4.75.39 Church Tax Inquiries and Examinations Under IRC 7611

Manual Transmittal

October 30, 2017

Purpose

(1) This transmits new IRM 4.75.39, Church Tax Inquiries and Examinations Under IRC 7611.

Material Changes

(1) This manual supersedes IRM 4.76.7 in order to align the topic with the proper IRM chapter title.

(2) This manual also updates IRM references in the prior IRM 4.76.7 as well as position titles and functional offices after the realignment of TE/GE’s administrative functions effective May 1, 2017.

(3) Exhibit 4.75.39-3, Exhibit 4.75.39-14 and Exhibit 4.75.39-15 were included to incorporate documents that were missing but referenced when IRM 4.76.7 was last published.

(4) IRM 4.75.39.5 provides a direct link to IRM 4.75.39.7.2, Church Information Referrals.

(5) IRM 4.75.39.17 provides directions as to how to modify the existing Letters 5307, 5308, and 5309, which replaced Exhibit 4.76.7-2, Church Tax Inquiry Letter, Exhibit 4.76.7-4, Follow up Church Tax Inquiry Notice Letter, and Exhibit 4.76.7-5, Notice of Church Examination.

(6) The following table indicates where materials shifted about with the updates mentioned above as well as the inclusion of program scope and objectives ( IRM 4.75.39.1), as required under IRM 1.11.2.2.5, Address Management and Internal Controls.

Previously: Currently:
IRM 4.76.7.1, Introduction IRM 4.75.39.2, Introduction
IRM 4.76.7.2, Church Tax Inquiry Inquiries Procedures IRM 4.75.39.3, Church Tax Inquiry Inquiries Procedures
IRM 4.76.7.3, Situations in Which IRC § 7611 Procedures Do Not Apply IRM 4.75.39.4, Situations in Which IRC § 7611 Procedures Do Not Apply
IRM 4.76.7.4, Church Tax Inquiry IRM 4.75.39.7, Church Tax Inquiry
IRM 4.76.7.4.1, Reasonable Belief Requirements IRM 4.75.39.7.1, Reasonable Belief Requirements
IRM 4.76.7.4.2, Church Information Referrals IRM 4.75.39.7.2, Church Information Referrals
IRM 4.76.7.4.3, AIMS Requirements IRM 4.75.39.7.3, AIMS Requirements
IRM 4.76.7.4.4, Church Tax Inquiry Notice Requirements IRM 4.75.39.7.4, Church Tax Inquiry Notice Requirements
IRM 4.76.7.4.5, Processing of Church Tax Inquiry Notice IRM 4.75.39.7.5, Processing of Church Tax Inquiry Notice
IRM 4.76.7.4.6, Area Counsel Pre-issuance Review IRM 4.75.39.7.6, Area Counsel Pre-issuance Review
IRM 4.76.7.4.7, Follow-up on Church Tax Inquiry Notice IRM 4.75.39.7.7, Follow-up on Church Tax Inquiry Notice
IRM 4.76.7.4.8, Resolution of Church Tax Inquiry Without Examination IRM 4.75.39.7.8, Resolution of Church Tax Inquiry Without Examination
IRM 4.76.7.4.8.1, Revocation of Exempt Status Without Examination IRM 4.75.39.7.9, Revocation of Exempt Status Without Examination
IRM 4.76.7.5, Notice of Examination IRM 4.75.39.8 Church Tax Examination
IRM 4.76.7.5.1, Preparing the Notice of Examination IRM 4.75.39.8.1, Preparing the Notice of Examination
IRM 4.76.7.5.2, Area Counsel Pre-Issuance Review IRM 4.75.39.8.2, Area Counsel Pre-Issuance Review
IRM 4.76.7.5.3, Issuance of Notice of Examination IRM 4.75.39.8.3, Issuance of Notice of Examination
IRM 4.76.7.5.4, Pre-Examination Conference IRM 4.75.39.8.4, Pre-Examination Conference
IRM 4.76.7.6, Scope of Examination IRM 4.75.39.9, Scope of Examination
IRM 4.76.7.7, Summons IRM 4.75.39.10, Summons
IRM 4.76.7.8, Report of Examination and Mandatory Review Requirements IRM 4.75.39.11, Closing Letters, Report of Examination and Mandatory Review Requirements
IRM 4.76.7.9, Time Limits IRM 4.75.39.13, Time Limits
IRM 4.76.7.9.1, Suspension of Time Limits IRM 4.75.39.13.1, Suspension of Time Limits
IRM 4.76.7.9.2, Limitation on Years Subject to Examination IRM 4.75.39.13.2, Limitation on Years Subject to Examination
IRM 4.76.7.9.3, Non-Compliance by IRS with Church Examination Procedures IRM 4.75.39.13.3, Non-Compliance by IRS with Church Examination Procedures
IRM 4.76.7.9.4, Limitations on Additional Inquiries and Examinations IRM 4.75.39.13.4, Limitations on Additional Inquiries and Examinations
IRM 4.76.7.10, Referrals to State Attorneys General IRM 4.75.39.12, Limitations on Additional Inquiries and Examinations
IRM 4.76.7.11, Claims to Church Status IRM 4.75.39.6, Source of Case - Organization Claims to be a Church, or Church by Inference
IRM 4.76.7.12, Coordination of IRC § 170(c) Deduction Cases IRM 4.75.39.14, Coordination of IRC § 170(c) Deduction Cases
IRM 4.76.7.13, Coordinated Procedures IRM 4.75.39.14, Coordination of IRC § 170(c) Deduction Cases
IRM 4.76.7.14, Legal Considerations IRM 4.75.39.15, Legal Considerations
IRM 4.76.7.15, Church Related Private School Examinations IRM 4.75.39.16, Church Related Private School Examinations
IRM 4.76.7.15.1, Pre-examination Letter Requirements IRM 4.75.39.16.1, Pre-examination Letter Requirements
IRM 4.76.7.15.2, Completion of Pre-examination IRM 4.75.39.16.2, Completion of Pre-examination
IRM 4.76.7.15.3, Mandatory Review of Church Related Private School Cases IRM 4.75.39.16.2 (3)
Exhibit 4.76.7-1, IRC § 7611 Church Case Time Limits and Approvals Cover Sheet Exhibit 4.75.39-1, IRC Section 7611 Church Case Time Limits and Approvals Cover Sheet
Exhibit 4.76.7-2, Church Tax Inquiry Letter Removed. Now Letter 5307
Exhibit 4.76.7-3, Statement of Administrative and Constitutional Rights Exhibit 4.75.39-2, Statement of Administrative and Constitutional Rights
Exhibit 4.76.7-4, Follow up Church Tax Inquiry Notice Letter Removed. Now Letter 5308
Exhibit 4.76.7-5, Notice of Church Examination Removed. Now Letter 5309
Exhibit 4.76.7-6, No Change Notification Letter to Organization Recognized Exempt -No Examination Exhibit 4.75.39-7, Non-Examined No Change or Advisory Letter – Recognized Church
Exhibit 4.76.7-7, No-Change Notification Letter to Organization Not Recognized Exempt -No Examination Exhibit 4.75.39-8, Non-Examined No Change Letter – Unrecognized Church
Exhibit 4.76.7-8, Transmittal of Notice of Examination Memorandum to Counsel Exhibit 4.75.39-4, Memorandum to Division Counsel - Transmittal of Notice of Church Tax Examination
Exhibit 4.76.7-9, No Change Notification Letter -Organization Recognized as Exempt Exhibit 4.75.39-5, Examined No Change or Advisory Letter – Recognized Church
Exhibit 4.76.7-10, No Change Notification Letter -Organization Not Recognized as Exempt Exhibit 4.75.39-6, Examined No Change or Advisory Letter – Unrecognized Church
Exhibit 4.76.7-11, No Change Closing Letter -Organization Not Recognized as Exempt and Examination Could Not Be Completed in Two Year Period Exhibit 4.75.39-10, Exam Not Completed in Two-Year Period – Unrecognized Church
Exhibit 4.76.7-12, No Change Closing Letter -Organization Recognized as Exempt and Examination Could Not Completed in Two Year Period Exhibit 4.75.39-9, Exam Not Completed in Two-Year Period – Recognized Church
Exhibit 4.76.7-13, Consent to Suspend the Period to Conduct a Church Tax Examination Exhibit 4.75.39-12, Consent to Suspend the Period to Conduct a Church Tax Examination
Exhibit 4.76.7-14, Suspension of Two-Year Period Due to Delays in Organization Providing Requested Information Exhibit 4.75.39-13, Notice of Suspension of 2-Year Period - Delays in Church’s Response

Effect on Other Documents

This supersedes and obsoletes IRM 4.76.7, Church Tax Inquiries and Examinations under IRC 7611, dated August 20, 2010.

Audience

Tax Exempt and Government Entities
Exempt Organizations

Effective Date

(10-30-2017)

Margaret Von Lienen
Director, Exempt Organizations
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: This manual provides information and guidance on IRC 7611 and church cases.

  2. Audience: The procedures in this manual apply to Exempt Organizations Examination employees in the following series:

    • GS-512

    • GS-526

    • GS-987

  3. Policy Owner: Director, Exempt Organizations

  4. Program Owner: Exempt Organizations

Background/Sources of Authority

  1. IRC 7611 provides for restrictions on church tax inquiries and examinations.

  2. IRC 7611(a)(2) provides that a church tax inquiry may begin after an appropriate high-level Treasury official reasonably believes (on the basis of facts and circumstances recorded in writing) that the church may not be exempt under IRC 501(a) or may be carrying on an unrelated trade or business or otherwise engaged in activities subject to taxation, and the inquiry notice requirements are met.

  3. Treas. Reg. §301.7611-1 provides questions and answers (Q&As) relating to church tax inquiries and examinations. Q&A-2 describes a church tax inquiry.

  4. Treas. Reg. §301.7611-1 Q&A-3 provides that solely for purposes of applying the procedures of IRC 7611, the term "church" includes any convention or association of churches and any organization claiming to be a church. The term does not include separately organized church-related schools.

  5. IRM 1.2.46.4 (11/2/2007) Delegation Order 7-3 (formerly DO-137, Rev. 3) provides for the delegation of authority to execute agreements under IRC 7611(c)(2)(C) to suspend the periods for completing church tax inquiries and examinations, and to hold conferences described in IRC 7611(b)(3)(A)(iii).

