Fredric A. Gardner; Elizabeth A. Gardner, Petitioners-Appellants,
Commissioner of Internal Revenue, Respondent-Appellee.
Submitted October 17, 2016 [*] San Francisco, California
from a Decision of the United States Tax Court No. 12016-06
Fredric A. Gardner and Elizabeth A. Gardner, Dewey, Arizona,
pro se Plaintiffs-Appellants.
A. Bradley and Bridget M. Rowan, Attorneys; Kathryn Keneally,
Assistant Attorney General; Tax Division, United States
Department of Justice, Washington, D.C.; for
Before: Michael Daly Hawkins, Consuelo M. Callahan, and
Andrew D. Hurwitz, Circuit Judges.
panel affirmed the Tax Court's decision denying a
petition for redetermination of federal income tax
deficiencies that challenged the taxability of alleged
maintenance payments received by taxpayers who have taken
vows of poverty.
contended that they did not earn taxable income and are
exempt from paying taxes because they have taken vows of
poverty. They explained that their maintenance is provided by
Bethel Aram Ministries (BAM), a church for which taxpayer
Elizabeth Gardner is its corporation sole. The panel
explained that substantial evidence supports the Tax
Court's determinations that the payments taxpayers
received were not contributions to BAM but were instead
quid pro quo payments for taxpayers' services
(in setting up corporations sole and LLCs), and that
taxpayers retained complete dominion and control over the
payments even after they were deposited in BAM's
accounts. Accordingly, the payments to taxpayers are taxable
and subject to self-employment tax.
CALLAHAN, Circuit Judge:
and Fredric Gardner assert, in a nutshell, that Bethel Aram
Ministries (BAM) is a church, that Elizabeth is its
corporation sole, and that both Elizabeth and Fredric have
taken vows of poverty (with their maintenance provided by
BAM). They argue that based on these facts they did not earn
taxable income and are exempt from paying taxes.
Court, however, determined that the payments received by the
Gardners were not contributions to BAM and that the Gardners
had complete control over BAM's assets. It concluded that
because the Gardners "exercised dominion and control
over BAM's accounts, all taxable deposits into those
accounts are includable in their gross income."
affirm. The Tax Court's determinations that the payments
were quid pro quo payments for services and not
contributions, and that the Gardners have unfettered control
over BAM, are supported by substantial evidence.
1978, the Gardners received degrees in theology from Christ
for the Nations Bible College. In 1993, the Gardners formed
BAM as "an unincorporated association in Arizona
organized to be an 'ecclesiastical church
ministry.'" However, they did not file with the IRS
a Form 1023, Application for Recognition of Exemption Under
Section 501(c)(3). In 1999, the Gardners signed vows of
poverty declaring their intent to divest themselves from
earnings or wages from BAM and stating that BAM would provide
for their needs as pastors of the church ministry. They then
transferred all of their assets, including title to their
home, to BAM. In 2001, Elizabeth filed articles of
incorporation with the State of Nevada, naming her as the
corporation sole of BAM. Fredric held himself out as an
"Elder, Teacher, Certified Estate & Financial
Planner of BAM, " and Elizabeth held herself out as a
"Prophetess, Teacher, Pastor and Certified
Paralegal" of BAM. Together they have unfettered control
over BAM's operations and finances.
2002 until August 2004, BAM did not have any congregation.
Rather, the Gardners traveled across the country offering
their services in setting up corporations sole and limited
liability companies (LLCs). Their promotional literature
claimed the benefits of a corporation sole included: (1) the
government was not able to interfere in any way; (2)all
church workers would be classified as ministers of the gospel
and not as employees; (3) there were no filing requirements
of any kind; and (4) there were no withholding or
self-employment taxes or income tax. The Gardners advised
that if a corporation sole received an inquiry from the
Internal Revenue Service (IRS), it should notify the IRS that
it was a corporation sole and provide no other information.
Gardners had a "donation" sheet setting forth the
costs of their services. It instructed customers to
"please make separate checks out" according to the
following schedule: "(1) for a corporate sole, BAM for
$1, 200, Carol Spackman for $80, and the State of Nevada for
$85; [and] (2) for an LLC, BAM for $700, Ms. Spackman for
$80, and the State of Nevada for $235." The record
indicates that the Gardners established over 300 corporations
sole and approximately 18 LLCs for others.
Gardners failed to file tax returns for the years 2002
through 2004, and refused to provide the IRS with BAM's
books and records. The IRS obtained bank records from
BAM's Wells Fargo accounts through a third-party summons
and undertook a bank deposit analysis. The IRS
"determined that petitioners had gross bank deposits of
$101, 722, $219, 481, and $281, 232 and net taxable deposits
of $100, 070, $217, 973 and $235, 679 for 2002, 2003, and