IRS AUDITS AND THE CHURCH

9/7/2017

Traveling across the United States conducting Church Management and Tax Conferences, I am amazed at those who think that somehow the Church is exempt from any intrusion by the Internal Revenue Service (IRS). Some arguments are made by unknowing Clergy and Church Leaders who think that “separation of Church and State” is a constitutional issue. Then there are some who feel that the Church Audit Procedures Act (CAPA) of 1984 made it virtually impossible for the IRS to intrude into Church financial matters. Let’s look at each to demonstrate exactly why each no longer offers protection to a congregation.

“Separation of Church and State”

The term “separation of Church and State” does not appear in the Constitution of the United States. It first appears in a letter written by Thomas Jefferson dated January 1, 1802. This letter was addressed to the Danbury Baptist Association in Connecticut and was published in a Massachusetts newspaper. The actual wording by Jefferson was:

I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should “make no law respecting an establishment of religion, or prohibiting the free exercise thereof,” thus building a wall of separation between Church & State.1

The words in quotation are from the 1st Amendment of the Constitution. The problem we have is the ideology of politicians and the Federal Courts. Although Conservative politicians hold to the definition of the 1st Amendment to be as Jefferson explained in his letter, Liberal politicians and Liberal courts take the opposite stance. While Conservatives long for the input of the Church into the operation of the Government while strictly limiting any Government intrusion into the Church, Liberal politicians and courts reverse it—they want Government intrusion into the Church world while strictly limiting any spiritual influence of the Church into Government affairs.

Therefore, it is foolish for Pastors and Church Leaders to think there will not be any Government regulations that allow for the IRS to be a watchdog of Church financial

matters—especially in our current Church climate where there is abuse by Pastors and Church Leaders in this area.

Church Audit Procedures Act

This act passed by our Legislature demanded that a high ranking IRS official must approve an audit of a Church and only after a report of suspected financial abuse or violation of federal laws. One major problem with that law was the official level for approval remained proportionately low in the IRS ranking and only suspected abuse or violation was necessary.

Many Churches were still audited, ministers imprisoned, and Churches closed since its implementation. But, we now have another problem.

Affordable Care Act (ACA)

Many people thought that Obamacare was about giving insurance to those who were without. Although, many did get insurance, and still do under the ACA, the Government had an ulterior motive. Normally health issues and programs would be addressed and administered by the Department of Health and Humans Services. This did not happen with the ACA.

Our legislatures, under the direction of President Obama, placed ACA under the direction of the IRS. Why? The answer is simple. The IRS needed an avenue to get into Churches without fighting red tape that may present itself due to CAPA.

Within the 2000 plus pages of the ACA there is a clause that stipulates that any person or organization covered by ACA is subject to random audits. Any organization with at least one employee is subject to it. Even though it does not have to provide insurance for the employee, there are still reporting requirements. This includes Churches.

That means that any Church is subject to an ACA random audit. Once the random audit begins all the IRS needs to is see something that they deem suspicious, or for the Church to answer one of their questions inappropriately, and the audit will deepen into a full-blown audit of the Church finances.

It Doesn’t Have to Happen to Your Church

For more than 79 years Chitwood & Chitwood has been the premier firm in America in the area of non-profit IRS issues and Church management. Conducting about 100 Church Management and Tax Seminars each year across the United States, we teach Pastors and Church Leaders what they need to know and how to avoid becoming a target for the Internal Revenue Service.

It would behoove every Pastor and Church Leader to make it their number one priority to attend one of these conferences in upcoming weeks. It will be the best one-day investment you and your Church will ever make.

To register for a conference near you call 800-344-0076, or visit us online at www.cmtc.org. Every day you procrastinate could put you one day closer to the IRS knocking on your door.

1 Jefferson, Thomas. Jefferson’s Letter to the Danbury Baptist: The Final Letter, as Sent. The Library of Congress Information Bulletin: June 1998. Lib. of Cong., June 1998. Web. Aug 7, 2010.