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Church Audits – “Reasonable Belief” Requirement

The IRS may begin a church tax inquiry only if an appropriate high-level Treasury 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 unrelated business or other taxable activity. This reasonable belief must be based on facts and circumstances recorded in writing.

The IRS can obtain the information supporting a reasonable belief from many sources, including but not limited to:

  • Newspaper or magazine articles or ads,
  • Television and radio reports,
  • Internet web pages,
  • Voters guides created and/or distributed by the church,
  • Documents on file with the IRS (e.g. a Form 990-T filed by the church),
  • Reliable information reports from concerned members of the church or the general public and
  • Records concerning the church in the possession of third parties or informants.*

The IRS must derive the facts and circumstances forming the basis for a reasonable belief from information lawfully obtained. If this information is obtained from informants, it must not be known to be unreliable. Failure of the church to respond to repeated IRS routine requests for information is a factor in determining if there is reasonable cause for commencing a church tax inquiry.

Read more at https://www.irs.gov/charities-non-profits/churches-religious-organizations/church-audits-reasonable-belief-requirement

*The IRS Whistleblower Program award percentage depends on several factors, but generally falls between 15% and 30% of the proceeds collected and attributable to the whistleblower’s (informants) information.

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“The I.R.S. examined 1.4 million individual income tax returns in 2010, about 1 percent of the total number filed. In 2018, the latest year with available data when Republicans started making these claims, audits decreased to 370,000, or about 0.2 percent… The budget office estimated increasing I.R.S. funding would return enforcement to its 2010 levels. Doing so would result in about 1.2 million more audits; of those, 583,000 would target people making less than $75,000.”

The New York Times, “Fact-Checking the Misleading Claim About 87,000 Tax Agents”, November 6, 2022

“…For example, you educate believers on national issues that are central to their belief in the Bible as the inerrant Word of God. Specifically, you educate Christians on what the bible says in areas where they can be instrumental including the areas of sanctity of life, the definition of marriage, biblical justice, freedom of speech, defense, and borders and immigration, U.S. and Israel relations. The bible teachings are typically affiliated with the Republican party and candidates. This disqualifies you from exemption under IRC Section 501(c)(3).”

Stephen A. Martin, IRS Director, Exempt Organizations, Rulings and Agreements

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