More than you think, churches get audited. Here's what every ministry needs to know.

The Myth of the Church That Doesn't Have to Be Audited

Many church leaders think that their ministry won't be audited by the IRS since religious groups are so private. This false belief makes people lazy, which puts churches at danger of major legal, financial, and reputational problems.

A lot of people don't know that churches are checked more regularly than they think. The IRS has defined rules and tools for auditing tax-exempt groups, like churches, to make sure they are following federal regulations.

Church Law and Strategy has been helping churches with legal issues and compliance for decades. It helps ministries prepare for audits with confidence and keep their tax-exempt status.

This in-depth guide reveals the reality about church audits, what causes them, what to expect, and how your ministry can get ready and respond ahead of time.

I. Getting to Know the IRS and Church Audits

The IRS audits churches for a reason:

• To make sure that people follow the rules for 501(c)(3)
• To look into possible abuses, such as running for office or making too much money from unrelated businesses
• To make sure that governance and finances are clear

How often do churches get checked?

While the exact numbers differ, studies and IRS data show that churches and other religious groups are often audited, especially where there are risk concerns.

The IRS Office for Churches and Other Exempt Organizations

This office is in charge of overseeing tax-exempt groups, such as churches, and has specific audit procedures for each type of entity.

II. Things that Often Lead to an Audit

• Not filing annual returns: Churches who don't file IRS Form 990 for three years in a row will automatically lose their tax-exempt status, which commonly leads to audits.
• Political Campaign Work: If a church shows any signs of political support or involvement in a campaign, it may be flagged for review.
• Too much unrelated business income (UBI): Churches that make a lot of UBI without filing the right taxes are asking for trouble.
• Problems with governance and keeping records: Investigations can happen if there are no proper bylaws, meeting minutes, or financial records.
• Complaints or Referrals: Whistleblower reports, unhappy members, or recommendations from regulators can all lead to audits.

III. What Happens When a Church Is Audited?

1. Notice and Getting Ready: The IRS usually sends out a formal notice that describes the scope of the audit and the documents that are needed.
2. Reviewing Documents: We look at financial records, governance documents, activity reports, and policies.
3. Interviews and Follow-Up: IRS agents might talk to staff or board members.
4. Conclusion of the Audit: The results can be anything from no action to taking away tax breaks or adding fines.

IV. How Churches Can Get Ready for and Deal with Audits

• Keep Very Detailed Records: Keep your financial records, meeting notes, and compliance papers in order.
• Set Up Strong Governance: Make sure that the bylaws are up to date and that the board's actions are clear.
• Put in Place Rules for Compliance: Make sure to keep your rules for political activity, UBI, and conflicts of interest up to date.
• Hire a Professional Lawyer: Church Law and Strategy may help you with audits and give you advice.

V. What IRS Audits Can Do

• Not being tax-exempt anymore
• Big fines and taxes owed
• Hurt the public's trust in donors and their reputation
• Disruption of operations

VI. How Audits Help Ministries by Following Church Law and Strategy

• Risk evaluations before the audit
• Audits of documents and policies
• Legal help and talking to the IRS
• Planning for compliance after an audit

Questions That Are Often Asked

• Q: Can the IRS check our church without telling us? Usually, the IRS gives people a heads-up and asks for proof.
• Q: What papers do you need to have on hand? Tax filings, financial documents, bylaws, minutes, and rules for following the law.
• Q: How long does it normally take to complete an audit of a church? It depends on how complicated it is, but it usually takes a few months to a year.

The Best Way to Protect Yourself Is to Be Ready Ahead of Time

Church audits do happen, but they don't have to put your ministry's purpose or finances at risk. With the help of Church Law and Strategy's experts, your church can stay ready for audits, deal with problems easily, and keep its tax-exempt status.

Links Inside

• Legal Help for Churches
• Report on the Church's Legal Audit and Compliance
• Lawyer for Church Governance

Links to Other Sites

• IRS Tax Exempt Organization Audit Process: https://www.irs.gov/charities-non-profits/exempt-organizations-audit-process
• National Council of Nonprofits Audit Guide: https://www.councilofnonprofits.org/tools-resources/handling-an-audit
• IRS Form 990 Information: https://www.irs.gov/charities-non-profits/form-990-series-forms-and-instructions