Church Payroll Tax Audits—the IRS Is Watching
You may have heard that the Internal Revenue Service hasn't been auditing churches since 2009.
This is generally true because of the challenge the IRS faces with clearing the hurdles of the Church Audit Procedures Act (IRC 7611). For several years now, the IRS has been unable to finalize regulations related to the law concerning who is a "high ranking" IRS official authorized to approve church income tax audits.
However, based on what I'm told by churches and tax professionals, the IRS is active in church payroll tax audits. These audits are not subject to the IRC 7611 limitations.
Two reasons may be driving this IRS activity with churches:
Limited resources. IRS officials consistently say their funding is tight. In addition, a string of congressional investigations involving the IRS in recent years has cost the agency millions of dollars and diverted IRS staff members from their regular work to instead provide information to Congress.
As a result, there generally appears to be some strain on the IRS's availability for in-depth audits. However, payroll tax audits generally take a few days, making them easier to schedule and conduct, even with these resource limitations.
The Affordable Care Act. The Employer Shared Responsibility provisions of the Affordable Care Act (ACA) begin to unfold in 2015 for large employers, including churches that meet the definition of a large employer. A large employer is one with the equivalent of 50 or more full-time employees (a full-time employee is an individual employed, on average, at least 30 hours of service per week).