  6. IRM 25.5.8.3.2 1/27/2016), Use of Summons Special Applications - Restrictions on Church Tax Inquiries and Examinations, states that the "designated official" for purposes of the satisfying "reasonable belief" and the notice requirements defined in IRC 7611 is the Director, Exempt Organizations who acts in concurrence with the TE/GE Commissioner.

Responsibilities

  1. During an audit, agents are responsible for determining if the organization:

    1. Meets the requirements for exemption.

    2. Has the proper foundation status (501(c)(3) organizations only).

    3. Filed all required tax and information returns.

    4. Reported information and tax liabilities correctly.

  2. The IRS adopted the Taxpayer Bill of Rights in June, 2014. Agents are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3) and IRM 1.2.10.37.

Program Controls

  1. Agents should consult the K-Net Knowledge Management Network to ensure proper issue development and consistent application of the law.

Terms/Definitions/Acronyms

  1. The term, "adverse determination" used in this manual includes a revocation of ruling or determination letter granting tax-exempt status, a disqualification (denial) of an organization claiming to be a church for the examined tax years, or an adverse change in foundation status.

  2. The terms "examination" and "audit" are interchangeable for purposes of this manual.

  3. The term "recognized church" denotes a church that has received a ruling or determination letter from the IRS granting it tax-exempt status. An "unrecognized church" is a church that has not been issued such letter, and is not recognized as tax-exempt in the EO Business Master File (EOBMF).

  4. The following table lists acronyms and abbreviations used in this manual along with their definitions:

    Acronym/Abbreviation Definition
    AIMS Audit Information Management System
    ATG Audit Technique Guide
    CP&C Compliance Planning and Classification
    CTC Church Tax Coordinator
    EO Exempt Organizations
    FAC Functional Assignment Coordinator
    FSL/ET Federal, State and Local Governments & Employment Tax
    IRC Internal Revenue Code
    NCTI Notice of Church Tax Inquiry
    NCTE Notice of Church Tax Examination
    NMF Non-Master File
    RCCMS Reporting Compliance Case Management System
    Treas. Reg. Treasury Regulation

References

  1. The following is a list of helpful references, forms and publications involving churches:

    • IRM 4.5.3.4.5, TE/GE AIMS Special Processing Procedures - Church Examinations

    • IRM 4.23.2.13, Employment Tax Examination Objectives - Churches, Conventions or Association of Churches

    • IRM 4.23.5.9, Social Security Coverage for Church Employees

    • IRM 4.72.6.1.2, IRC 415(b) – Overview - Exceptions

    • IRM 4.72.13, IRC 403(b) Plans

    • IRM 4.75.21.3, Special Examination Procedures – Non-Return Units

    • IRM 4.75.37.7.2, Requests for Withdrawal of a Claim

    • IRM 21.7.2.5.14, FICA Adjustments on Exempt Organizations Pursuant to IRC 501(c)(3)

    • IRM 25.5.8.3, Restrictions on Church Tax Inquiries and Examinations

    • IRM 25.7.1, Exempt Organizations/Business Master File and Support Processing

    • Form 14312, Church Guide Sheet (internal form for workpapers as needed)

    • Pub 1828, Tax Guide for Churches and Religious Organizations

    • Pub 517, Social Security and Other Information for Members of the Clergy and Religious Workers

Introduction

  1. IRS personnel must observe the restrictions imposed by IRC 7611 in any inquiry or examination of a church. Such inquiry or examination must be limited to determining whether:

    1. The organization is exempt from tax under IRC section 501(a)

    2. The organization is a church under IRC sections 509(a)(1) and 170(b)(1)(A)(i)

    3. The church is carrying on an unrelated trade or business as defined in IRC section 513

    4. The church is otherwise engaged in activities subject to any federal tax, or

    5. The church is engaged in an excess benefit transaction.

  2. The term "church" includes

    1. Any organization claiming to be a church, or

    2. Any convention or association of churches.

  3. IRC 7611 applies to any examination of a school operated as part of a church or convention or association of churches. IRC 7611, however, does not apply to any examination of a separately organized or incorporated church-related school that doesn’t claim to be a church or convention or association of churches.

  4. In non-church examinations, examiners must not disregard an organization’s claim to church status unless information in the examiner’s possession establishes the claim to be frivolous. See IRM 4.75.39.6, Source of Case - Organization Claims to be a Church or Church by Inference below. In such instances, before proceeding, the examiner must obtain Area Counsel’s written opinion as to whether:

    1. The basis that an organization’s claim to be a church is frivolous, and

    2. IRC 7611 is applicable.

Church Tax Inquiry Inquiries Procedures

  1. IRS personnel must follow the restrictions of IRC 7611 if an organization claims to be a church. An organization may directly claim to be a church, or the IRS may infer it from facts such as inclusion of the word "church" in the organization’s name or any other characteristics that show the organization holds itself out to be a church. Characteristics that an organization holds itself out to be a church might include, for example:

    1. Lists of church-like services outside an organization building,

    2. Indications that a worship services space is in the organization’s building, or

    3. Indications that the head of the organization performs regular worship services.

  2. If it is unclear whether the organization claims to be a church, the examiner should ask the organization during the initial contact if it claims to be a church. If there is any doubt, the examiner will consult with Area Counsel to determine whether there are sufficient characteristics of a church to ask the organization whether it claims to be a church.

Situations in Which IRC § 7611 Procedures Do Not Apply

  1. IRC 7611 specifically excludes certain IRS inquiries to churches from the restrictions it imposes. The following paragraphs describe these exclusions.

    Note:

    Even in cases not subject to the specific restrictions of IRC 7611, IRS personnel should be mindful of the rights granted by the First Amendment to the Constitution, which limits government interference with the free exercise of religion to cases of compelling government interest. The IRS’s legitimate interest of enforcing compliance with federal tax laws doesn’t extend to the source and content of sincerely held religious beliefs.

  2. The restrictions of IRC 7611 don’t apply to:

    1. An examination of a religious organization that does not claim to be a church.

    2. A separately organized or incorporated church-supported school or other organization incorporated separately from the church.

    3. Any assessments under IRC 6851 (relating to termination assessments of income tax), IRC 6852 (relating to termination assessments in case of flagrant political expenditures of IRC 501(c)(3) organizations) or IRC 6861 (relating to jeopardy assessments of income taxes).

    4. Any criminal investigation, including an investigation of a willful attempt to defeat or evade tax or the knowing failure to file a return of tax imposed by the Internal Revenue Code. However, the possibility that an examination may result in a referral to Criminal Investigation Division doesn’t in itself take the investigation outside the scope of IRC 7611.

    5. Examinations relating to the tax liability of any person other than a church, except for the application of certain IRC 7611 procedures to IRC 4958 examinations involving a disqualified person’s transactions with a church. See Treas. Reg. § 53.4958-8(b).

  3. For example, IRC 7611 doesn’t apply to examinations regarding:

    1. The tax status or liability of a contributor to the church,

    2. The use of church funds to benefit a particular individual or organization that might result in the denial of a contribution deduction (for example a tuition payment that is claimed as a contribution),

    3. Assignment of income, services or contributions to a church,

    4. A vow of poverty with transfer of assets to a church,

    5. Social security tax, self-employment tax, or income tax withheld from wages of individuals other than a church (for example, the income tax liability of the pastor). See Q&A-6 of Treas. Reg. § 301.7611-1 for the routine request exceptions to section 7611 procedures for examinations relating to these tax matters with respect to a church.″

      Note:

      Examination of church records to determine the liability of persons or organizations other than the church cannot be used to avoid the intended purpose of IRC 7611. For example, the IRS shouldn’t seek to examine a contributor or membership list in the possession of a church, without observing the restrictions of IRC 7611, if the purpose for seeking the list is to determine the overall financial structure of the church, rather than verifying a contribution from an individual. The information learned during an examination of church records to determine the liability of individuals or organizations other than the church, however, may support a reasonable belief to commence a church tax inquiry.

  4. Examiners will not initiate inquiries or examinations of church records to determine the tax status of an organization other than the church without the Area Manager’s approval. The Area Manager should grant approval only when the tax status of the organization under examination can’t be resolved without information in the possession of the church.

  5. The restrictions of IRC 7611 don’t apply to third party records. For example:

    1. Records relating to the church held by a third party (acquired by a summons to which IRC 7609 applies) such as cancelled checks in the possession of a bank. However, the IRS must follow the procedures of IRC 7609 before examining third-party records.

    2. Requests to a church for information needed to locate third-party records. Such information includes the chartered name of the church, the state and year in which it incorporated, and the location of its bank accounts.

      Note:

      Information obtained from third-party records may provide the "reasonable belief," as discussed in IRM 4.75.39.7.1, Reasonable Belief Requirements, necessary to initiate a church tax inquiry and examination. The IRS may not, however, determine a church is not entitled to exemption or assess tax on unrelated business income against a church solely on the basis of third-party records, without first complying with the procedures of IRC 7611. The church’s failure to provide information necessary to locate third-party records, however, may be a factor in determining if there is "reasonable belief" for commencing a church tax inquiry.

  6. The restrictions of IRC section 7611 don’t apply to routine requests, including examinations of compliance with income tax or FICA (social security) tax withholding responsibilities of a church. Routine requests are requests for information the IRS needs to administer the Code, apart from requests for information needed to determine an organization’s exempt status or to assess tax. Refer to IRM 25.5.8.3.1, Situations in which IRC 7611 Procedures Do Not Apply, for routine requests and matters outside the scope of IRC 7611.

