Hovind v. Commissioner

• Decision Date: 03 October 2012
• Docket Number: Docket No. 1362-10,T.C. Memo. 2012-281
• Parties: JO DELIA HOVIND, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

JO DELIA HOVIND, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

T.C. Memo. 2012-281

Docket No. 1362-10

UNITED STATES TAX COURT

Filed October 3, 2012

James L. Chase, for petitioner.

Jason D. Laseter, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: In a notice of deficiency dated November 20, 2009, respondent determined deficiencies in petitioner's Federal income tax, additions totax under section 6651(a)(1), and civil fraud penalties under section 6663(a) as follows:¹

+----------------------------------------------------+
                ¦      ¦            ¦Additions to tax ¦Penalties     ¦
                ¦Year  ¦Deficiency  ¦                 ¦              ¦
                ¦      ¦            ¦Sec. 6651(a)(1)  ¦Sec. 6663(a)  ¦
                +------+------------+-----------------+--------------¦
                ¦1998  ¦$111,959    ¦$28,373          ¦$83,969       ¦
                +------+------------+-----------------+--------------¦
                ¦1999  ¦192,763     ¦48,191           ¦144,572       ¦
                +------+------------+-----------------+--------------¦
                ¦2000  ¦191,334     ¦47,833           ¦143,500       ¦
                +------+------------+-----------------+--------------¦
                ¦2001  ¦153,432     ¦38,358           ¦115,074       ¦
                +------+------------+-----------------+--------------¦
                ¦2002  ¦153,300     ¦38,325           ¦114,975       ¦
                +------+------------+-----------------+--------------¦
                ¦2003  ¦135,442     ¦33,860           ¦101,581       ¦
                +------+------------+-----------------+--------------¦
                ¦2004  ¦265,445     ¦66,361           ¦199,084       ¦
                +------+------------+-----------------+--------------¦
                ¦2005  ¦297,353     ¦74,338           ¦223,015       ¦
                +------+------------+-----------------+--------------¦
                ¦2006  ¦146,487     ¦36,622           ¦109,865       ¦
                +----------------------------------------------------+
                

After concessions,² the issues for decision are: (1) whether and to what extentpetitioner had unreported Schedule C income and expenses (collectively, net profit) attributable to Creation Science Evangelism (CSE) and Dinosaur Adventure Land (DAL) for each of the years at issue; (2) whether petitioner is liable for additions to tax under section 6651(a)(1) for failing to timely file her income tax return for each of the years at issue; and (3) whether petitioner is liable for the fraud penalty under section 6663(a) for each of the years at issue.³

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts is incorporated herein by this reference. Petitioner resided in Florida when she filed her petition.

I. Background

Petitioner and Kent E. Hovind (Mr. Hovind) married in 1973. After marrying, petitioner and Mr. Hovind moved to Michigan where they both attended Midwestern Baptist College. Between 1977 and 1979 petitioner gave birth to her three children, Kent Andrew Hovind, Eric Hovind, and Marlissa Hovind.

In January 1989 petitioner and her family moved to Pensacola, Florida. Petitioner began attending Pensacola Christian College and eventually received both her bachelor's and master's degrees in music. In 1992 she received a second master of arts degree in sacred music. In 1993 petitioner and Mr. Hovind acquired by warranty deed property at 29 Cummings Road (29 Cummings Road property) which they used as their personal residence during the years at issue.

II. Founding of CSE

Mr. Hovind established CSE in 1989.⁴ CSE purported to be a nondenominational religious organization that advocated the message of creation science and opposed the theory of evolution. CSE promoted its message through live lectures by Mr. Hovind and Eric Hovind. Mr. Hovind frequently traveled,domestically and internationally, for speaking engagements, and petitioner occasionally accompanied Mr. Hovind on these trips.

CSE also promoted its message through sales of merchandise that customers could purchase at the lectures or order through the mail. Most of CSE's income derived from sales of merchandise, including clothing, videotapes, DVDs, CDs, bumper stickers, and mouse pads.⁵ In addition to merchandise promoting the message of creation science, CSE sold books and videotapes promoting antigovernment and tax-protester arguments.⁶ As CSE expanded its property holdings, CSE also generated income by renting its properties.

