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Invented churches and tax consequences

On Behalf of | Oct 1, 2014 | Income Taxes

Georgia churches may benefit from exemptions from federal income taxes, but a Mississippi case may be of concern as misuse of the church designation has landed a Christian physician in serious legal trouble with the IRS. The man was convicted on four felony counts of tax evasion as well as a single count of obstruction of administration. According to reports, the man skirted paying income taxes by funneling income through an entity called the Church of Compassionate Service.

The doctor has reportedly used this approach since 2003 and has failed to file any income tax returns since that time. He reportedly took a vow of poverty, claiming exemption from taxes as a minister. However, it is noted that his practice was actually very successful, with the doctor taking in nearly $2 million in a three-year period. The IRS calculates the amount owed in taxes as $650,000. Upon sentencing, he could owe more than $1 million in fines in addition to serving more than 20 years of prison time.

Some tax deductions for clergy members may seem attractive. In high-profile cases, options such as parsonage allowances have been called into question by the IRS when high values have been involved. Even in cases involving a court ruling in favor of the reported clergy figures, the IRS has appealed at times and won.

Because special conditions apply to tax exempt organizations, it may be important to regularly review the laws and related changes to ensure that an organization is in compliance with tax code. If a church or clergy member faces harassment over legitimate designations or deductions, a lawyer may be able to intercede to clear up misunderstandings.

Source: Forbes , “Invent A Church, Skip Taxes, Enrage IRS, Go To Jail“, Robert W. Wood, September 28, 2014