§7611 Restrictions on Church Tax Inquiries and Examinations

Summary

Limits how the Secretary of the Treasury or the IRS can start and carry out tax checks of churches. A high-level Treasury official must have a written, reasonable belief that the group might not be tax-exempt as a church or might have taxable business activity before an inquiry can begin. The church must get written notice that explains the concerns, what will be looked at, and the church’s rights, including an offer to meet before any records are examined. For a full examination, the church and the IRS regional counsel must get at least 15 days’ written notice that includes the earlier inquiry notice, a description of records and activities to be examined, an offer of a conference, and certain documents. The IRS may look at other records during the exam if needed. The IRS must finish an examination and make a final decision within 2 years after the examination notice date, or finish an inquiry (if no exam happens) within 90 days. Those time limits can be paused for court cases, court orders under section 7609, the church’s failure to comply for more than 20 days (but not more than 6 months), or by agreement. The IRS may only revoke a group’s church status, send a notice of deficiency, or assess tax from a church if the appropriate regional counsel puts in writing that the rules here were substantially followed and approves the action. If tax is assessed after revoking church status, it generally can only cover the 3 most recent taxable years before the examination notice date; if the group was not a church for any of those 3 years, the period becomes 6 most recent taxable years. Unrelated business tax under section 511 may be assessed only for the 6 most recent taxable years. If the IRS did not follow the required notices, conference, or approval, any court action to enforce a summons must be put on hold until fixes are made. If an inquiry or exam ends without revocation, deficiency, assessment, or a request for major operational changes, the IRS generally cannot begin another church tax inquiry or exam of the same issues for 5 years unless the Secretary approves. Definitions in brief: "church" includes any group claiming to be a church and associations of churches; "church tax inquiry" is an initial inquiry; "church tax examination" is a formal review of records or religious activities; "church records" means regular corporate and financial records like minutes and member or donor lists; and "appropriate high-level Treasury official" means the Secretary or a similarly ranked delegate. These rules do not apply to criminal investigations, non-church taxpayers, certain emergency or special assessments, willful attempts to evade tax, or knowing failures to file.