III. Expansion of CSE: 1999-2002

From 1999 through 2002 CSE expanded its operations by purchasing properties surrounding the 29 Cummings Road property. In October 1999 Mr. Hovind signed a warranty deed for property at 21-23 Cummings Road (21-23 Cummings Road property).⁷ In March 2000 Mr. Hovind acquired property at 400 Cummings Road (400 Cummings Road property). In May 2001 petitioner and Mr. Hovind purchased property at 5720 North Palafox (5720 North Palafox property) from Darlene Porter.⁸ In September 2001 petitioner and Mr. Hovind purchased property at 5800 North Palafox (5800 North Palafox property) from Delores Choron.⁹

IV. Development of Ministerial Trusts

In 2002 Mr. Hovind decided to change the ownership structure of CSE and to that end contacted Glenn Stoll, the director of Remedies at Law.¹⁰ Mr. Stoll directed clients to form personal ministries which, once created, could be used to form ministerial trusts to manage ministry assets including management of assets on a tax-free basis. Mr. Stoll directed clients to associate each ministerial trust with a corporation sole.¹¹

On May 12, 2003, Mr. Hovind created a personal ministry using the CSE Foundation Trust package Mr. Stoll provided. Mr. Hovind executed formal written trust agreements for two trusts, Creation Science Evangelism Ministry and the Creation Science Evangelism Foundation. Mr. Hovind named the Director ofEcclesiastical Enterprises and the Firm Foundation, corporations sole established by Mr. Stoll, as trustees. In the trust package both the Director of Ecclesiastical Enterprises and the Firm Foundation are identified as being under the jurisdiction of the "Kingdom of Heaven". Mr. Hovind is listed as the "CEO Manager" of Creation Science Evangelism Ministry. Petitioner is listed as the "First Position Successor".

The trust package included sample warranty deeds that demonstrated how to transfer property to a ministerial trust. Petitioner and/or Mr. Hovind purportedly transferred title of the following properties: (1) the 29 Cummings Road property;¹² (2) the 21-23 Cummings Road property;¹³ (3) the 400 Cummings Roadproperty;¹⁴ (4) the 5720 North Palafox property;¹⁵ and (5) the 5800 North Palafox property.¹⁶

V. Expansion of CSE: 2003-05

In November 2003 CSE acquired property at 116 Cummings Road (116 Cummings Road property).¹⁷ In May 2004 CSE acquired property at 12 OleanderDrive. In June 2004 CSE acquired property at 100 Cummings Road. In August 2005 CSE acquired property at 120 Oleander Drive. The Creation Science Evangelism Foundation held title to the properties.

CSE built a biblically themed amusement park, DAL, on the acquired properties.¹⁸ DAL featured rides, a museum, and a science center. DAL provided tours for visitors and hosted birthday parties. DAL charged admission for entry to the park, sold concessions, and offered merchandise for sale.

VI. Operation of CSE

A. In General

During the years at issue Mr. Hovind and petitioner operated CSE as an unincorporated entity.¹⁹ CSE maintained its primary office at 29 Cummings Drive.

B. Bank Accounts

From January 1, 1998, through August 31, 2006, CSE maintained an account ending in 8656 (account 8656) at AmSouth Bank. From October 17, 2000, through May 30, 2003, CSE maintained a money market account ending in 5129 (account 5129) at AmSouth Bank. From November 29, 2002, through December 29, 2006, CSE maintained an account ending in 1872 (account 1872) at Regions Bank. Beginning June 6, 2006, CSE maintained an account ending in 8577 (account 8577) at Wachovia Bank.

C. Petitioner's Role

Petitioner worked at CSE during the years at issue. Her titles included "assistant office manager", "assistant trust secretary", and "managing director". Petitioner was identified as a supervisor on internal documents and directly supervised at least three employees. She maintained a regular workspace at CSE.

Petitioner's responsibilities included maintaining records for payroll, vacation pay, and benefits;²⁰ paying all ministry bills; collecting rent; providing financial data to Mr. Hovind for future planning; keeping the buildings clean and supplied; and keeping in contact with Mr. Hovind to make decisions in his absence. During the years at issue petitioner also reconciled the bank statements for account 8656. She met with Mr. Hovind weekly to keep him informed ofCSE's financial status, including current figures for bank deposits, loans, payroll expenses, and merchandise sales. She also issued instructions and memoranda to the entire staff. Petitioner, along with Mr. Hovind, was responsible for authorizing all expenditures over $20. Petitioner did not receive wages for her services at CSE.

D. Petitioner's and Mr. Hovind's Finances

Although petitioner and Mr. Hovind maintained separate personal bank accounts,²¹ there was no distinction between their finances and CSE's finances.²² CSE paid petitioner's living expenses, including room and board, and provided an automobile. Petitioner drafted and signed checks drawn on CSE bank accounts for personal expenses, including living expenses,²³ her children's medical expenses,²⁴ and her children's tuition at Jackson Hole Bible College and Tennessee Temple University. She drafted and signed checks drawn on CSE bank accounts to purchase a piano for her personal use. She drafted and signed at least one check made payable to herself and wrote checks made payable to Eric Hovind,²⁵ Ryan Hovind, Tanya Hovind, Kent Andrew Hovind, Danielle Hovind, and Chad Hovind.

Petitioner also drafted and signed numerous checks made payable to cash. In 1998 she drafted and signed nine checks to cash drawn on account 8656, totaling $41,000. In 1999 she drafted and signed 39 checks made payable to cash drawn on account 8656, totaling...