Source of Case - Classification and Assignment

  1. See IRM 4.75.39.7.2, Church Information Referrals.

Source of Case - Organization Claims to be a Church, or Church by Inference

  1. An organization that hasn’t previously claimed to be a church (for example, an evangelistic organization that has been recognized by the IRS as an organization described in IRC Sections 509(a)(1) and 170(b)(1)(A)(vi)) may claim to be a church after the IRS initiates an examination. The examiner will honor a claim of church status in such a case, unless it can be dismissed on the merits as frivolous, or if the examination has progressed in good faith to such a point that the organization can be considered to have waived the application of IRC 7611 for the years under examination. Factors to consider in deciding whether to apply the IRC 7611 provisions at any stage after initiation of an examination include, but aren’t limited to, whether:

    1. The IRS has determined the organization to be a private foundation or a public charity described in a section other than IRC Sections 509(a)(1) and 170(b)(1)(A)(i);

    2. The organization has filed Form 990 and claimed public charity status under provisions other than IRC Sections 509(a)(1) and 170(b)(1)(A)(i);

    3. A professional advisor, such as an attorney or accountant represented the organization and allowed the examination to proceed without asserting a claim to church status;

    4. The organization previously described itself as the type of organization, specifically excluded from the application of IRC 7611 by Treas. Reg. §301.7611-1 Q&A-3, such as a "church-controlled" organization; and,

    5. The extent to which the examination has progressed before the organization claims to be a church and whether the organization makes the claim after the examiner has discussed potentially adverse findings with the organization.

  2. If the organization claims to be a church after an examination has progressed in good faith to a point that the examiner considers the organization has waived the application of IRC 7611 for the years under examination, the examiner should request concurrence from Area Counsel that IRC 7611 procedures need not be followed.

  3. Any serious doubt about whether the application of IRC 7611 has been effectively waived should be resolved in favor of the application of IRC 7611.

  4. The restrictions set out in IRC 7611 apply to inquiries and examinations initiated because an organization claimed to be a church during an examination or the IRS inferred the existence of a church from the facts, whether the examination is conducted by TE/GE or any other operating division.

  5. The filing of a Form 1023, Application for Recognition of Exemption, that is incomplete or that fails to establish an organization's exemption under IRC 501(c)(3) does not affect the organization's entitlement to claim church status and the application of IRC 7611 concerning restrictions on the examination of churches.

Church Tax Inquiry

  1. A church tax inquiry is defined as any inquiry to a church (other than an examination) that serves as a basis for determining whether the organization qualifies for tax exemption as a church, or whether it is carrying on an unrelated trade or business or otherwise engaged in activities subject to any IRC tax. An inquiry as to whether an excess benefit transaction has occurred between a church and a disqualified person also constitutes a church tax inquiry.

  2. A church tax inquiry commences when the IRS requests information from a church other than routine requests for information discussed in IRM 25.5.8.3.1 or inquiries regarding matters that don’t primarily concern the tax status or liability of the church itself.

  3. The IRS may begin a church tax inquiry only when the Designated Official reasonably believes that:

    1. The organization may not qualify for exemption under IRC 501(a),

    2. The organization may not be described as a church under IRC Sections 501(a)(1) and 170(b)(l)(A)(i),

    3. The organization may be carrying on an unrelated trade or business within the meaning of IRC 513 or may be otherwise engaged in activities subject to any IRC tax, or

    4. The organization may have engaged in an excess benefit transaction under IRC 4958.

  4. IRC 7611 imposes strict time limits on both church tax inquiries and church examinations. The IRS can’t send a notice of examination until at least 15 full calendar days after sending the notice of inquiry. If the IRS doesn’t send a notice of examination within 90 calendar days from the date of the notice of tax inquiry, the IRS must terminate the inquiry with no change to the organization’s tax status or liability. The 90-day time limit may be suspended by certain circumstances. See IRM 4.75.39.13, Time Limits.

Reasonable Belief Requirements

  1. Before a notice of church tax inquiry can be sent, the Designated Official must "reasonably believe" it is necessary. Congress believed such high-level approval of the initial contact is essential to achieving its purposes in enacting IRC 7611. This reasonable belief must be based on facts and circumstances recorded in writing.

  2. The IRS can obtain the information supporting a reasonable belief from many sources, including but not limited to:

    • Newspaper or magazine articles or ads,

    • Television and radio reports (a transcript should be obtained, if possible),

    • Internet web pages,

    • Voters guides created and/or distributed by the church, documents on file with the IRS (e.g. a Form 990-T filed by the church), and

    • Records concerning the church in the possession of third parties or whistleblowers.

  3. The IRS must derive the facts and circumstances forming the basis for a reasonable belief from information lawfully obtained. Information obtained from whistleblowers must not be known to be unreliable.

  4. The failure of a church to respond to repeated (two or more) inquiries concerning the tax liability of other persons or to routine IRS requests may be considered a reasonable basis to commence a church tax inquiry.

  5. A church’s failure to respond to repeated (two or more) IRS requests for information needed to locate third-party records is a factor, but not a conclusive factor, in determining if there is reasonable cause for commencing a church tax inquiry.

Church Information Referrals

  1. EO personnel as well as personnel from other operating divisions with information that indicates a church tax inquiry under IRC 7611 may be warranted, should forward the information on Form 5666, TE/GE Referral Information Report, to the Manager, EO Referrals for consideration. See IRM 4.75.39.14, Coordination of IRC 170(c) Deduction Cases.

  2. In IRC 170(c) cases in which the issue is whether a taxpayer made claimed contributions, or made them with the expectation of receiving benefits in return, W&I and other operating divisions can, without following the restrictions of IRC 7611, examine church records to the extent needed to allow or disallow all or part of the contribution deduction. IRC 7611(i)(2) specifically provides that the restrictions don’t apply to any inquiry or examination relating to the tax liability of any person other than a church. Such an examination is limited to the determination of facts and circumstances specifically relating to the tax liabilities of the person in question. Other operating divisions may provide EO Referrals with an information referral, but EO Referrals need not take action unless, in its judgment, a church tax inquiry and examination is needed to address IRS concerns.

  3. If another operating division proposes to disallow an IRC 170 deduction because the donee organization isn’t described in IRC 170(c), it will make a referral to the Manager, EO Referrals. A classifier will review the referral to determine if the information supports a reasonable belief that the organization may not be tax exempt as a church. If the classifier determines that the information doesn’t support a reasonable belief to initiate an IRC 7611 inquiry, EO Referrals will advise the operating division the deduction shouldn’t be disallowed on the basis that the organization isn’t described in IRC 170(c).

  4. After the case is classified, TE/GE’s Compliance Planning & Classification’s (CP&C’s) Case Assignment group prepares the case file, placing the case in a red folder. The case file includes a copy of the referral materials and the referral tracking sheet. Case Assignment notifies the Functional Assignment Coordinator (FAC) of the priority case for immediate assignment to the field within five business days. Case is shipped to the EO field group manager.

  5. When the Group Manager receives the inquiry file from the FAC, the Group manager coordinates with the Mandatory Review Church Tax Coordinator (CTC).

  6. The CTC will conduct research to determine if potential compliance concerns should be expanded or contracted, and to identify statutes. The CTC will perform these activities only to the extent that the issues and research provide a foundation for the agent. The CTC will provide feedback to the group manager within five business days.

    Note:

    The Designated Official has final authority in all cases to determine whether to conduct a church tax inquiry.

AIMS Requirements

  1. The examiner must prepare Form 5598, EO AIMS Correction Request, to update the activity code from 345 to 349 when he or she schedules an approved church tax examination. Examiners are responsible for ensuring returns secured during the inquiry or examination are established on AIMS, if included in the inquiry or examination. Examiners should establish Form 990-T included in the inquiry or examination on AIMS using Activity Code 388.

  2. The examiner will use Form 5599, EO AIMS Closing Record, to close a church tax inquiry or examination off AIMS Non-Master File using RCCMS, assuming no return is required. When closing the case off AIMS, the agent will include in the case file a "Dummy" Form 990 with only the church identifying information completed for the year(s) under inquiry or examination. See IRM 4.75.21.3, Non-Return Units. See also IRM 4.75.16.7.4, Working Return Assembly.

Church Tax Inquiry Notice Requirements

  1. The Designated Official must sign the church tax inquiry letter.

  2. IRC 7611(a)(3)(B) requires that the notice include the following:

    1. An explanation of the concerns giving rise to and the general subject matter of the inquiry. This should be sufficiently specific to enable the church to understand the particular area of church activities or behavior at issue.

      Example:

      For an inquiry regarding unrelated business income, the notice should indicate the general activities of the church that may result in unrelated income, (e.g., use of a particular property or facility for other than tax exempt purposes, advertising, rental of personal property, etc.). For an inquiry regarding tax-exempt status, the notice should indicate those aspects of the church operations or activities that give rise to questions about its tax-exempt status. The IRS isn’t required to share particular items of evidence with the church, or to identify its sources of information, if providing such information would be damaging to the inquiry or the IRS’s sources.

    2. A general explanation of the provisions of the Internal Revenue Code that authorize the inquiry or that otherwise may be involved in the inquiry. The language in Letter 5307, Church Tax Inquiry Notice Letter, satisfies this requirement. See instructions for letter modification in IRM 4.75.39.17, Correspondence Rules section below.

    3. A general explanation of applicable administrative and constitutional provisions with respect to the inquiry, including the right to a conference before the IRS begins an examination of church records. The language contained in Exhibit 4.75.39-2, Statement of Administrative and Constitutional Rights, satisfies this requirement.

  3. IRC 7611 doesn’t preclude the IRS from expanding its inquiry beyond the concerns expressed in the notice because of facts and circumstances that subsequently come to its attention. For example, the IRS may expand an inquiry concerning unrelated business income to include questions of tax-exempt status, or vice-versa, without sending another church tax inquiry notice.

Processing of Church Tax Inquiry Notice

  1. The examiner must prepare the IRC 7611 Church Case Time Limits and Approvals Cover Sheet, displayed in Exhibit 4.75.39-1, for all church tax inquiry and examination letters. The Cover Sheet must remain attached to the front of the file to ensure proper routing and awareness of pertinent time periods.

    Note:

    The same Cover Sheet is used for both the inquiry and examination process.

  2. Refer to IRM 4.75.39.13, Time Limits for computation of 90-day and two-year expiration periods. The Cover Sheet must remain with the file throughout the approval process. Each approving official will update, as appropriate, initial and date the Cover Sheet upon approving the request.

  3. The examiner will prepare the church tax inquiry notice for the Designated Official using the appropriate language as set forth in the text of Letter 5307, Church Tax Inquiry Notice Letter. The Letter must be on appropriate letterhead with an explanation of the concerns giving rise to the inquiry and the general subject matter of the inquiry inserted where indicated on the letter. The examiner must attach Statement of Administrative and Constitutional Rights, reproduced in Exhibit 4.75.39-2, to the inquiry notice letter to satisfy the requirement of IRC 7611(a)(3)(B).

