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I am pleased to recommend Mark and his firm. He has helped us to become a better organization and better people as well.

Rev. Louis R. Lothman, Th.D., Director, Pastoral Counseling Services, Presbyterian Minister, Presbyterian Church (U.S.A.)

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Should Churches be Prepared for IRS Audits?

Does the IRS hold the right to audit your church? That answer lies in the halls of Congress. According to the IRS: “Congress has enacted special tax laws that apply to churches and religious organizations in recognition of their unique status in American society and of their right guaranteed by the First Amendment of the Constitution.” 

Along with those tax laws, there are special limitations on how and when the IRS may conduct civil tax inquires and examinations of churches.

The procedures outlined in the Internal Revenue Code section 7611  explains that “the IRS may only begin a church tax inquiry if an appropriate high-level Treasury official reasonably believes that a church is engaged in taxable activities.”

Unless your church or synagogue engages in taxable activities with an unrelated trade or business, the possibility of an IRS audit seems unlikely.

Restrictions on church inquiries and examinations, however, apply only to churches, conventions or associations of churches. On the contrary, persons or organizations related to churches are not exempt from the possibility of an audit. For instance, if your congregation also operates a school, organized as a separate legal entity, the IRS reserves every right to perform an audit.

Similarly, the IRS reserves the right to audit organizations related to a church and categorized as integrated auxiliaries of a church. According to Internal Revenue Code section 501(c)(3), the following organizations could be subject to IRS audit:

  • Men’s and women’s organizations
  • Seminaries
  • Mission societies
  • Youth groups

So even though your church or religious organization may be restricted from IRS inquiries and examinations, the many organizations affiliated with your church may well be subject to an IRS audit.

If you need assistance with tax laws affecting your religious or nonprofit organization, the experienced team at Online Stewardship Accounting & Consulting Services is here to help.

Contact us at Lynn@OnlineStewardship.com or 904-398-4747.

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