February 4, 2009
Church Need Not Comply with IRS Audit
The Chronicle of Philanthropy reports on the latest decision in the IRS's audit case against the Living Word Christian Center, a church located in Brooklyn Park, Minn. The IRS lost. A U.S. District Court judge, sitting in Minneapolis, upheld a December 2008 ruling by a U.S. Magistrate.
The IRS began to investigate the church in April 2007, based on information that the pastor had endorsed a political candidate from the pulpit. During the investigation the IRS uncovered information that suggested that some financial transactions between the church and the pastor had improperly benefited the pastor. The church responded to some early requests for information but then refused further requests, arguing that the requests violated the Church Audit Procedures Act. The court agreed with the Center that the audit had not been authorized by an appropriately high-level Treasure Dept. official.
The problem stems from a reorganization of Treasury that occurred after the Treasury issued regs under the Church Audit Procedures Act. The regs indicated that no one lower than a regional commissioner could begin an audit. When the IRS reorganized and eliminated the position of regional commissioner, the IRS gave the authority to audit a church to someone lower down the chain. This change in authority was not the product of formal rulemaking, so the person who authorized the audit of Living Word did not have a high-enough level of authority to do so.
It sounds like the IRS needs to engage in some rule-making, pronto, but in the meantime maybe the Commissioner can step in to authorize the audit. If there is suspicion that the church has engaged in political campaigning and self dealing, then an investigation seems in order.
For a longer explanation of the situation, see the article in the Chronicle.
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