    Note:

    For purposes of the Church Tax Inquiry Notice letter, use Form 13044 stationery. Transfer the contents from Letter 5307 to the stationery. Strike "Letter 5309" from the transferred text, but retain the title of Letter 5309 in the transferred text in order to identify the letter containing the text that will be used as the basis of subsequent correspondence, if necessary. Enter "CERTIFIED MAIL" at least two lines above the salutation. There will be no letter number or correspondence catalog number at the bottom right corner of the letter.

  4. Although not required by IRC 7611, the notice of church tax inquiry should usually include questions relevant to the inquiry. The questions are important as the inquiry phase is intended to give the church the opportunity to satisfy all of the IRS’s concerns without an examination. The particular questions asked will depend on the information in the IRS’s possession and the reasons for the inquiry. The letter should ask only those questions needed to resolve the issue or issues involved. The letter shouldn’t request the church to submit materials that are records, as described in IRM 4.75.39.9 (2), as these records may be inspected only on examination. The examiner may coordinate with the CTC to develop the NCTI letter and questions.

  5. The IRS must allow the church a minimum of 15 calendar days to respond to the inquiry letter. The examiner may allow more time depending on the facts and circumstances, but should exercise precautions to insure the 90-day time limit for completing the inquiry is not exceeded. If the church requests additional time to respond to the inquiry, the examiner will consider securing a consent to extend the 90-day time limit. The examiner will ask the church to submit a written request for additional time to respond.

  6. The Designated Official must sign the church tax inquiry letter. However, before requesting the Designated Official’s approval, the examiner must request concurrence from Area Counsel that an inquiry is warranted.

  7. The examiner will prepare a memorandum to Area Counsel (Exhibit 4.75.39-3) setting forth the following:

    1. Reasons for the inquiry,

    2. The information upon which the decision to initiate the inquiry is based,

    3. The specific provisions of the IRC section and regulations considered, and

    4. An explanation of how the examiner obtained the information relied on for the proposed inquiry.

      Note:

      The request should include the case file containing all of the information the examiner considered in making the decision to request approval to initiate the church tax inquiry, including the administrative record, if available. If the examiner believes the information is too voluminous to be included, he or she should include a summary, and offer Area Counsel the opportunity to inspect the information, if necessary.

Area Counsel Pre-issuance Review

  1. The Group Manager will forward the case file, the memorandum to Area Counsel, and a copy of the draft inquiry letter to the Area Manager for transmittal to Area Counsel. If the church tax inquiry is based on information the examiner believes shouldn’t be disclosed to the church, the examiner will consult with Area Counsel and Disclosure.

  2. If Area Counsel doesn’t concur that an inquiry is warranted, Area Counsel will prepare a memorandum to the Area Manager setting forth the reasons and providing recommendations. If the Area Manager doesn’t agree with Area Counsel, he or she will arrange a telephone conference with Area Counsel, the Group Manager and the examiner.

  3. If Area Counsel and the Area Office can’t reach a consensus, the Designated Official will decide whether the information supports a reasonable belief that the organization may not qualify for tax exemption as a church, may be operating an unrelated trade or business, may be otherwise engaged in activities subject to tax or the church has engaged in an excess benefit transaction under IRC 4958. The Designated Official’s Office will also mail a copy of the decision to Area Counsel in accordance with IRC 7611(b)(2)(A).

  4. If Area Counsel agrees, a church tax inquiry is warranted it will return the file to the Area Manager who will elevate the file for approval of the inquiry by the Designated Official.

  5. If the Designated Official signs the church tax inquiry notice, the file will be returned to the group for mailing of the letter and attachments. The file must contain a photocopy of the signed and dated letter and attachments as they must be attached to any follow-up or future notice of examination. The inquiry notice letter must be mailed "certified mail, return receipt requested." The signed return receipt, or return receipt evidencing refusal to accept the letter must be attached to the file copy of the church tax inquiry notice letter.

  6. The Area Manager is responsible for monitoring the statutory time limit for completing the inquiry. It is imperative that the examiner enters (and update as needed) the 90-day Church Inquiry expiration period and the two-year examination statutory period on the Cover Sheet. Usually, the examiner should compute the expiration periods and enter them on the Cover Sheet upon receipt of the file from the Designated Official after signing the notice of church tax inquiry.

  7. If the Designated Official doesn’t approve the church tax inquiry notice, the Designated Official will inform the Area Manager before returning the file to group for closing or development of additional information, in a manner consistent with the procedures of IRC 7611.

  8. The IRS must allow the church a minimum of 15 calendar days to respond to the inquiry letter. The examiner may allow more time depending on the facts and circumstances, but should exercise precautions to ensure the 90-day time limit for completing the inquiry isn’t exceeded. If the church requests additional time to respond to the inquiry, the examiner will consider securing a consent to extend the 90-day time limit. The examiner will ask the church to submit a written request for additional time to respond.

  9. IRC 7611 doesn’t preclude the IRS from granting a conference after issuance of the inquiry notice if requested. However, the inquiry notice shouldn’t offer a conference in addition to the offer of conference required in the notice of examination.

Follow-up on Church Tax Inquiry Notice

  1. If a church doesn’t respond to the inquiry notice within the specified time, the examiner may send a follow-up request. The examiner should send the follow-up only if the facts and circumstances indicate it may be useful in resolving the inquiry and can be done without risk of exceeding the 90-day period for concluding the inquiry. The examiner should use the language contained in Letter 5308, Follow-up Church Tax Inquiry Notice, for this purpose.

    Note:

    In issuing a follow-up letter, the agent should use Form 13044 Letterhead stationery. Transfer text from Letter 5308 to the stationery. Strike "Letter 5307" and "Letter 5309" from the transferred text, but retain the titles to Letter 5307 and Letter 5309 wherever they occur in the transferred text in order to identify the letters that contain the text that has been used or could be used in correspondence with the church in the future. Enter "CERTIFIED MAIL" at least two lines above the salutation. There will be no letter number or correspondence catalog number at the bottom right corner of the follow-up letter.

  2. The examiner will attach a copy of the initial inquiry notice and all attachments, to the follow-up letter. The follow up letter will be mailed over the Designated Official’s signature but may be signed by an official no lower than the Area Manager. As with the initial inquiry notice, send the follow-up "certified mail, return receipt requested." Attach the signed return receipt or other evidence of receipt evidencing refusal to accept the letter to the file copy of the letter.

  3. If the church refuses to accept the church tax inquiry notice, the examiner will initiate procedures to issue a notice of examination, using the wording contained in Letter 5309. The notice of examination will be mailed no sooner than 15 calendar days after the mailing date of the tax inquiry notice.

  4. If the church responds but doesn’t provide sufficient information to address the concerns stated in the inquiry notice, the examiner should, depending on the facts and circumstances, prepare a notice of examination, or prepare a follow-up to the church tax inquiry. If the examiner decides to send a follow-up letter, he or she should also consider requesting an extension of the 90-day period. Because of the 90-day period for concluding the church tax inquiry and because the notice of examination offers a conference to discuss the issues, the examiner will send a follow-up church tax inquiry notice only when information the IRS already possesses suggests the issues can be readily resolved by correspondence. Area Counsel should be consulted on these decisions.

  5. The Area Manager has discretion to grant a conference if the organization requests one after receiving the church tax inquiry notice. However, the conference won’t take the place of the conference required to be offered in the notice of examination. The Area Manager should usually agree to a conference if the examiner believes the issues can be resolved in a conference, and the church agrees to extend the 90-day period. Factors the Area Manager should consider in deciding whether to grant a request for a conference include:

    1. The likelihood that a conference will help resolve the issues, and preclude the need to pursue the matter,

    2. The effect granting a conference will have on the 90-day time limit for concluding the church tax inquiry, and

    3. The effect any delay in issuing the notice of examination will have on the years subject to examination, if an examination is necessary.

  6. The response to the church tax inquiry notice letter may provide information that indicates no further action is required because:

    • The church meets or continues to meet the requirements for exemption under IRC 501(c)(3),

    • The church qualifies or continues to qualify for classification as an organization described in IRC Sections 509(a)(1) and 170(b)(1)(A)(i),

    • The church isn’t liable for unrelated business income tax, or other taxes, or

    • IRC 4958 tax isn’t due from a disqualified person with respect to a transaction involving a church.

Resolution of Church Tax Inquiry Without Examination

  1. If the examiner determines no further action is required, he or she will prepare a letter advising the organization of this conclusion, specifying the time period covered, and the issue for which the no change is made.

    1. Examiner should use the language contained in Exhibit 4.75.39-7, Non-Examined No Change or Advisory Letter – Recognized Church, for an organization previously recognized as exempt by the IRS.

    2. Examiner should use the language contained in Exhibit 4.75.39-8, Non-Examined No Change Letter – Unrecognized Church, for an organization not previously recognized as exempt by the IRS.

Revocation of Exempt Status Without Examination

  1. In certain exceptional circumstances the IRS may, in lieu of an examination, propose to revoke or deny an organization’s exemption. IRC 7611 doesn’t require that the IRS formally examine church records and religious activities before it issues an adverse determination to a church. If the concerns that led to the church tax inquiry aren’t resolved after the church tax inquiry notice, the notice of examination, and the conference, if requested; the IRS may, in lieu of an examination, revoke (or deny, if the organization hasn’t applied for recognition of exemption) the organization’s exempt status when it possesses sufficient information to determine that the organization doesn’t qualify for exemption.

  2. Revocation or denial of exempt status without examination may, in exceptional circumstances, be appropriate where the facts and circumstances indicate examination will not produce information sufficient to change the determination the IRS can make based on information in its possession. For example, an examination may be unnecessary when information in the examiner’s possession establishes that the organization is operated for the private benefit of a particular individual or individuals and church records, which will be available only after issuance and enforcement of a summons, aren’t likely to show otherwise. However, the IRS shouldn’t initiate this revocation or denial merely because an organization won’t voluntarily provide information if that information may be material to the determination of the organization’s exempt status.

  3. Revocation or denial of exempt status without examination may also be appropriate in cases in which material facts aren’t in dispute, but the church contests the effect of the facts on the organization’s exempt status. For example, if the church doesn’t dispute facts showing it intervened in a political campaign, but contests only the effect of the intervention on its exempt status, it may be appropriate to issue an adverse determination.

