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Gunkle v. Commissioner of Internal Revenue

United States Court of Appeals, Fifth Circuit

May 19, 2014

BRUCE GUNKLE; SHERILYN S. GUNKLE, Petitioners-Appellants
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee

Page 503

Appeal from the Decision of the United States Tax Court. No. 5650-11.

Bruce Gunkle, Petitioner - Appellant, Pro se, San Antonio, TX.

Sherilyn S. Gunkle, Petitioner - Appellant, Pro se, San Antonio, TX.

For Commissioner of Internal Revenue, Respondent - Appellee: Janet A. Bradley, Esq., Jonathan S. Cohen, U.S. Department of Justice, Tax Division Appellate Section, Washington, DC; William J. Wilkins, Internal Revenue Service, Washington, DC.

Before WIENER, OWEN, and HAYNES, Circuit Judges.

OPINION

Page 504

WIENER, Circuit Judge.

Petitioners-Appellants, Bruce and Sherilyn S. Gunkle, husband and wife (together, " the Gunkles" ), appeal the judgment of the United States Tax Court (" Tax Court" ) rendered pursuant to Section 7483 of the Internal Revenue Code (" I.R.C." ). They seek reversal of that judgment, which sustained the determination of Respondent-Appellee, the Commissioner of Internal Revenue (" Commissioner" ), that the Gunkles had an income tax deficiency and an accuracy-related addition to tax for 2007 as the result of unreported income and disallowed deductions for charitable contributions. We affirm.

I. FACTS AND PROCEEDINGS

A. Facts

Bruce is a graduate of the United States Naval Academy and holds a master's degree in theology from Antioch University. After he retired from the military, he and Sherilyn settled in Texas. Bruce incorporated the City of Refuge Christian Fellowship, Inc. (" City of Refuge, Inc." ) in 1990 as a Texas non-profit corporation, exempt from federal taxes under I.R.C. § 501(c)(3) (" 501(c)(3)" ).

The Gunkles' income tax debacle began in 2002 when Bruce attended a church leadership conference and heard Elizabeth Gardner, wife of Frederick " Ric" Gardner (together, " the Gardners" ) speak about a religion-related tax gimmick that they were marketing, at the core of which was a so-called " corporation sole" as an alternative to a customary non-profit entity exempt from taxes under 501(c)(3).[1] Central to the Gardners' step-transaction tax scheme[2] was the proposition that persons like the Gunkles could assign their income to a corporation sole and deduct the amounts thus assigned as charitable donations without the need to qualify that entity under 501(c)(3), and would thereby " transform taxable individual income into ...


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