IRS Inches Closer to Church Inquiry Criteria

Federal tax law permits the IRS to initiate a church inquiry or examination so long as certain criteria are carefully met. The criteria for a church tax inquiry include a requirement that a "high-level Treasury official" must determine, based on written evidence, that the church is not exempt, that it has a liability for unrelated business income tax, or that it has otherwise engaged in taxable activities.

Subsequent to a national restructuring of its operations, the IRS designated a particular official as its "high-level Treasury official" with authority to make the required determination. However, in litigation several years ago, a federal court ruled that the official designated by the IRS did not meet the statutory definition of a high-level Treasury official. The IRS has not yet rectified the issue and reports indicate that the IRS has ceased inquiries and examinations ...