  4. Action to revoke or deny a church’s exempt status without formal examination may be taken only after the IRC 7611 requirements of a church tax inquiry notice, a notice of examination, and conference, if requested, are satisfied.

  5. The IRS must base the adverse determination on information showing the organization doesn’t qualify for exempt status. The IRS may not base the adverse determination on the grounds the organization failed to establish it qualifies or continues to qualify for exemption. If the examiner doesn’t possess sufficient information to make a determination, an examination will be initiated.

  6. The IRS must follow the procedures in the IRM 4.75.39.11 Closing Letters, Report of Examination and Mandatory Review Requirements, in preparing, processing, and issuing the adverse determination. The examiner will prepare a report of examination even if the examiner didn’t conduct a formal examination.

Church Tax Examination

  1. The notice of examination must not be mailed sooner than 15 calendar days after the date the notice of church tax inquiry was mailed and must be mailed at least 15 days before the date the examination begins.

  2. The Designated Official must sign the notice of examination.

  3. The notice of church tax examination must contain all of the following:

    1. A copy of the church tax inquiry notice and attachments

    2. A description of the church records and activities the IRS seeks to examine

    3. An offer of a conference between the church and the IRS to resolve concerns relating to such examination

    4. A copy of all documents collected or prepared by the IRS for use in the examination (Disclosure of this information is required by the Freedom of Information Act (5 U.S.C.552), as supplemented by IRC 6103 relating to disclosure and confidentiality of tax return information.)

      Note:

      The IRS need not furnish to the church documents that would be exempt from disclosure under the Freedom of Information Act or IRC 6103. The IRS isn’t required to furnish all documents it may have on the organization, only those used to determine that an inquiry and examination were necessary. The IRS must not provide documents that would reveal the existence or identity of a confidential whistleblower to the church. The Area Office should consult with Area Counsel or Disclosure before withholding any documents on the grounds that disclosure would reveal the existence or identity of a confidential whistleblower.

  4. Under IRC 7611(c)(1)(B), the IRS has 90 calendar days from the date of the mailing of a notice of inquiry to decide whether to initiate a church tax examination and to issue a Notice of Examination.

Preparing the Notice of Examination

  1. Under IRC 7611(c)(1)(B), the IRS has 90 calendar days from the date of the mailing of a notice of inquiry to decide whether to initiate a church tax examination and to issue a Notice of Examination.

  2. If the church refuses to respond to the notice of church tax inquiry or any follow-up letter, or when the church’s response doesn’t resolve the IRS’s concerns, the examiner will initiate steps to issue a Notice of Examination.

  3. To initiate a request to issue a Notice of Examination, the examiner will:

    1. Prepare a draft notice of examination for the signature of the Designated Official. The letter must be on appropriate letterhead with the description of the records and activities the IRS seeks to examine inserted where indicated on Letter 5309.

      Note:

      For purpose of the Church Tax Examination Notice letter, use Form 13044, Letterhead Stationery. Transfer the contents from Letter 5309 to the stationery. Strike "Letter 5307" from the transferred text, but retain the title to Letter 5307 wherever it occurs in the transferred text in order to identify the letter that contained the text that was used for the Church Tax Inquiry Notice letter. Enter "CERTIFIED MAIL" at least two lines above the salutation. There will be no letter number of correspondence catalog number at the bottom right hand corner of the letter.

    2. Attach a copy of the church tax inquiry notice letter and attachments, plus any follow-up letter to the notice of examination. Attach a copy of all the documents the IRS collected or prepared for use in the examination. The disclosure of this information is required by the Freedom of Information Act (5 U.S.C. 552 as supplemented by IRC 6103 (relating to disclosure and confidentiality of tax return information). If doubt exists whether any document is disclosable, the examiner should consult Counsel and Disclosure.

    3. Prepare a memorandum for reviewers stating why the examination is necessary.

    4. Prepare a copy of the notice of examination and all attachments for Division Counsel (TEGEDC)

      Note:

      References to Division Counsel hereinafter refer to the Tax Exempt and Government Entities Division Counsel.

    5. Prepare a transmittal memorandum from the Designated Official to Division Counsel. See Exhibit 4.75.39-4. This memorandum should state that the notice of examination is furnished in accordance with IRC 7611(b)(2)(A), explain why an examination is necessary and request Division Counsel’s consideration. The memorandum should also state that if Division Counsel objects to the examination, it must provide an advisory opinion to the Designated Official within 15 calendar days from the mailing of the notice of examination letter.

      Note:

      This memorandum and transmittal of the Notice of Examination in accordance with IRC 7611(b)(2)(A) isn’t related to the pre-issuance review.

    6. Verify the accuracy of the 90-day period date on the Cover Sheet. See Exhibit 4.75.39-1, and mark "expedite."

Area Counsel Pre-Issuance Review

  1. Before the notice of examination is sent to the Designated Official for approval, the examiner will forward a copy of the entire file, through the Area Manager, to Area Counsel, who will be responsible for providing an opinion as to whether an examination is warranted. The examiner will prepare a memorandum to Area Counsel using Exhibit 4.75.39-3, requesting review of the notice of examination. The examiner, managers, Area Counsel and Division Counsel will exercise all precautions, including informal contact, to ensure Counsel’s (for purposes of this paragraph and the succeeding paragraph of this section, Counsel hereinafter refers to either Area Counsel or Division Counsel, or both, as appropriate) review can be completed without jeopardizing the 90-day period for completing the church tax inquiry and mailing the notice of examination. After Counsel’s review is complete, the Notice of Examination will be sent to the Designated Official, through Area Manager for approval.

    Note:

    The file will be placed in a red file folder and should include all documents (letters, RAR, case chronology, etc.) prepared in the inquiry or examination. This information will allow Counsel to make the revisions to the notice of examination in appropriate circumstances.

  2. Generally, if Area Counsel agrees that the issuance of the notice of examination is appropriate, Area Counsel will secure the written concurrence of Division Counsel. If Area Counsel believes revisions are necessary, Area Counsel will exercise discretion in whether to make the changes directly (after concurrence by the examiner) or to return the file to the examiner for revision. If the file is returned to the examiner, he/she will make any necessary revisions and return the file to Area Counsel. Area Counsel will prepare a recommendation memorandum and forward the matter to Division Counsel. Upon concurrence by Division Counsel (or concurrence subject to certain revisions, in which case Area Counsel will make the necessary revisions after concurrence by the examiner) Area Counsel will send the entire file, which will include the written opinion of Area Counsel and the concurrence memorandum of Division Counsel, to the Designated Official (through the Area Manager) for approval and issuance of the notice of examination. As noted above, Counsel will exercise appropriate precautions to ensure that it timely completes its review, and will keep the examiner and the Area Manager, apprised of the status of that review. The file should be sent to the Designated Official, so that it is received no later than ten days before the expiration of the 90-day period.

    Note:

    Area Counsel’s pre-issuance review doesn’t obviate the requirement of IRC 7611(b)(2)(A) that at least 15 calendar days before the beginning of an examination, the Designated Official provide a copy of the notice of examination to Division Counsel (successor position to Regional Counsel referenced in IRC 7611(b)(2)(A)) and to the organization.

Issuance of Notice of Examination

  1. After the Designated Official signs the notice of examination, the file will be sent to the group to mail the notice "certified mail, return receipt requested." The file should contain a photocopy of the signed and dated letter. The signed return receipt, or return receipt evidencing refusal to accept the letter, must be attached to the file copy of the notice of examination. The Designated Official’s Office (or the group on its behalf) will also mail a copy to Division Counsel in accordance with IRC 7611(b)(2)(A).

  2. The Designated Official’s Office must provide a copy of the notice of examination to Division Counsel upon mailing the notice to the organization. Use the transmittal memorandum to Division Counsel in Exhibit 4.75.39-4, as prepared by the examiner.

  3. Division Counsel has 15 days to provide a non-binding advisory opinion to the Designated Official. The Designated Official will consider Division Counsel’s objections when determining whether to proceed with the examination. See IRM 4.75.39.8.2, Area Counsel Pre-issuance Review infra concerning required review by Area Counsel before sending notice to the Designated Official.

  4. The examiner will calculate the two-year examination period expiration date beginning on the date of the notice of examination. The examiner will enter the two-year expiration date prominently on the Cover Sheet ( Exhibit 4.75.39-1) on top of the file and advise his or her Group Manager of the critical dates. The Area Manager is responsible for monitoring the statutory time limit for completing the examination.

Pre-Examination Conference

  1. The purpose of the conference is to provide the opportunity to discuss and resolve the IRS’s concerns that gave rise to the inquiry without the need for an examination.

  2. After the IRS issues a notice of examination, the church may request a conference at any time before the examination commences. If the church requests a conference, the IRS is required to schedule it within a reasonable time and may not proceed to examine church records and activities until after the conference.

  3. The IRS will not allow a church to use the conference requirement to unreasonably delay an examination. This is determined by the facts and circumstances. Examples of unreasonable delays include:

    1. Repeated (two or more) failures to keep scheduled appointments with the IRS,

    2. Repeated (two or more) requests to reschedule a conference, unless the church provides sufficient reasons for the requests,

    3. Request to schedule the conference at a date more than 30 days from the date of the notice of examination without sufficient reason and refusal to execute a consent to suspend the two-year time limit for completing the examination.

  4. If the church requests a conference, the IRS will schedule the conference at a mutually convenient time and place.

  5. If the church doesn’t request a conference within 15 calendar days after the date of the notice of examination, and if Division Counsel has advised the Designated Official that it doesn’t object to the examination, the examiner will contact the organization to arrange the examination.

  6. If Division Counsel hasn’t rendered an opinion to the Designated Official as to whether or not it objects to an examination, the examiner will not contact the organization to arrange the examination until 30 days after the notice of examination mailing date.

  7. If the organization requests a conference when the examiner contacts the organization to arrange an examination, or any time before the examination starts, the conference must be held before the examination can begin.

  8. At least one management official and the examiner assigned to the case should attend the conference. To avoid misunderstandings, the IRS will remind the church at the meeting, in general terms, of the stages of the church audit procedures and their rights under such procedures.

  9. After the conference, the Area Manager will decide whether to proceed with an examination or to close the case as a no change or no change advisory. If the church is to submit additional information, the Area Manager will wait until receipt of the information or the expiration of the time allowed for the church to submit the information before making a final decision to proceed with an examination.

