Why The IRS Prosecutes Some Pastors and Not Others

By Raul Rivera

Pastor, Church and IRS

In the last year, I have written about two pastors that have been prosecuted by the IRS.  One pastor, Gregory Louis Clarke, was sentenced to 21 months in prison for assuming that the love offerings he received from his church were gifts to him.  The other, pastor Anthony L. Jinwright, was convicted of fraud and tax evasion charges because he failed to report reimbursements, seed offerings and his housing allowance as taxable income.  Why was it that these two men were prosecuted when literally thousands of pastors across America today are doing the same thing they did?  It is a fair question and I will try to answer that question over the next three days.

Statistically, over 50% of criminal prosecutions by the IRS begin as a result of an audit.  When a pastor gets audited, it is difficult to completely separate his transactions with that of the church.  If he has been receiving love offerings, housing allowance, reimbursements and the works, the auditor will need to look at certain records of the church to determine if the housing allowance, love offerings and reimbursements were properly accounted for.  Under the provisions of section 7611(b)(1)(a), the IRS can look at church records to determine if the pastor owes any tax under Title 26.  This provision gives the IRS very broad power to examine the church's records.

What will happen this weekend

This weekend thousands and thousands of pastors will receive love offerings, spend church money for differing purposes, and get reimbursements for reasons that vary as many as there are stars in the sky.  OK, maybe not that many, but you get the point.  For several people, the IRS will see these transactions as a potential criminal offense, but for others it won't.  It all depends on the nature of the violation and the length of time the violation has existed.  Following are five factors that significantly influence the criminal prosecution of IRS violations.

1. Does the IRS believe you should have known better?
2. Was there willful neglect?
3. Did you make efforts to understand whether you were doing things right?
4. Did you have any suspicions that things may not have been right, but then chose not to do anything about it?
5. Have you been consistently late on your tax returns? 

What went wrong with the two pastors

In the cases of pastors Gregory Clarke and Anthony Jinwright, the IRS focused its prosecution on the fact that these pastors knew or should have known better.  Establishing this argument in court is not difficult and unfortunately, the IRS relies on the testimony of conversations between the pastor and church treasurer, secretary or disgruntled former staff to establish it.  One thing I have learned is that the bitterness of a disgruntled former staff member can have far reaching consequences on the pastor, since disgruntled individuals are much more willing to report and testify against their pastor in the name of "protecting others."  Historically, the IRS has not aggressively sought criminal prosecutions of pastors, but instead has issued fines where appropriate; but now, I personally believe that the tide has turned and we will see a rise in prosecutions. 

A dangerous common thought among pastors

There is a common, erroneous thought shared among many pastors regarding their churches and the use of its money, which has me concerned.  When a pastor or leader starts a ministry, they invest their whole heart and soul into it.  Because of this they often feel that it is theirs, when in fact they are merely stewards over it.  When confronted with information that requires changes to the infrastructure of the church and how it relates to state and federal laws, many pastors reply with one or more of the following:

1. "I know a pastor that has been doing this way for years and he has never gotten in trouble."
2. "God can protect me from the IRS."
3. "You are just trying to scare me."
4. "The IRS can't tell me how to do it; only God can."
5. "My pastor's church got its 501(c)(3) many years ago and they had stuff in their 501(c)(3) that you now say we can't do."

While the IRS is not roaming around like a lion seeking whom it may devour, it can if it wishes. Because of the economic downturn of the last two years, tax fraud has increased.  The IRS' response is to increase its compliance enforcement presence.  The natural statistic is that if the IRS increases the number of audits it conducts, the number of fines and prosecutions will go up exponentially.  Brothers and sisters, if you heed my words today, you can avoid trouble down the road.  If you take the time to correct the errors of the past and implement strategies today, you will have nothing to fear; Romans 13:3 and 4 states it very clearly:

For rulers hold no terror for those who do right, but for those who do wrong. Do you want to be free from fear of the one in authority? Then do what is right and he will commend you. For he is God's servant to do you good. But if you do wrong, be afraid, for he does not bear the sword for nothing.

Alarming thoughts

Overcoming those common thoughts are difficult because they are imbedded in the historty and culture of many churches.  Most pastors are only doing what they saw done their whole lives.  Tomorrow, I will share on the areas that should sound the alram for concern.  If you have engaged in any of those activities, you should be concerned because an audit can result in a very costly and devastating result.