Corporation Sole Cannot Shelter Pastor From Tax Trouble

By James A. Beavers, J.D., LL.M., CPA, CGMA


A pastor’s use of a “corporation sole” structure to avoid “government interference” and a vow of poverty were not enough to shelter his income from federal tax, the Tax Court held in a recent decision.


Bruce and Sherilyn Gunkle served as pastors to the City of Refuge Christian Fellowship in San Antonio. City of Refuge had been formed as a nonprofit corporation in 1990 and was granted tax-exempt status under Sec. 501(c)(3) in 1991. In 2002, after attending a church leadership conference, Bruce Gunkle decided to stop operating City of Refuge as a nonprofit and to discontinue its Sec. 501(c)(3) status because he was concerned that this status allowed for government interference with the organization and because the “business model” of a corporation allows the directors a say in its operation.

Therefore, in 2004, the City of Refuge Inc., was dissolved, its Sec. 501(c)(3) status was terminated, and the Office of Presiding Pastor, Bruce W. Gunkle, and His Successors, was formed in Nevada as a corporation sole. A corporation sole is described as an “[u]nusual type of corporation consisting of only one person whose successor becomes the corporation on his death or resignation; limited in the main today to bishops and heads of dioceses” ( Black’s Law Dictionary (West 1979)).

The Gunkles also signed a “vow of poverty” in 2004, and City of Refuge resolved (before it was dissolved) that “City of Refuge Christian Fellowship will provide all their needs as Apostle and as pastors of this church ministry. A check will be placed in the church pastoral account every two weeks according to all the needs of the pastors.”

In 2007, the Gunkles set up “The City of Refuge Christian Fellowship Pastoral Expense Account” at Wells Fargo Bank. Deposits made into this account included payments by church members and nonmembers and Bruce Gunkle’s Social Security payments. All withdrawals from the account were made by the Gunkles and were used for personal expenses. There was also an account at a credit union, which was funded by deposits made by the Gunkles from the Wells Fargo bank account.

On their joint return for 2007, the Gunkles reported Bruce Gunkle’s military pension and Social Security benefits, but they did not report any income from the City of Refuge ministry. The IRS sent them a deficiency notice, determining that they had over $72,000 in unreported income (concessions reduced the amount to $62,456.64).

The Tax Court’s Opinion

The Gunkles argued that the deposits into their bank account were nontaxable gifts made by donors to the City of Refuge ministry, of which they were mere agents. They also argued that their vows of poverty insulated them from taxation on the compensation they received from the church.

The Tax Court held that deposits made into the account were includible in the Gunkles’ income because they owned the bank accounts, exercised complete control over the funds in the accounts, and used those funds for personal expenses. The court said, “Taxpayers may not self-declare an exemption from income tax by the simple expediency of taking a vow of poverty” (slip op. at 7). The court pointed to the church’s resolution accepting the Gunkles’ vow of poverty as establishing that the church’s payment of their personal expenses was compensation from the church.

The court also disallowed the Gunkles’ claimed deductions for contributions to City of Refuge because City of Refuge was no longer qualified under Sec. 501(c)(3) to receive deductible contributions. In addition, the court upheld accuracy-related penalties under Sec. 6662.


The result in this case will not be surprising to tax practitioners, but it may have been surprising to the taxpayers, who, by taking various legal steps, such as dissolving their corporation, renouncing its Sec. 501(c)(3) status, and incorporating as a corporation sole, appear to have believed that they were performing actions that would insulate them from the federal tax system.

They were led to this belief by a couple who promote corporations sole to church leaders as a way to avoid government control. And while the corporation sole is a legitimate, albeit unusual, corporate entity, it can also be used as “an abusive tax program promising unwarranted tax benefits,” as the Tax Court described it. Practitioners should be aware that this misinformation is being circulated, although taxpayers who believe it will probably not consult a tax practitioner.

Gunkle , T.C. Memo. 2012-305

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