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IRS Extends Audit Protections to Church Payroll Compliance

New limits set on inquiries and examinations from the IRS.

IRS Extends Audit Protections to Church Payroll Compliance

Congress has imposed special limitations, found in section 7611 of the tax code, on how and when the Internal Revenue Service (IRS) may conduct civil tax inquiries and examinations of churches. The IRS may only initiate a church tax inquiry if an appropriate high-level Treasury Department official 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 an unrelated business or other taxable activity.

Restrictions on church inquiries and examinations apply only to churches and conventions or associations of churches. They don't apply to related persons or organizations. Thus, for example, the rules don't apply to schools that, although operated by a church, are organized as separate legal entities. Similarly, the rules don't apply to integrated auxiliaries of a church.

Restrictions ...

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  • April 19, 2016