Scope of Examination

  1. The IRS may examine church records and religious activities only to the extent necessary to determine federal tax liabilities. This includes examinations to:

    1. Determine the initial or continuing qualification of the organization under IRC 501(c)(3), including classification as a church under IRC Sections 509(a)(1) and 170(b)(l)(A)(i),

    2. Determine the amount, if any, of tax due to unrelated business activity within the meaning of IRC 513 or other activities that may be subject to tax, or

    3. Determine the amount of any IRC 4958 tax due from a disqualified person with respect to a transaction involving a church.

  2. Church records include all regularly kept church corporate and financial records, including (but not limited to) corporate minute books, contributor and membership lists, and church books of account. Church books of account include the general ledger, general journal; accounts receivable ledgers, accounts payable ledgers, cash disbursements book, cash receipts books, all subsidiary ledgers, voucher register, check register, purchases journal, sales journal, check books, savings account books, and all specialized journals. In addition, church records include private correspondence between a church and its members that is in the possession of the church.

  3. An examination conducted in accordance with the church examination procedures may disclose that the organization isn’t exempt under IRC 501(c)(3), is subject to federal tax, or IRC 4958 tax is due from a disqualified person with respect to a transaction involving a church, for reasons other than those that led to the examination. In such cases, the examiner may expand the examination, without additional procedural requirements, to include examination of any records necessary to resolve the new issue or issues.

Summons

  1. A summons may be issued to a church to secure information requested during the examination, which the church refuses to provide.

  2. If the purpose of the summons is to secure information to aid in the collection of liabilities already assessed, IRC 7611 isn’t applicable.

  3. Prepare a church summons in accordance with the instructions contained in IRM 25.5.8.3.5, Issuing Church Summonses.

  4. Area Counsel must review the proposed summons before issuance.

  5. If a church doesn’t comply with a summons, refer to Area Counsel.

Closing Letters, Report of Examination and Mandatory Review Requirements

  1. No-change and no-change advisory letters issued in church examination cases must specify the time period covered and include a specific description of the issues considered in the examination. Like non-church cases, church inquiries and examinations that result in no change are not subject to mandatory review. The examiner will use the language contained in the following exhibits in accordance with the appropriate examination situation:

    1. See Exhibit 4.75.39-5, Examined No Change or Advisory Letter – Recognized Church, for an organization previously recognized as exempt as a church.

    2. See Exhibit 4.75.39-6, Examined No Change or Advisory Letter – Unrecognized Church, for an organization not previously recognized as exempt as a church.

    3. See Exhibit 4.75.39-10, Exam Not Completed in Two-Year Period – Unrecognized Church, for an organization not previously recognized as exempt as a church, and the two-year limit for completing a church tax examination imposed by IRC 7611(c)(1)(A) is imminent but no issue(s) critical to exempt status have been identified.

    4. See Exhibit 4.75.39-9, Exam Not Completed in Two-Year Period – Recognized Church, for an organization recognized as a church exempt from tax, when the two-year limit for completing a church tax examination imposed by IRC 7611(c)(1)(A) is imminent though an issue that is critical to exempt status remains unresolved.

      Note:

      Examiners can conclude such examinations with a no change or no change advisory letter that neither denies nor recognizes exempt status, or, that continues to recognize exempt status under IRC 501(c)(3), as applicable. A no change letter under IRC 7611 isn’t an adverse determination, and isn’t a basis for declaratory judgment.

  2. The examiner must prepare a report of examination for all church examinations resulting in adverse determinations (IRC 7428) or assertions of additional tax. Group Managers must coordinate with Mandatory Review to ensure the report of examination and appropriate 90-day letter is issued within the statutory 90-day time period for inquiries, or the statutory 2-year period for examinations.

  3. Like non-church cases, Group Managers must close all adverse change cases subject to the provisions of IRC 7611 to EO Mandatory Review. The EO Reviewer will submit a request to Division Counsel for pre-issuance approval as provided in the next paragraph below, and will issue a 90-day letter as provided in IRM 4.75.39.11 (7) and IRM 4.75.39.11 (10).

  4. In adverse change cases subject to the provisions of IRC 7611, Division Counsel must approve the report of examination. Division Counsel must also determine and indicate in writing that the IRS has conducted the church tax inquiry and examination in substantial compliance with the requirements of IRC 7611. This requirement applies to any:

    1. Determination that an organization is not exempt from tax by reason of IRC 501(a).

    2. Determination that an organization is not a church described in IRC 170(b)(1)(A)(i).

    3. Notice of deficiency of any tax involved in a church tax examination, including penalties subject to Subchapter B of Chapter 63 (relating to deficiency procedures).

    4. Underpayment of tax involved in a church tax examination with respect to which subchapter B of Chapter 63 (relating to deficiency procedures) does not apply.

    5. Notice of deficiency of any IRC 4958 tax due from a disqualified person with respect to a transaction involving a church.

  5. The examiner should close a church case with an adverse determination or change in tax to Mandatory Review so that Mandatory Review receives the case no less than 120 days before the two-year period will expire. Mandatory Review will submit the request for Division Counsel’s approval so that Division Counsel receives the case with no less than 90 days before the expiration of the two-year period.

  6. In cases subject to the declaratory judgment procedures under IRC 7428, IRC 7611(g) provides that any final report of an agent is treated as a final adverse determination under IRC 7428(a)(1) and any church receiving such a report shall be treated for purposes of IRC 7428 and IRC 7430 as having exhausted the administrative remedies available to it. Thus, IRC 7611(g) precludes administrative appeal of any adverse determination letter. The IRS will not send a proposed adverse determination letter, "30 day letter," but rather will send only the final adverse determination letter, "90 day letter," with Form 4621-A, Exempt Organizations - Report of Examination (Proposed Status Changes).

  7. In such cases, Mandatory Review will mail the final adverse determination letter or statutory notice of deficiency "certified mail, return receipt requested," after the reviewer secures Division Counsel’s written approval, and will retain the administrative file in 90-day suspense (AIMS Status 24) until the time for filing a declaratory judgment action under IRC 7428 or, in the case of tax deficiencies, the time for filing a petition with the Tax Court under IRC 6213(a) has passed.

  8. The examiner’s final report in adverse cases subject to the declaratory judgment procedures under IRC 7428 should contain all grounds for the determination. The report, however, should be limited to IRC 7428 issues and shouldn’t discuss positions inconsistent with the primary basis for the adverse determination. For example, the report in a revocation case shouldn’t discuss the organization’s liability for unrelated business income tax (unless the basis for revocation is that the organization’s primary activity is carrying on unrelated trade or business).

  9. If the church doesn’t timely file a petition under IRC 7428, Mandatory Review may issue a 30 day letter on any converted return income tax or FUTA tax due, after the 90-day period has expired.

  10. In cases not subject to the declaratory judgment procedures under IRC 7428, i.e., no change to exempt status or church classification under IRC 170(b)(1)(A)(i), but liable for employment taxes, unrelated business income or other taxes; or a disqualified person is liable for IRC 4958 tax, Mandatory Review will review the case. After securing written approval of Division Counsel, the EO Reviewer issues a statutory notice of deficiency.

Referrals to State Attorneys General

  1. In accordance with the procedures outlined in IRC 6104(c) and Treas. Reg. § 301.6104-3, the IRS will notify appropriate state officials, including the appropriate State Attorneys General, of any final decision that an organization which claims to be a church is not entitled to initial or continuing qualification as an organization described in IRC 501(c)(3).

Time Limits

  1. The church tax inquiry period must last a minimum of 15 calendar days from the date the notice is mailed but must be concluded within 90 calendar days from the date the church tax inquiry is mailed. The period is counted from the day after the day the notice is mailed; e.g., if the notice is mailed on November 1, day one of the church tax inquiry period is November 2. If the IRS doesn’t conclude the church tax inquiry by the 90th calendar day - by sending a notice of examination or issuing a final determination letter - the inquiry must be terminated with no change to the organization.

  2. A church examination may not begin until at least 15 calendar days after the mailing of the notice of examination and after the conference, if one is requested before the examination. A final determination, 90-day letter, or final adverse determination letter must be issued within two years from the issuance of the notice of examination.

Suspension of Time Limits

  1. The running of the 90-day time period in which the IRS must issue a notice of examination and the two-year period in which the IRS has to make a final determination is suspended under the following conditions:

    1. A judicial proceeding is brought by the organization against the IRS concerning a church tax inquiry or examination that is pending or being appealed, or

    2. A judicial proceeding brought by the IRS against the organization or any official of the organization to compel compliance with any reasonable request of the IRS for examination of church records or religious activities is pending or being appealed, or

    3. The IRS is unable to take action with respect to a church tax inquiry or examination because of an order issued in a judicial proceeding brought under IRC 7609, or

    4. The IRS and the church have agreed to a suspension of the 90-day or two-year period.

  2. IRC 7611(c)(2)(C) provides direct authority for obtaining a consensual extension of time for either the 90 calendar day inquiry period or the two-year examination period. If it becomes necessary to obtain an extension, the IRS should prepare a special consent form.

  3. See Exhibit 4.75.39-11, Consent to Suspend the Period to Conduct a Church Tax Inquiry, and Exhibit 4.75.39-12, Consent to Suspend the Period to Conduct a Church Tax Examination, which contain sample language for a consent to suspend the period to conduct an IRC 7611 inquiry or examination. The Designated Official or his/her delegate no lower than the group manager may execute the consent. Because IRC 7611 contains special limitations, use of the standard Form 872 or Form 872-A is not suitable for purposes of extending the IRC 7611 periods. Use the letter in Exhibit 4.75.39-14, Suspension Consent Request Cover Letter, to solicit an extension. Use the letter in Exhibit 4.75.39-15, Executed Suspension Consent Cover Letter, to send the executed consent back to the organization.

  4. IRC 7611(c)(2)(B) provides that the two-year time limitation on church examinations is suspended for any period in excess of 20 days but not in excess of six months, provided that the church fails to comply with any reasonable request for church records or other information. In such case, the two-year period for conducting an examination shall be suspended after the 20th day of the failure, but the suspension shall not last more than six months from the beginning of the refusal. This suspension provision doesn’t apply to the 90-day period for completing a church tax inquiry so a refusal by the organization to answer questions should cause the examiner to prepare a notice of examination. The examiner shouldn’t wait six months to issue a summons for the requested information that church officials refuse to provide. The examiner should prepare a summons and forward it to Area Counsel for review as soon as circumstances indicate that the church will not voluntarily provide the information requested.

