In May the House Ways and Means Committee released a report on ways to increase compliance by exempt organizations with federal tax law. The report contains some interesting information about the likelihood and probable results of an IRS audit. Consider the following:
- IRS’s staffing for examinations of exempt organizations has remained relatively constant over the past six years. In 1990, there were 501 examination employees; in 1991 there were 486 employees; in 1992 there were 509 employees; in 1993 there were 501 employees; in 1994 there are 508 employees (planned); and in 1995 497 employees have been requested.
- Funding for IRS oversight of exempt organizations was $47.8 million in fiscal year 1990; $47.6 million in 1991; $50.7 million in 1992; $52.9 million in 1993; $48.4 million in 1994 (planned); and $49.2 million in 1995 (requested).
- At the end of 1993, there were 1,450,265 tax-exempt organizations, including an estimated 340,000 churches (23 percent of all exempt organizations are churches). How many of these organizations are audited by the IRS? In 1988, the IRS examined 6,708 exempt organizations; in 1989, 7,541; in 1990, 7,232; in 1991, 6,011; in 1992, 5,132; and in 1993, 5,472, or less than one-half of one percent of all tax-exempt organizations.
- In 1991 and 1992, IRS revoked the tax-exempt status of 60 section 501(c)(3) organizations—that is, about 30 per year or 2 out of every 100,000!
Warning! There are a few unscrupulous individuals who are attempting to frighten church leaders into attending worthless seminars and purchasing questionable accounting or “compliance” services by citing the “thousands” of churches that are audited each year. One individual claims that 6,000 churches lost their exempt status last year, and that the IRS is hiring thousands of new agents to audit churches! Don’t be fooled by such hype. Our recommendation—if you receive a seminar advertisement that attempts to frighten you with such stories, throw it out.
This article originally appeared in Church Treasurer Alert, July 1994.