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IRS Being Sued for Not Being Tough Enough on Churches
By Raul Rivera
Just when you thought that you had heard it all, it happened! Something that could only happen in America has surprised us all. For years I have written about the way the IRS and other government agencies have become increasingly tough on churches, and how that has led to liens, levies, and personal fines against pastors and church leaders. In fact, this past year I wrote about a minister that got hit hard with a trust fund penalty of $85,000.00 and how Section 6721 penalties have more than doubled. Yet that alone has not been enough for some. They want the IRS to be tougher and more difficult on churches.
Who is suing the IRS?
On November 14th, 2012 an atheist group (FFRF) filed a federal lawsuit in a U.S District Court claiming that the IRS is not doing its job in auditing churches. This group has for many years filed lawsuits against many religious organizations and activities; including National Day of Prayer proclamations against state governors, the Pennsylvania House of Representatives for recognizing that the Bible is the Word of God, and many more. Therefore, their current lawsuit filing comes as no surprise. In their lawsuit, they claim that the IRS has stopped auditing churches that violate 501(c)(3) requirements, specifically electioneering regulations. They ask the court to force the IRS to start these audits.
Has the IRS stopped auditing churches?
In recent days, many articles have been published by reputable organizations claiming that the IRS has stopped auditing churches. These articles have cast confusion because they have not told the full story. The articles quote an IRS official from the Tax-Exempt and Government Entities Division who said that the IRS was putting potential church audits on hold. What the articles did not clarify is that there are many types of audits that churches face.
The IRS has the authority to audit a church on many different levels: they can audit a church's payroll, tax returns, informational returns such as W-2 and 1099-misc and 941's, COBRA, housing allowance, reimbursements, and more. However, there is one type of audit that they have stopped for now; that is the Section 7611 audit.
The Section 7611 audit
There is a section in the IRS Code that allows the IRS to do a special audit of a church if the IRS has information or reasonably believes that:
1. The church is not tax exempt because its activities are outside the purview of Section 501 or,
2. The church has engaged in substantial unrelated business trade or business.
I call this the Section 7611 audit. It is a special audit restricted to those two things. These types of audits have been held in abeyance because in 2009 a federal court ruled that the IRS could not conduct such audits until the regulation of Section 7611 was updated. You see, in 1998, Congress passed a new law that reorganized the IRS. When it reorganized it eliminated the position of Regional Commissioner. Therefore, in 2009, when the IRS attempted to audit Living Word Christian Center in Minnesota, because they were accused of intervening in a political campaign, the church fought the audit in court saying that the IRS did not have the position of Regional Commissioner, and according to Section 7611, the Regional Commissioner is the only one who can approve such an audit. The IRS argued that Congress passed a law, which eliminated that position, and that naturally, the next best person to approve such audits would be the Head of the Tax Exempt and Government Entities Division. The court disagreed with the IRS and ordered it to stop the audit until the regulation gets updated (U.S. v. Living Word Christian Center). As of 2009 the IRS has not conducted Section 7611 audits. But that has not deterred the IRS from conducting the many other types of audits mentioned earlier.
Just when you thought it was safe
I have heard from several pastors that they felt safe from the IRS because they thought that their churches could not be audited. However, that feeling of safety was based on wrong information. Furthermore, in my opinion, it revealed a bigger heart issue. Instead of choosing to get their churches right with the law, some would rather wish the IRS to disappear so they might remain as they are. Of the two heart postures, to which one do you believe the Lord would give the five talents?