  5. Usually, the examiner should send a follow-up letter to the organization if it has not responded to the request at the end of the 20-day period following an unanswered information request. This notifies the organization of the suspension of the examination time-period. It is especially important to send such a letter if the organization responds to the information request but refuses to provide all of the information requested. See Exhibit 4.75.39-13, Notice of Suspension of 2-Year Period - Delays in Church’s Response, which provides a sample of the language to be included in this letter.

  6. No extension of the two-year period is allowed by reason of a stay of summons proceedings against the church resulting from the IRS’s noncompliance with IRC 7611 procedures.

Limitation on Years Subject to Examination

  1. The statute of limitation periods under subchapter A of Chapter 66 (relating to limitations on assessment and collection) apply to church examinations except for the situations in the succeeding paragraphs below.

  2. If the organization hasn’t filed a return, an examination concerning exempt status is limited to the three completed tax-years immediately preceding the date of issuance of the notice of examination. The IRS may add an additional three years to this period if the organization isn’t exempt for any year of the three-year period immediately preceding the issuance year of the notice of examination, so that the examination may cover a six-year period immediately preceding the year of issuance of the notice of examination. Examination of additional years doesn’t extend the two-year period, for completing the examination. The IRS may examine church records of a year earlier than the third or sixth completed taxable year only to the extent relevant to a determination of tax-exempt status during the three or six year period.

  3. For purposes of examining church records for the additional three years, a church is considered not to be exempt for any of the three most recently completed taxable years preceding the examination notice date when the Designated Official, without delegation to a subordinate official, agrees in writing with the findings of the examiner that the church isn’t exempt for any one of the three most recently completed taxable years. Consultation with Area Counsel is advisable before forwarding a request to the Designated Official for concurrence. The examiner will set forth his findings for the three most recently completed taxable years in a summary report and forward it to the Designated Official through the Group Manager and the Area Manager, with a recommendation for expansion of the examination to six years. This report isn’t a final adverse determination. The declaratory judgment procedures under IRC 7428, therefore, will not be available to the church until the IRS makes a final adverse determination (which includes a final revenue agent’s report and a 90 day letter) with respect to the expanded six-year examination.

  4. If the organization hasn’t filed a return and the examination concerns unrelated business income tax under IRC 511, the IRS may assess or collect tax for the six most recently completed taxable years preceding the date on which the notice of examination is sent. The IRS may examine church records of a year earlier than the sixth year only to the extent relevant to a determination of unrelated business income tax liability during the six-year period.

  5. For examinations involving issues other than revocation of exempt status or unrelated business income; for example, examinations relating to social security or other employment taxes, no limitation period applies if the church didn’t file a return.

Non-Compliance by IRS with Church Examination Procedures

  1. If the IRS hasn’t substantially complied with the church examination procedures, a summons enforcement proceeding brought by the IRS to gain access to church records may be stayed by the Court until the IRS complies with IRC 7611 procedures.

  2. The IRS has not complied with the church examination procedures when the non-compliance is substantial and relates to either of the following:

    1. The requirements relating to the Notice of Church Tax Inquiry and the Notice of Church Tax Examination

    2. The requirement that the Designated Official approve the commencement of a church tax inquiry

    3. The requirement that an offer of a conference with the church be made and held if requested

  3. The two-year period for completing a church examination will not be suspended during stays of summons proceedings resulting from violations described in the preceding paragraph above.

  4. In determining whether a stay is necessary, a court will consider the good faith effort of the IRS and the effect of any failure to comply with church examination procedures.

  5. There is no remedy, other than a stay of IRS summons enforcement action, for IRS non-compliance with the procedures of IRC 7611. Division Counsel, however, may not approve final adverse actions resulting from a church tax examination unless there has been substantial compliance with the IRC 7611 requirements.

Limitations on Additional Inquiries and Examinations

  1. The IRS can’t begin a subsequent church tax inquiry or examination of a church for a five-year period unless the previous examination resulted in a revocation, notice of deficiency or an assessment, or a request for a significant change in church operations, including a significant change in accounting practices.

  2. The five-year limitation period referred to above begins the date the notice of examination was mailed to the church in connection with a previous examination. If the IRS previously issued a church tax inquiry notice, but didn’t proceed to issue a notice of examination, the five-year limitation period begins on the date the notice of inquiry was mailed. If the 90-day period or the two-year period was suspended in the earlier inquiry or examination, the five-year limitation period is extended for a time equal to the length of the earlier suspension, unless the prior examination was actually concluded within two years of the notice of examination.

  3. The five-year limitation on a church tax inquiry or examination doesn’t apply under the following conditions:

    1. Written approval is obtained from the Commissioner Tax Exempt and Government Entities, or

    2. The issues involved aren’t the same as or similar to the issues involved in the previous inquiry or examination. A determination of similarity of issues depends on the substance rather than legal classification.

      Example:

      Unrelated business income from a different source will be considered as involving a different issue.

Coordination of IRC § 170(c) Deduction Cases

  1. In IRC 170(c) cases in which the issue is whether the taxpayer made claimed contributions, or made them with the expectation of receiving benefits in return, other operating divisions can, without following the restrictions of IRC 7611, examine church records to the extent needed to allow or disallow the contribution deduction. IRC 7611(i)(2) specifically provides that the restrictions don’t apply to any inquiry or examination relating to the tax liability of any person other than a church. Such an examination is limited to the determination of facts and circumstances specifically relating to the tax liabilities of the person in question. Other operating divisions may provide EO Referrals with an information referral, but EO Referrals need not take action unless, in its judgment, a church tax inquiry and examination is needed to address IRS concerns.

  2. If another operating division proposes to disallow an IRC 170 deduction on the grounds that the donee organization isn’t described in IRC 170(c), it will make a referral to the Manager, EO Referrals. A classifier will review the referral to determine if the information supports a reasonable belief that the organization may not be tax exempt as a church. If the information doesn’t support a reasonable belief that the organization may not be tax exempt as a church, EO Referrals will advise the operating division that the information isn’t sufficient to initiate a church tax inquiry and the deduction should not be disallowed on the basis that the organization isn’t described in IRC 170(c).

  3. In some instances, an individual may claim that he or she is entitled to the parsonage allowance exclusion from income under IRC 107. In such cases, if another operating division determines the individual hasn’t performed services that are ordinarily the duties of a minister of the gospel, it will not be necessary for EO Examinations to examine the church. However, if another operating division considers an examination of the church is necessary to determine whether the individual did perform services in accordance with the tenets and practices of the church, the operating division will make a referral to the Manager, EO Referrals. A classifier will review the referral to determine if the information supports a reasonable belief that the organization may not be tax-exempt as a church necessary to initiate a church tax inquiry under IRC 7611. If the information in the referral doesn’t support the reasonable belief requirement, EO Referrals will advise the operating division making the referral that it doesn’t have a basis to initiate action.

  4. Representatives from other operating divisions may conduct periodic meetings to discuss developments in the program relating to examination of alleged churches and related individuals and to discuss problems that arise. EO representatives should attend, when asked.

  5. An individual may claim a charitable contribution deduction to a church that the IRS has not recognized as tax exempt. Such deduction is not barred solely because the church has never applied for recognition of exempt status. Similarly, when an organization has applied but has not provided the IRS with sufficient information upon which to make a favorable determination of exempt status, a charitable deduction is not automatically barred.

  6. See also IRM 4.75.39.7.2, Church Information Referrals.

Legal Considerations

  1. To be recognized as a religious organization described in IRC 501(c)(3), an organization must establish that it is in fact "religious" ; that it is organized and operated in conformity with the basic principles of charity law; and that it doesn’t violate any of the specific prohibitions of IRC 501(c)(3) and the regulations thereunder. An organization will be considered "religious" only if its members have a sincere and meaningful belief in whatever doctrine is espoused, and this belief occupies in the lives of those members a place parallel to that filled by God in the lives of traditionally religious persons. Under the First Amendment, the IRS is precluded from considering the content or sources of a doctrine which is alleged to constitute a particular religion, and can make no attempt to evaluate the content of whatever doctrine a particular organization claims is religious. However, a mere allegation that a specific doctrine is religious isn’t sufficient to warrant that doctrine’s designation as a religion.

  2. When examining a church, examiners should be alert for evidence that income assigned to the church or order by an individual has been set aside for, or used for, the benefit and enjoyment of the individual. Such evidence could indicate inurement of the organization’s earnings or private benefit, and would be relevant not only to the issue of exempt status under IRC 501(c)(3) and the deductibility of the assigned income under IRC 170, but, also, the possibility of an excess benefit transaction with a disqualified person under IRC 4958.

  3. Rev. Rul. 78-232, 1978-1 C.B. 69, provides that an individual who claims to be a minister, organizes a church, deposits salary checks for salary earned from outside employment in the church’s bank account, and uses the funds of the account for lodging, food, clothing and other living expenses, is not entitled to a charitable deduction under IRC 170 for the amount of the salary checks. Under the circumstances described, allowance of a charitable deduction was precluded not only because the benefits which the donor reasonably expected to obtain by making the transfer were sufficiently substantial to provide a quid pro quo for it, but also because the donee "church" was not a qualified recipient under IRC 170(c)(2). The facts of the case indicated that the donee organization was operated for the private purposes of the taxpayer, rather than for exclusively exempt purposes, as required by the statute. Furthermore, since funds of the donee organization were used by or on behalf of the taxpayer, there was inurement of the type proscribed by the statute.

  4. Rev. Rul. 69-266, 1969-1 C.B. 151, similarly provides that an organization formed and operated by its creator essentially as an attempt to reduce his/her personal Federal income tax liability while still enjoying the benefits of his/her earnings, is not exempt under IRC 501(c)(3). Like the recipient church in Rev. Rul. 78-232, supra, the organization was operated for a private purpose, rather than for exclusively exempt purposes.

Church Related Private School Examinations

  1. If the church-related private school is a separate legal entity, the pre-examination procedures and the advance approval and notification procedures of this IRM won’t apply. If the school actually claims to be a church, the IRS must follow IRC 7611 procedures.

