United States v. Hartshorn, 751 F.3d 1194

Kevin Hartshorn founded and led the Church of Compassionate Service (2004); ministers took vows of poverty and obedience and assigned title to property and earnings to the church.
Ministers routed wages to church accounts; church issued debit cards and provided ~90% of funds back for ministry use; no evidence church ever refused funding requests.
Bruce Calkins became a minister, signed vows and an “agency assignment,” continued secular employment at Kaiser Permanente, directed his paycheck to a church account, and stopped filing individual federal income tax returns.
District court found Calkins’ Kaiser wages were taxable (he did not earn them as the church’s agent) and concluded Hartshorn made false or fraudulent statements asserting tax exemption for vow-of-poverty ministers.
The court granted summary judgment for the government under 26 U.S.C. § 7408 and enjoined Hartshorn from promoting church-based tax-avoidance schemes; Hartshorn appealed only the falsity/knowledge elements.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether ministerial earnings are tax-exempt when assigned under a vow of poverty	The government: earnings are taxable unless earned as agent of the church	Hartshorn: vow-of-poverty assignment alone suffices (cites IRS Pub. 517 and certain regs)	Earnings are tax-exempt only if earned as agent of the church; assignment alone insufficient
Whether Hartshorn’s statements to ministers were false or fraudulent	Statements were false because ministers like Calkins earned taxable wages in individual capacity	Hartshorn: statements were correct or reasonably relied on IRS materials; not knowingly false	Court: statements were false or fraudulent as applied to Calkins and similar ministers
Whether Hartshorn knew or had reason to know statements were false	Government: Hartshorn knew or should have known given controlling case law rejecting vow-of-poverty-only schemes	Hartshorn: reliance on IRS publication and regs made belief reasonable; distinctions from other cases	Court: a reasonable person in Hartshorn’s position would have discovered the falsity; he had reason to know
Whether injunction under § 7408 was warranted	Government: injunction necessary to prevent recurrence of promotion of abusive tax shelters	Hartshorn: challenges only falsity/knowledge, not scope of injunction	Court affirmed summary judgment and injunction under § 7408

Page v. Comm'r, 823 F.2d 1263 (8th Cir.) (income taxable to one who earns it; assignment does not avoid tax absent agency)
Schuster v. Comm'r, 800 F.2d 672 (7th Cir.) (vow-of-poverty assignments do not exempt wages unless earned as agent)
Pollard v. Comm'r, 786 F.2d 1063 (11th Cir.) (assignment-of-income doctrine applies; earnings taxed if earned individually)
Fogarty v. United States, 780 F.2d 1005 (Fed. Cir.) (flexible multi-factor test for agency in ministerial contexts)
Mone v. Comm'r, 774 F.2d 570 (2d Cir.) (more stringent test requiring contractual relationship between employer and religious order)
United States v. Estate Pres. Servs., 202 F.3d 1093 (9th Cir.) (§ 7408 elements; defendant need only have reason to know statements were false)
Comm’r v. Banks, 543 U.S. 426 (Sup. Ct.) (anticipatory assignment of income doctrine: assignor who retains dominion taxed on income)
Law v. Nat’l Collegiate Athletic Ass’n, 134 F.3d 1010 (10th Cir.) (standard: summary-judgment review de novo when it underlies injunction)