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IRS Proposes Rules To Clarify Who May Authorize Church Audit

By Howard M. Friedman

BNA Daily Report for Executives [subscription required] reports that the Internal Revenue Service, in proposed regulations that will be published in tomorrow's Federal Register, is attempting to clarify which high level Treasury official has authority to make a determination under IRC Sec. 7611 that there are reasonable grounds to begin a church tax inquiry. [Full text of REG-112756-09 via BNA (subscription required)]. The Code section, in an attempt to obtain an objective appraisal of the need for this type of delicate examination, requires that a "reasonable belief" determination be made by an official whose "rank is no lower than that of a principal Internal Revenue officer for an internal revenue region." A 1998 IRS reorganization created confusion over who that official should be. In February, a Minnesota federal district court held that the Director of Exempt Organization Examinations was not a high enough official to satisfy the statutory requirement. (See prior posting.) The new regulations propose giving the authority to the Director of Exempt Organizations. BNA's Daily Report for Executives [subscription required] reports that there are likely to be many comments from the non-profit sector on the proposal.

Full post as published by Religion Clause on August 04, 2009 (boomark / email).