When Can the IRS Levy Church Assets as “Nominee” Property? – Houston Tax Attorneys

Religious organizations and churches often own property and bank accounts that support their mission and operations. Sometimes, these assets are also used to benefit the organization’s leaders personally. This begs the question, can the IRS collect on the religious organization or church’s assets for the individuals tax debt?

Can the IRS use the “nominee” rules to say that a church entity is merely a “nominee” holding property for the pastor? There are cases where the IRS has used its nominee arguments against employees. And the courts have touched on other church-pastor financial issues, such as whether donations to pastors are taxable income to them. But with church assets, this gets into a controversial area about government reach or overreach and where the line is when it comes to the IRS’s powers to collect back taxes.

The IRS has broad authority to collect unpaid taxes–including the ability to pursue assets held by third parties when those assets effectively belong to the delinquent taxpayer. But churches and religious organizations have special protections under the law and Constitution.

The recent Society of Apostolic Church Ministries et al. v. United States, Docket No. 24-1765 (9th Cir. 2025), case gets into this issue. The court addressed whether a religious organization was simply the “nominee” of its leaders who owed substantial personal tax debts.

Facts & Procedural History

The taxpayers, who served as leaders of a religious organization, had a lengthy history of tax troubles with the IRS. The taxpayers owed nearly $1 million in unpaid taxes for tax years 2002 through 2004. This was not their first tax dispute–the court noted that the taxpayers had been before the appeals court several times in the past on tax matters.

To collect on these unpaid taxes, as it normally does, the IRS had placed a tax lien on a property. This was filed in the county records where property known as Apache Knolls was located. Apache Knolls was owned by the religious organization, but the taxpayers lived in the property. The IRS also levied the organization’s bank account.

These collection actions were based on the IRS’s determined that the religious organization was merely the taxpayers’ “nominee”–essentially holding bare legal title to these assets while the taxpayers were the true beneficial owners.

Instead of the leaders simply discharging the taxes in bankruptcy, the religious organization filed a lawsuit challenging both the IRS tax lien and the IRS levy. It argued that it was a legitimate religious organization that owned these assets for religious purposes and it was not a front for the taxpayers. The district court granted summary judgment in favor of the government, finding that the organization was indeed the taxpayers’ nominee. The religious organization appealed to the Ninth Circuit Court of Appeals.

The Nominee Rules for Tax Collection

The IRS can use the nominee rules to access property owned by third parties. The idea is that when a taxpayer transfers assets to a third party who holds the assets as a “nominee,” the IRS can treat those assets as still belonging to the taxpayer for collection purposes.

A nominee relationship exists when one party holds “bare legal title” to property for the benefit of another. More specifically, a “nominee” is “one who holds bare legal title to property for the benefit of another.” Thus, this argument, if you will, allows the IRS to pursue assets that, while not legally titled to the delinquent taxpayer, are effectively controlled by and benefit that taxpayer.

In appropriate cases, the nominee doctrine can help prevent taxpayers from shielding assets from collection by simply transferring legal ownership to another person or entity while maintaining the benefits of ownership. This is a type of a substance over form remedy for the IRS. The doctrine looks beyond legal formalities to the economic realities of who truly owns and controls the property.

How Does the IRS Determine Nominee Status?

To give a government agency the power to take private property is contentious topic. To give it power to take property owned by a third party is even more contentious.

Given the nature of this, the courts have developed a multi-factor test to consider whether the doctrine applies. In this case, the Ninth Circuit applied factors from its prior precedent, which consider:

1. Whether the taxpayer previously owned the property2. Whether the property was transferred for nominal or no consideration3. Whether the taxpayer continues to enjoy the benefits of the property4. Whether the taxpayer continues to maintain control over the property5. Whether the transfer was for a legitimate purpose or to avoid creditors6. Whether the relationship between the taxpayer and nominee is close

As noted by the court in this case, these factors are merely guideposts. The “overarching consideration” is whether the taxpayer “exercised active or substantial control over the property” while the nominee held legal title. This requires examining the “totality of the circumstances” rather than mechanically applying a checklist.

