A couple of months ago, the Internal Revenue Service (IRS) published the Audit Technique Guide for Religious Organization.
Could this signal the IRS is intending to take stronger action against churches and ministries abusing their tax-exempt status?
For the past 15 years, the IRS rarely audited religious organizations or prosecuted pastors for financial crimes.
Prominent Christian religious leaders are more likely to die in a private plane crash than to be prosecuted for tax evasion.
Since 2014, Bahamas-based televangelist Myles Munroe and Remnant Fellowship Church founder Gwen Shamblin both died when their privately-owned jets crashed. Trinity Foundation has attempted to investigate both Munroe and Shamblin for international money laundering.
During this same time period only one televangelist, Todd Coontz, was prosecuted and convicted for tax evasion. His ministry’s tax-exempt status has not been revoked.
The IRS begins audits of religious organizations after it discovers questionable financial activities or receives complaints from whistleblowers.
Once a complaint has been reviewed, a decision is made whether or not to pursue an audit or criminal investigation. A high raking Treasury Department official must approve an audit.
Audit results are kept confidential unless they result in a criminal prosecution.
The IRS audit guide lists six practices which may result in a non-profit organization losing its tax-exempt status:
- Private benefit
- Substantial legislative activities
- Political activities
- Operation primarily for business purposes
- Operation in a commercial manner
The audit guide reveals the steps an IRS agent must go through when auditing a religious organization.
There are specific documents the IRS agent must obtain before performing an audit such as the Employer’s Quarterly Federal Tax Return and the Form 990-T which discloses unrelated business income.
Agents are instructed to look for unusual tax returns. Revenue from gambling warrants special attention.
Agents will examine the church or ministry website and board minutes for evidence of political activity. Grassroots lobbying is not illegal. However, spending an excessive amount of money on lobbying or promoting a political candidate may result in the non-profit losing its tax-exempt status.
If the church or ministry publishes books, IRS agents will review author contracts and determine who owns the copyright of the published materials. Agents will determine if the church or ministry charges a fee for publishing an author’s books and will examine the cost charged for publications.