Tax Inquiries and Examinations of Churches
Congress has imposed special limitations, found in section 7611 of the Internal Revenue Code, on how and when the IRS may conduct civil tax inquiries and examinations of churches. The IRS may only initiate a church tax inquiry if the Director, Exempt Organizations Examinations, reasonably believes, based on a written statement of the facts and circumstances, that the organization: (a) may not qualify for the exemption; or (b) may not be paying tax on unrelated business or other taxable activity.
Restrictions on church inquiries and examinations apply only to churches (including organizations claiming to be churches if such status has not been recognized by the IRS) and conventions or associations of churches. They do not apply to related persons or organizations. Thus, for example, the rules do not apply to schools that, although operated by a church, are organized as separate legal entities. Similarly, the rules do not apply to integrated auxiliaries of a church.
Restrictions on church inquiries and examinations do not apply to all church inquiries by the IRS.
The church examination procedures do not apply to the following:
Routine requests for information or inquiries on matters that do not primarily concern the organization’s tax status or liability,
Criminal investigations,
Termination assessments under Internal Revenue Code section 6851 or jeopardy assessments under section 6861,
Any case involving the church’s knowing failure to file a return or willful attempt to defeat or evade tax (including failure to withhold or pay social security or other employment or income tax required to be withheld from wages), or
Any inquiry or examination relating to the tax status or liability of persons or organizations other than the church (including contributors).
The procedures of Internal Revenue Code section 7611 will be used in initiating and conducting any inquiry or examination into whether an excess benefit transaction (as that term is used in Code section 4958) has incurred between a church and an insider.
Additional information
Update on Church Examinations Under IRC 7611, 1992 EO CPE Text Topic A
DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.
