5th Circuit Rejects Religion-Related Income Tax Gimmick

In Gunkle v. Commissioner, (5th Cir., May 20, 2014), the U.S. 5th Circuit Court of Appeals affirmed a Tax Court decision that rejected husband and wife taxpayers' attempted use of a "religion-related tax gimmick" to avoid income taxes. Initially the Gunkle's had created a 501(c)(3) non-profit, City of Refuge Christian Fellowship, Inc. They however heard a speaker at a church conference who claimed they could instead create a non-501(c)(3) "corporation sole," assign their income to it, deduct this as a charitable contribution without qualifying as a non-profit, and thus make their income non-taxable. They did this, and then signed a vow of poverty, assigned their residence to the corporation sole, and had the corporation sole agree to provide “all their needs as Apostles and as pastors of this church ministry." The 5th Circuit agreed with the Tax Court that payments of living expenses of the Gunkle's from the corporation sole's Pastoral Account were taxable income to the Gunckle's, and their assignment of income to the corporation sole did not qualify for a charitable deduction.