Case: 13-60245 Document: 00512635831 Page: 1 Date Filed: 05/20/2014 REVISED May 20, 2014 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals No. 13-60245 Fifth Circuit Summary Calendar FILED May 19, 2014 Lyle W. Cayce BRUCE GUNKLE; SHERILYN S. GUNKLE, Clerk Petitioners-Appellants v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee Appeal from the Decision of the United States Tax Court No. 5650-11 Before WIENER, OWEN, and HAYNES, Circuit Judges. 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. Case: 13-60245 Document: 00512635831 Page: 2 Date Filed: 05/20/2014 No. 13-60245 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 1“A corporation sole consists of only one person at a time, but the corporation may pass from one person to the next without any interruption in its legal status.” Roman Catholic Bishop of Springfield, A Corp. Sole v. City of Springfield, 724 F.3d 78, 84 n.1 (1st Cir. 2013). See also Tex. Mobile Home Ass’n v. Comm’r of Internal Revenue, 324 F.2d 691, 694-96 (5th Cir. 1963) (quoting Trinidad v. Sagrada Orden, 263 U.S. 578, 581-582 (1923)). 2 “The step transaction doctrine is a corollary of the general tax principle that the incidence of taxation depends upon the substance of a transaction rather than its form.” Sec. Indus. Ins. Co. v. United States, 702 F.2d 1234, 1244 (5th Cir. 1983) (citing Kuper v. Comm’r of Internal Revenue, 533 F.2d 152, 155 (5th Cir. 1976)). As we have explained previously: Under the step transaction doctrine, the tax consequences of an interrelated series of transactions are not to be determined by viewing each of them in isolation but by considering them together as component parts of an overall plan. When considered individually, each step in …
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