Gary M. Slavett, J.D., LL.M., Former IRS Attorney

Under a recently proposed treasury regulation, the director of the IRS Exempt Organizations Division would be the official responsible for approving tax inquiries of churches.  Internal Revenue Code Section 7611 imposes special limitations on how and when the IRS may conduct civil tax inquiries and examination of churches.  The IRS may only initiate a church tax inquiry if a high-level Treasury official reasonably believes, based on a written statement of facts and circumstances, that the organization: (a) may not qualify for tax-exempt status, or (b) may not be paying taxes on unrelated business or other taxable activity. 

The proposed regulation provides that the director of the IRS Exempt Organization Division will be that high-level Treasury official charged with the reasonable belief determination and approving church tax inquiries.  The director also would be responsible for signing off on a church tax inquiry when a church ignores routine requests from the IRS and would be the official who provides a written notice to a church that an inquiry has been started, according to the proposed regulations.

This proposed regulation follows a recent IRS loss in United States v. Living Word Christian Center, 103 AFTR 2d 2009-714 (D. Minn. 2009).  The case involved a Minnesota Church in which the District Court held that the IRS director of exempt organizations examinations is not an appropriate high-level Treasury official under I.R.C. § 7611.  The Court concluded that the examinations director did not have the breadth of responsibility of the regional commissioner, the official authorized to approve church tax inquires before the IRS was reorganized in 1998.

If you have any questions regarding IRS examinations of churches and other exempt organizations please contact an attorney at Holtz, Slavett & Drabkin at 310-550-6200.

Author:  Gary M. Slavett J.D., LL.M., Former IRS Attorney