Corporation Sole Frequently Asked Questions

What are the differences between a Corporation Sole and a 501(c)(3) non-profit?

            A Corporation Sole is also a non-profit, and if it is based on a true church or spiritual organization, does not pay tax on spiritual activities.  A 501(c)(3) church obtains tax-exempt status by asking the IRS’ permission, and the IRS typically applies a 14-point test that is based on a traditional corner church.  A Corporation Sole, on the other hand, is based on Internal Revenue Code section 508(c)(1)(a), which creates a mandatory exception for a church.  There is no long application to the IRS, or answering dozens or hundreds of questions.  Still, there must be a legitimate church or spiritual organization in order to be tax-excepted.           

            Additionally, a 501(c)(3) is usually organized as a non-profit corporation, and thus must follow State laws that usually require three Directors.  Federal law specifically requires three or more Directors for a non-profit corporation.  Thus, there are required meetings, minutes, and Resolutions, and there are often control issues and infighting.  A Corporation Sole, since it is an office held by one person, has no required board of directors, meetings, or Resolutions (although I recommend Resolutions to create a clear record of legal actions.

Can I as an individual be a Corporation Sole?

            No.  First, a Corporation Sole is not a person, it is an Office, filled by a person.  Second, a Corporation Sole is the asset-management arm or vehicle of a church, so there must be, in my view, at least three people who sincerely hold the same spiritual or religious beliefs and practices.

Can my family be a Corporation Sole?

            In rare circumstances, perhaps.  Many Corporation Sole providers would claim this, but the foundational question is:  Is the Corporation Sole based on a church?  If you really have a church, and only your family members come, that may not impress the IRS if they ever investigate you.  Also, if you try to put personal possessions or your house into the Corporation Sole, or try to claim that you don’t owe taxes on personal income, then you will be operating illegally.  All non-religious business activity is taxed, and tax returns must be filed.  Since your Corporation Sole is filed with the State, it is subject to State as well as Federal law.  You must be in compliance with all laws.  If some of your family members truly hold the same spiritual beliefs, and practice together, form a church, name the church, allow others in, and only apply the Corporation Sole to religious activities, then there is a possibility to have a Corporation Sole. 

Can a Corporation Sole protect my assets?

              The key word here is “my.”  If you truly give assets to a church, they are no longer yours.  If you place a car into the Corporation Sole, and then only use it for yourself – for personal and business as well as church purposes, then the IRS or a court would probably consider that to still be your car.  If you truly place assets into the church, for the exclusive use and benefit of the church and all its’ members, then there can be asset protection as far as a lawsuit against you personally.  If the church itself is sued (such as with many Catholic Archdiocese), church assets can still be reached by creditors or people harmed by the church.  Thus, there can be some protection, but it is not complete. In general, churches are rarely sued - much less often than individuals or businesses - so again if you operate correctly there would be little risk to church assets.

Is the Corporation Sole automatically tax-exempt?

              A Corporation Sole is not in itself tax-exempt.  IRC Section 508(c)(1)(a) states that a church is excepted from tax payments.  Remember that there are two entities – (1) your church/spiritual organization; and (2) the Corporation Sole.  The Corporation Sole is the Office, filled by the head of your church or order, who manages the assets of the church.  Thus, technically, the assets and activities of the church are tax-excepted, and the Corporation Sole is simply the management arm of the church. 

Can a Corporation Sole own and manage businesses, and not pay taxes on the business income?

            No.  Any non-religious business activity must be reported in a tax return, and tax paid upon it.  A Corporation Sole can certainly own a business, yet there are many rules and laws that must be followed.  For example, the business can only deduct donation of 10% of its’ income to the Corporation Sole.  It must pay tax on the remaining 90%. 

Can I receive tax-free income as a minister of my Corporation Sole?  What about a Stipend and expenses?

           As with all churches who pay their ministers a salary, the salary must be reported and tax paid.  However, the Corporation Sole can pay for all of your travel and other expenses that are part of your spiritual service, can pay a Stipend (basic living expenses – rent, utilities, food, etc.), and can provide insurance and other benefits.  Any payment above those reasonable amounts must be reported as income.

           If you take a vow of poverty, and actually live in poverty (such as a monk in a monastery, truly owning nothing and living a simple life), then in effect you don’t have any income to tax.  If your CS pays you money above taking care of basic living expenses, then that will likely be classified as income, no matter what you call it.

Can I use my CS for estate planning, to leave gifts to my children?

                        No, for several reasons.  First of all, the property you place into a Corporation Sole is no longer yours – it belongs to the church, and you cannot take it back.  If you dissolve your Corporation Sole, the property must go to another non-profit.  Second, the Corporation Sole is a corporation for holding and managing the property and assets of a church, and nothing more.  You cannot mix estate planning in with it.  You can, however, name a family member to succeed you as Minister, President, or whatever you have chosen to be the name of the Office of the Corporation Sole.  They would then have the right to use church property in their spiritual activities.  For example, the Corporation Sole can own a house, and that can be the Minister’s Residence, and be part of his or her stipend.  Still, the minister can never sell the house and keep the money.  With a Corporation Sole, you dedicate property to the eternal use of the church/spiritual organization, and that commitment must be taken seriously.  I will only help people with Corporation Soles who are truly doing spiritual service, and who have undertaken this level of commitment.  You can still own your own property and assets outside the Corporation Sole, and you are free to pass those on to your children in a separate Will or Revocable Living Trust.

Does the government have jurisdiction over my Corporation Sole?

           Of course.  Like any other person or corporation or church in your State, you are subject to State law, courts, and government agency regulations and actions.  Remember that you register the Corporation Sole with the State in which you reside, as any other non-profit corporation.

Disclaimer:  I am acting as a corporate formation advisor for you, NOT as an attorney.  The information on this website is legal information only, not legal advice.  I can help you with federal legal issues regarding corporation sole in any State, and refer you to State resources where needed.  Your reading information on this site does not form an attorney-client relationship.