).
We're not at all impressed with the corporate sole, but we're even more displeased to see people parting with their hard-earned money to receive little more than a useless pile of a dishonest peddler's paperwork. The reality is you could probably form a corporation sole yourself, just like you could organize any other non-profit corporation.
There's far less of a mystery to it than the corporation sole peddlers make it out to be. Nolo Press, long-known in the world of do-it-yourself law, has a book that even includes forms and instructions for organizing a California corporation sole (you could just as easily prepare the forms and file them in another corporation sole state, like Nevada). For the modest expense of a $38.00 book, you might be able to figure out for yourself why the corporation sole falls far short of the impressive promises that are made by the corp sole peddlers.
What should I do if I have a corporation sole?
a. Non-abusive corporation sole:
There does appear to be a small percentage of corporation soles that have been formed by legitimate pastors and ministers for real churches and ministries, and they have no abusive intentions at all. If that's you, and your corporate sole peddler told you that the corporation sole was the way to operate your church or ministry "outside the system" (because it's not a 501c3), that peddler doesn't understand, or perhaps lives in denial, that every corporation (including the corporation sole) is "a creature of the State." Claiming that a creature of the State can somehow operate outside the system is a legal and logical absurdity.
The solution for the corporation sole church is to unlicense your incorporated church and organize as a free-church. This ministry offers the educational resources necessary for you to do so yourself, without having to hire an attorney.
b. Abusive corporation sole:
There are varying degrees of abusive recommendations, from one corporate sole peddler to the next. Some peddlers are only mildly abusive, and their recommendations may only get their clients into moderate legal trouble (civil penalties). But there are also many corporate sole peddlers who make client recommendations that are extremely abusive and, if followed, are practically guaranteed to land their clients in jail, and perhaps for many years.
Some of the most abusive corporation sole companies are those which actively market through MLMs via conference calls. The number of legal misrepresentations made during such conference calls easily outnumber the few valid statements made. One such example conference call is from the Freedom & Privacy Committee, headed up by Joe Saladino. However, given that the IRS and DOJ filed suit on March 29, 2004 against Freedom & Privacy Committee, naming also a number of their more active independent representatives around the country, it's hard to say how long you may still be able to hear example calls from their web site, or participate in live conference calls.
It appears that most corporation soles being sold today are being peddled for "abusive tax purposes" (as the IRS and the courts refer to it). If you already have a corporation sole, it's unlikely that you have much in the way of legal expertise (that's not meant as an insult, but just to point out the obvious). How are you to know what laws you've violated, and how severe the penalties might be? You probably wouldn't. Do you know how to dig yourself out of the hole you're in? Probably not.
In such circumstances it's always wise to get a second legal opinion from someone with the necessary legal expertise. You may want to consider contacting me for a phone consultation. I've successfully fixed many such problems, and if it's caught soon enough it can often be fixed relatively painlessly (I've also successfully fixed many abusive Trust schemes and tax protest problems). Anything you disclose remains completely confidential.
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