I was recently presented with a “trust document” that I have never seen before.
My client asked me: does this document protect me from creditors and having to pay taxes?
My first thought when posed with the question was “I can’t see how”
Then, I looked at the “trust” document itself.
The document contained some pretty archaic words, that I had to look up in a black’s law dictionary.
The “trustor” or the trust creator, was identified as a “corporation sole.”
My first thought when looking at this document was:
what is a corporation sole?
Corporation sole. That is a term that I was simply unfamiliar with, for good reason as I would find out.
A review of Michigan case law would show reference to that term vaguely in decisions from the 1800’s. See Joy v. Jackson & M. Plank Rd. Co., 11 Mich. 155, 173 (1863).
I could not find a single Michigan statute referencing a corporation sole.
It took a broader search of federal lawsuits initiated by the Department of Justice in order for me to find recent reference to a corporation sole.
The IRS is well aware of this Concept of a “Corporation Sole”
The Internal Revenue Service defines “Corporation Sole” in its 2004 Revenue bulletin:
“A “corporation sole” is a corporate form authorized under certain state laws to enable bona fide religious leaders to hold property and conduct business for the benefit of the religious entity.”
Apparently there are some tax schemers offering plans to taxpayers intending to reduce their federal tax liability
by taking the position that the taxpayer’s income belongs to a “corporation sole” created by the taxpayer for the purpose of avoiding taxes on the taxpayer’s income.
Such companies are fraudulent and have been subject to prosecution by the Department of Justice. See one such Opinion granting an injunction to the DOJ: http://www.justice.gov/tax/Kennedy_Complaint.pdf
Take Away:
When my client was presented with such a document, his gut feeling was that it didn’t seem right.
If it seems to good to be true, that is because it probably is. In this case, the document titled “corporation sole” does not shelter my client’s funds from federal income taxes. In fact, avoiding payment of federal taxes through such a mechanism will likely subject you to serious tax consequences.
Questions? Comments?
email: Jeshua@dwlawpc.com
David & Wierenga, P.C.
Purpose Driven General Counsel 