Corporation Sole Tax Scams

Corporation Sole statutes permit the incorporation of religious leaders in order to ensure the continuation of ownership of property held for the benefit of a legitimate religious organization. Generally, religious leaders such as bishops or parsons take advantage of corporation sole statutes. Creditors of a Corporation Sole may not look to the assets of the person holding the office nor may creditors of the officeholder look to the assets of the Corporation Sole. Not all states permit the Corporation Sole form of corporate structure.

Unscrupulous promoters are offering tax evasion schemes that misuse the Corporation Sole structure by misrepresenting the federal and state laws, which were designed to apply only to legitimate religious institutions and their leaders. Under the scam, the promoters help participants set up one-person, nonprofit corporations under the pretext of being the "overseer" of a fictitious religious organization. The promoters tell the participants that under this form of organization, they will be exempt from federal income taxation as nonprofit organizations.

In addition to avoiding federal income taxes, promoters often tell participants that organization as a Corporation Sole will legally give them a way to escape paying child support and other personal liabilities by hiding assets in a tax-exempt entity. This "advice" is costly. It is usually given in seminars charging more than $1,000 per person.

The Internal Revenue Service advises taxpayers considering this tax avoidance arrangement to seek advice from an independent, competent tax advisor who is not involved in the marketing of the scheme. According to the IRS, if the scheme is designed to hide income or assets or if it is designed to evade income taxes, the taxpayer should be very wary.

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