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Don’t Lose Your Soul With A Corporation Sole

A corporation sole is a legitimate legal entity tracing its roots back many centuries in Europe. Its origin is ecclesiastical, or church-related. Even today, most corporations sole are church-related. For example, the Office of the Archbishop of Canterbury in Great Britain is organized as a corporation sole. The Archbishop, not the individual holding the office, is the officer of the corporation. The Roman Catholic Church makes extensive use of the corporation sole.

The property of the church or religious organization is titled to the office, not the individual and avoids the religious property being treated as part of the estate of the vicar of the church. This insures the continuation of ownership of the property dedicated to the benefit of a religious organization. Generally, the creditors of a Corporation Sole may not look to the assets of the individual holding the office nor may the creditors of the individual look to the assets held by the corporation sole.

In the United States only a few states recognize the corporation sole, but all states recognize the corporation sole under common law. Of course, one does not need to reside in a state to form a corporation in that state, so one can be formed regardless of your location within the United States.

However, the corporation sole is being abused by promoters that advocate the use of the corporation sole and will help you form one (for a hefty fee). These promoters are long on promises, but often fail to deliver the promised benefits. Taking advantage of the IRS rather loose definition of a church, these promoters would establish a one-person, nonprofit religious corporation. Participants then apply for incorporation under the pretext of being a bishop or other church official in the phony religious organization or society. The promoters falsely claim that the office holder in the corporation sole will be exempt from federal income taxes as would a legitimate church or religious organization under Sec 501(c)(3).

The legal attributes of a corporation sole are usually misrepresented by promoters. Rather than utilizing them for legitimate religious purposes, they are being marketed as devices for personal and business use, including tax immunity, asset protection, and estate planning. In addition to avoiding income taxes, promoters often claim that the corporation sole allows the individual to escape paying child support and other personal debts by hiding assets in a tax exempt entity.

Like most things that seems too good to be true, that is the case with the corporation sole. The IRS has published warnings regarding corporations sole and is taking aggressive action against these illegitimate organizations. None of the promised benefits can be realized under the corporation sole. There is no asset protection beyond what a typical corporation provides; it does not create any tax savings; money paid to the owner of the corporation is taxable income; foreign accounts must be reported in accordance with FATCA and FBAR rules. In short, violation of the above laws can result in felony criminal penalties. So if you get a “sole” you could lose your “soul” or at least your wealth and freedom.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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