Can the IRS Audit a Church?

Churches are holy places, but they still have to follow the same rules as other nonprofits. One of the things that church leaders are most afraid of is the chance of an IRS audit. Knowing if and how churches get audited, what causes these audits, and how to get ready can make a big difference in keeping your ministry safe. This in-depth guide will answer all of your questions about whether or not the IRS can audit a church, including what triggers an audit, how it works, and how to stay compliant with the law.

Does the IRS Check Up on Churches?

Yes. Section 501(c)(3) gives churches tax-exempt status, but that doesn't mean they can't be audited by the IRS. The IRS mostly checks churches to make sure they are following tax laws and rules. Churches, on the other hand, are audited less often than other charities because of constitutional safeguards and policy concerns.

What Makes the IRS Look at Churches?

To make sure that you still qualify for tax-exempt status. To look into claims that people are getting private benefits or payments. To check to see if the rules of political campaigns and lobbying are being followed. To look at how financial reports are made and how donors are asked for money. To deal with complaints or referrals.

Things That Often Cause the IRS to Audit Churches

1. Transactions that are big or seem fishy
• A lot of business income that isn't related.
• Giving too much money or advantages to staff or clergy.
2. Political Action
• Breaking the rule against campaigning for a specific party.
• Lobbying too much.
3. Problems with financial reporting
• Not filing required informative returns, like Form 990-T.
• Differences in reported income or costs.
4. Complaints and people who speak up
• Reports from unhappy members, former employees, or the public.
5. Audits that are random or planned
• The IRS might execute random audits or go after certain groups based on how risky they think they are.

What Does an IRS Church Audit Look Like?

1. Notice of Audit

Usually starts with a letter asking for documents or information.

1. Review of Documents

Policies, minutes, contracts, wages, bank records, and financial statements.

1. Interviews

IRS agents might talk to religious leaders or workers.

1. Visits to the Site

Visits in person to check on operations or facilities.

Things That Often Come Up in Church Audits

• Not reporting housing allowances or pay for clergy correctly.
• Insiders getting private advantages or too many benefits.
• Political campaign actions that break tax laws.
• Not keeping good records of donations or expenses.
• Not keeping good records of governance.

How to Get Ready for and Deal with an IRS Audit

1. Keep complete records

Policies, meeting minutes, contracts, and financial statements.

1. Know what it takes to be tax-exempt

Learn about the IRS requirements that apply to churches.

1. Choose a Point Person

Give the job of handling communications to someone who knows what they're doing or a lawyer.

1. Answer quickly and honestly

Give the information that was asked for on time and correctly.

1. Get Help from a Professional

Get lawyers or accountants who have done church audits before.

What Happens After an IRS Audit?

• Possible loss of tax-exempt status.
• Determining back taxes, fines, and interest.
• Hurt the trust of donors and the reputation of the organization.
• Costs for legal and administrative work.

How Church Law and Strategy Help Prepare for an Audit

Church Law and Strategy's THE FOUNDATION PLUS PLAN (Tier 2) includes legal audits, compliance reports, and continuous help to make sure churches are always ready for an audit and following the rules. The Pastor Support Plan (Tier 3) offers more help with executive planning sessions, priority legal access, and expert evaluations to lower the risk of audits.

How to Lower Your Risk of an IRS Audit

• Do regular legal audits that focus on compliance.
• Change the rules for governance, money, and hiring.
• Teach leaders and workers what the IRS wants.
• Keep your financial reports clear.
• Talk to a lawyer ahead of time.

Common Questions About IRS Church Audits

• How often does the IRS audit churches?
• What are the most worrying triggers?
• Can churches challenge the results of an audit?
• How long does it take to complete an audit?
• Is your church ready for an audit?

Here's a Checklist:

• Keep records that are detailed and well-organized.
• Follow all the rules for tax-exempt status.
• Don't become involved in political campaigns.
• Check that pay and benefits are fair.
• Get in touch with your legal and financial advisors often.

In Conclusion

It's important to know how the IRS audits churches, what usually sets them off, and how to get ready for one to safeguard your ministry. Your church can keep doing its purpose without any problems if it is proactive about following the law and being ready for an audit. Church Law and Strategy is dedicated to helping churches deal with audit concerns by offering personalized legal aid through our Tier 2 and Tier 3 membership options.

Links Inside

• Find out more about compliance and legal audit reports for churches.
• Look at the legal technique for pastoral recompense.
• Learn about advising for church tax strategy.

Links to Other Sites

• IRS Charitable Organizations Compliance Guide: https://www.irs.gov/charities-non-profits/charitable-organizations
• ECFA Ministry Compliance Resources: https://www.ecfa.org/Content/FinancialPlanning
• Church Safety Policies: https://www.safechurches.com/child-safety-policies

This is intended for information and does not give legal advice. Get individualized legal advice from a certified lawyer.