Churches and Taxes: IRS Suspends Audits

Every field of activity has its own peculiar tax considerations. Churches are no exception. In fact, churches, and the clergy who serve them, probably have more unusual tax peculiarities to consider than many other fields.

It is fair to ask whether this reasoning applies to tax audits. Are churches more or less likely to be audited than other organizations? Or are the chances of an audit about the same for a church as for most other organizations?

The issue is a timely one for churches that cross the line into overt political activity. As the law is written, churches that do this run the risk of losing their task exempt status. Yet churches in Texas and across the country are still tempted to engage in partisan political debate.

Last week, however, the Internal Revenue Service announced that it was suspending all tax audits of churches until it can clarify the rules for those adopts. The IRS says the new rules will make clear which IRS officials have the authority to initiate such audits.

“We are holding any potential church audits in abeyance,” said Russell Renwicks of the Tax-Exempt and Government Entities division of the IRS.

Although the announcement of a moratorium is new, in practice the IRS has apparently not been auditing churches regularly since 2009. That was the year when a federal court ruled that the IRS needed to update its regulations on which tax officials within the agency are allowed to initiate church audits.

There seems to be no good reason why the IRS has not moved faster to finalize new rules on church audits. After all, the IRS is often quick to aggressively audit individuals and businesses.

“Why the IRS Has Stopped Auditing Churches – Even One that Calls President Obama a Muslim,” Christianity Today, Sarah Eekhoff Zyistra, 10-26-12

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our tax audits and appeals page.