Religious Organizations and the Nominee Doctrine

Religious organizations present special considerations in nominee analysis. Many legitimate churches use legal structures like “corporation sole” that allow religious leaders to hold property on behalf of the church. This structure, recognized in many states, enables religious leaders to manage church property while ensuring the property remains with the church when leadership changes.

In this case, the religious organization was organized as a “corporation sole” under Montana law. Montana law specifically allows a corporation sole to “purchase, take, receive, lease, take by gift, devise, or bequest or otherwise acquire, own, hold, improve, use, and otherwise deal in and with real or personal property” provided that all property must be held “in trust for the use, purpose, and benefit of the religious denomination, society, or church.”

This creates a potential tension: religious leaders may legitimately hold property as corporation sole for their church, but individuals owing taxes might also be able to misuse this structure to shield personal assets from collection.

The Ninth Circuit’s Analysis of Nominee Status

That brings us back to this case. The Ninth Circuit in this case provided an analysis of whether the religious organization truly held the Apache Knolls property and bank account as a nominee for the taxpayers. The court focused on several aspects to find that it did in fact hold the property as a nominee.

The court found significant that one of the taxpayers repeatedly transferred the Apache Knolls property between various entities she controlled, including the religious organization, without consideration. The property’s ownership changed hands multiple times:

1. In 2003, it was acquired by one religious entity (with the taxpayer as corporation sole)2. In 2012, it transferred to another religious corporation under the taxpayer’s control3. Later in 2012, it transferred to the taxpayers personally4. In 2013, it transferred to another church entity (with the taxpayer as corporation sole)5. In 2019, it transferred to the current religious organization (with the taxpayer as corporation sole)

These transfers without consideration suggested to the court that the taxpayers maintained effective control over the property despite changes in legal title.

The court also found that the taxpayers continued to enjoy the benefits of the Apache Knolls property through each change in legal ownership. They lived on the property for over twenty years. The religious organization paid for the taxpayers’ utilities and living expenses, including gas, telephone, cable, internet, and homeowner’s insurance–despite many of these accounts being registered in the taxpayers’ names.

Similarly, with respect to the bank account, the court noted that the organization paid for the taxpayers’ living expenses, utilities, and even a portion of their legal fees. One taxpayer was a co-signer on the bank account, and testimony established that the taxpayers had decision-making authority over the organization’s finances.

Looking at all these factors together, the Ninth Circuit concluded that the taxpayers exercised ‘active or substantial control’ over the Apache Knolls property despite the organization holding legal title to it. The court found that the organization held bare legal title to the Apache Knolls property to benefit the taxpayers.

The court applied the same analysis to the organization’s bank account, finding that the taxpayers “exercised substantial control over the [organization’s] bank account” and used it to pay for their personal expenses.

Does Religious Purpose Matter in Nominee Analysis?

A fundamental disagreement in this case centered on whether the religious purpose of the assets should affect nominee analysis. Judge Bumatay’s dissent contended that: “The right question is: Did the Apache Knolls property also benefit the [organization]? If so, then it’s not dispositive that the property also happened to benefit the [taxpayers].” Judge Bumatay noted that if the property was used for religious services (as the organization claimed), this might create a legitimate dual purpose.

The majority, however, focused exclusively on whether “the taxpayer exercised active or substantial control over the property.” The majority did not find it necessary to analyze whether the property also served legitimate religious purposes. This suggests that even if property serves some legitimate religious function, it can still be subject to levy if the taxpayer exercises substantial control and receives personal benefits.

The Takeaway

This case shows the broad reach of the IRS’s collection powers. Churches usually operate off of charitable donations by members and so, ultimately, we are really talking about taking the congregation member’s assets. As this case shows, the IRS has broad authority to pursue assets held by religious organizations when those assets effectively benefit individuals owing taxes. While religious organizations have special protections, they cannot always be used as shields for personal assets. Courts might look beyond legal ownership to determine who truly controls and benefits from property. This also underscores the need for religious leaders to maintain clear separation between personal and organizational assets if they have outstanding tax liabilities.