Those who think tax law is dull and boring, filled with less money and more rules, should take a look at a recent tax court case. While the less money and more rules part may be accurate, the words “dull” and boring” certainly do not. A recent article in Forbes, entitled “Young Earth Creationists Whipsawed by the IRS,” highlights a tax court case with very interesting circumstances.
Several years ago, Jo Delia Hovind and her husband, Kent E. Hovind, began a non-denominational ministry purportedly to teach willing evangelists the creationist theories surrounding the beginning of the Earth 6,000 years ago. Using information with its origins in Genesis, they started Creation Science Evangelism, their ministry that focused primarily on distributing educational material and disseminating the ideas found in the Bible.
The ministry turned out to be a rather lucrative endeavor, easily allowing the Hovinds to create jobs. Unfortunately, they did not easily pay the appropriate taxes required when creating and sustaining those jobs. According to tax court documents, the Hovinds seemingly found a way to circumvent the paying of taxes owed. Mr. Hovind decided, on the advice of ministerial lawyer Glen Stoll, to form trusts to manage assets owned by the ministry; the action also provided that the management of the tax assets would be “tax-free.” Mr. Stoll advised his clients to associate the ministerial trusts with a corporation sole. Unfortunately for Mr. Hovind, following the advice landed him in jail.
There are other issues abound in this case. According to the tax court documents, when IRS agents entered the home of the Hovind couple, they asked Mrs. Hovid if there was cash on the premise. Mrs. Hovind reportedly stated that there was $3,000 dollars in cash in the home. However, when the agents searched the home themselves, they found $42,000 dollars in cash. The cash was located in several locations that agents had a hard time believing Mrs. Hovind did not know about, including a safe next to her desk.
In the end, the whipsawing was what caused the most trouble for the Hovinds. Because the Hovinds jointly engaged in business practices while also living together, the fact that they did not file tax returns becomes increasingly difficult to sort out in the eyes of the IRS. The IRS is forced to send deficiency notices for the full amount to each taxpayer, as it is impossible for them to distinguish who is at fault for failing to report the income. After penalties and interest, the total amount, from the years 1998 to 2006, amounts to more than $3 million dollars.
The U.S. Tax court sided with the IRS, stating that such an assessment was justified, as the question of who was liable was sufficiently ambiguous.
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