IRS announces update in procedures relating to Employment Tax Examinations of Churches
The IRS recently announced that IRS 7611 procedures apply to employment tax inquiries. Section 7611 sets forth detailed procedures that must be followed and special limitations on how the IRS may conduct tax inquiries and examinations of churches. Specifically, Section 7611 provides that the IRS may only initiate a church tax inquiry if an “appropriate high level Treasury official” reasonably believes, based on a written statement of the facts and circumstances, that the organization: (a) may not qualify for exemption; or (b) may not be paying tax on an unrelated business or other taxable activity.
Previously, Section 7611 only applied to church tax inquiries; churches were fair game when it came to employment audits, such as for payroll taxes. However, with this recent announcement by the IRS, Section 7611 procedures have been extended to apply to church employment tax inquiries. With the extension of Section 7611 to employment tax inquiries, the IRS has instructed examiners not to initiate any examinations of a church. Find the IRS memorandum here.