Pre-examination Letter Requirements

  1. In accordance with the pre-examination procedures of IRM 4.75.10, except as modified here, the examiner will send the school a pre-examination letter requesting, at a minimum, the specific information listed in the next paragraph below. The letter should also refer to the following:

    1. Rev. Rul. 75-231, 1975-1 C.B. 158, setting forth the IRS’s position that organizations, including churches, which operate schools must have a racially nondiscriminatory policy as to students to be recognized as exempt from Federal income tax.

    2. Rev. Proc. 75-50, 1975-2 C.B. 587, providing guidelines and record keeping requirements for determining whether private schools have racially nondiscriminatory policies as to students.

    3. That the purpose of requesting the specified information is to ascertain whether an examination is necessary in order to determine compliance with Rev. Rul. 75-231 and Rev. Proc. 75-50.

    4. That the information is being requested in accordance with the procedures specified in Treas. Reg. § 301.7605-1(c)(2). These procedures provide, in part, that before concluding that an examination is necessary, the IRS will attempt to obtain necessary information by written request to the organization.

  2. At a minimum, in the pre-examination letter the examiner will request sufficient information to determine if the school is in compliance with Rev. Rul. 75-231 and Rev. Proc. 75-50. The examiner should request the following specific information in the pre-examination letter.

    1. Does the school have a racially and ethnically nondiscriminatory policy as to students by statement in its charter, bylaws, resolution of its governing body, or other governing instrument? If "Yes," in what document is the statement made and what is the specific language of the statement? If "No," explain.

    2. Has the school publicized its racially and ethnically nondiscriminatory policy during the periods of solicitation for students or, in the absence of such a program, during registration periods in a manner that makes such policy known to all segments of the general community served by the school? If "Yes," describe. Also, if the school publicized the policy in one or more newspaper advertisements, furnish a copy of the most recent advertisement. If the school didn’t publicize its racially and ethnically nondiscriminatory policy, explain.

    3. Does the school include a statement of its racially and ethnically nondiscriminatory policy in all brochures and catalogues dealing with student admissions, programs, and scholarships, and include a reference to this policy in other written advertisements, including its web site, used to inform prospective students of its programs? If "Yes," submit all brochures, catalogues and other written advertisements used during the last academic year if the school isn’t currently in session or for the present academic year if the school is currently in session. If "No," explain.

    4. Is the school affiliated with, related to, or directly controlled or supervised by a church, or a convention or an association of churches? If "Yes," is the school separately incorporated?

    5. Does the school discriminate in any way on the basis of race or ethnic origin with respect to students’ rights or privileges, admissions policies, employment of faculty or administrative staff, scholarships or other financial assistance, educational policies, use of facilities, athletic programs, or other extra-curricular activities? If "Yes," to any of the foregoing, explain. If "No," to any of the foregoing, describe the action if any that supports such conclusion.

    6. Does the school receive any financial aid or assistance from a governmental agency? Has the school’s right to such aid ever been revoked or suspended? If "Yes," to either of the foregoing, explain.

    7. Does the school maintain the following: records indicating the racial/ethnic composition of its student body, faculty, and administrative staff; records sufficient to document that scholarship and other financial assistance is awarded on a racially and ethnically nondiscriminatory basis; copies of all catalogues, brochures, and advertising dealing with student admissions, programs, and scholarships; and copies of all materials used by or on behalf of the school to solicit contributions? If "No," to any of the foregoing, explain.

    8. Submit representative copies of all materials used to solicit contributions during the last academic year if the school isn’t currently in session or during the present academic year if the school is currently in session.

    9. Have any statements been made after November 6, 1975, purporting to be on behalf of the school, which are contrary to the school’s publicity of a racially and ethnically nondiscriminatory policy as to students? If Yes, has the school publicly disavowed or repudiated such statements, to the extent that the school or its principal officials were aware of such statements? Explain.

    10. Provide data showing the racial and ethnic composition of enrolled students, faculty, and administrative staff at the close of the last academic year, if the school isn’t currently in session, or for the start of the present academic year, if the school is currently in session.

    11. Provide data showing the racial and ethnic composition of enrolled students who have received scholarship and loan funds, and the amount of such scholarship and loan funds. (This data may be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty or administrative staff to submit information to the school that the school otherwise doesn’t require).

      Note:

      To the extent that any of these categories of information have been included in a report(s) filed with an agency or agencies of Federal, State or local Government, copies of such report(s) will be acceptable if current within one year. Describe the method by which racial/ethnic composition is determined for the school records or governmental report purposes.

Completion of Pre-examination

  1. Upon completion of the pre-examination procedures, the IRS will furnish the organization an appropriate letter. If the organization has satisfactorily furnished the requested information and the examiner determines no examination is necessary, the examiner will draft a letter to the organization. The letter will state that the IRS has completed its inquiry, that it appears the school has complied with Rev. Rul. 75-231 and Rev. Proc. 75-50 and, therefore, no examination is necessary. If, however, the examiner determines an examination is necessary to determine compliance with Rev. Rul. 75-231 and. Rev Proc. 75-50, the examiner will follow the notice of examination procedures.

  2. In the case of church-related schools that aren’t separate legal entities, the examiner will generally limit the examination to determining whether the school’s operations comply with the racially nondiscriminatory requirements. Therefore, the examiner should also so limit the examination report. If questions arise about the issuance of the report, the examiner should request advice from Area Counsel.

  3. Church-related private school cases are not subject to mandatory review unless the case meets other mandatory review criteria, such as a revocation or a foundation reclassification.

Correspondence Rules

  1. A Notice of Church Tax Inquiry (NCTI) or a Notice of Church Tax Examination (NCTE) will require using Form 13044, Letterhead Stationery – TE/GE Stationery (Seal with Washington Address). There will be no letter number or correspondence catalog number at the bottom right corner of any letter using Form 13044 stationery. Also, strike the letter numbers in the body text of the NCTI and NCTE since the actual published versions of Letters 5307, 5308, and 5309 will be replaced by their modified versions using Form 13044 letterhead.

    Note:

    See Processing of Church Tax Inquiry Notice at Note in IRM 4.75.39.7.5 (3). See Follow-up on Church Tax Inquiry Notice at IRM 4.75.39.7.7 (1). See Preparing the Notice of Examination at Note in IRM 4.75.39.8.1 (3)(a).

  2. All other correspondence will require using standard EO Examination letterhead. Inquiry and Examination closing letters must also bear the signature block of the Director, EO Examinations. This includes no-change letters.

  3. Any shipping of a case file (administrative file) during a pre-issuance review and approval process of a church tax inquiry or examination must be made by overnight delivery. However, in certain cases a review and approval package alone can be sent internally via secure email if totally electronic, otherwise the review and approval package must also be shipped by overnight delivery.

IRC Section 7611 Church Case Time Limits and Approvals Cover Sheet

This is an Image: 70892001.gif
 

Please click here for the text description of the image.

Statement of Administrative and Constitutional Rights

The statement shown below is normally printed on one page in Arial 8 pt font or similar size.

Statement of Administrative and Constitutional Rights
The First Amendment of the Constitution provides that "Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof." The first clause is referred to as the Establishment Clause; the second is the Free Exercise Clause. The Establishment Clause prohibits government sponsorship of religion. Central to this prohibition are the concepts of government neutrality and the separation between church and state. The Supreme Court has held that the Free Exercise Clause of the First Amendment is an absolute prohibition against the regulation of religious beliefs. The First Amendment provides substantial protection for lawful conduct grounded on religious beliefs. However, the government may limit religiously motivated conduct when the limitation is essential to accomplish an overriding governmental interest. Section 7611 of the Internal Revenue Code (IRC) provides the following protections to organizations claiming to be churches or conventions or associations of churches:
1. The IRS may begin a church tax inquiry only if an appropriate high-level Treasury official reasonably believes, on the basis of facts and circumstances recorded in writing, that an organization claiming to be a church or convention or association of churches may not qualify for exemption, may be carrying on an unrelated trade or business (within the meaning of IRC § 513), may otherwise be engaged in taxable activities or may have entered into an IRC § 4958 excess benefit transaction with a disqualified person.
2. If the IRS begins a tax inquiry, it is required to provide the church written notice at the beginning of the inquiry. The Notice of Church Tax Inquiry must contain an explanation of the concerns that gave rise to the inquiry and the general subject matter of the inquiry. It must also contain an explanation of the provisions of the IRC that authorize the inquiry and a general explanation of applicable administrative and constitutional provisions with respect to the inquiry.
3. If the IRS wishes to examine a church's records or religious activities, the Secretary of the Treasury, or his or her delegate, must personally approve the examination and must provide an additional written notice (Notice of Church Examination) to the church at least 15 calendar days prior to the examination. At the same time the IRS gives notice to the church, the IRS must notify
IRS Counsel of the proposed examination. IRS Counsel is then allowed 15 days to file a non-binding advisory opinion about the examination. The Notice of Church Examination is required to include the following: a copy of the Notice of Church Tax Inquiry previously provided; a description of the church records and activities which the IRS wishes to examine; a copy of all documents collected or prepared by the IRS for use in the examination that are required to be disclosed under the Freedom of Information Act (5 U.S.C. 552) as supplemented by IRC § 6103; and an offer of a conference with the IRS to discuss the concerns which gave rise to the inquiry and the general subject matter of the inquiry prior to the examination. The IRS may send the Notice of Church Examination to the church no less than 15 days after the Notice of Church Tax Inquiry. However, the IRS must generally mail the Notice of Church Examination, within 90 days after the Notice of Church Tax Inquiry or the IRS is required to end the inquiry without change to the church's tax status.
4. Failure of the IRS to substantially comply with the above requirements may result in a stay of summons enforcement proceedings to gain access to church records until the requirements are satisfied.
5. The IRS is generally required to complete any church tax inquiry or examination no later than two years after the date on which the Notice of Church Examination was mailed to the church. The two-year period may be extended by mutual agreement between the church and the IRS. It is also suspended during certain judicial proceedings and during any period in excess of 20 days but not in excess of six months, during which a church or its agents fail to comply with any reasonable IRS request for church records or other information. However, in the case of a church tax inquiry in which there is no Notice of Church Examination, the IRS is generally required to complete the inquiry within 90 days after the date on which the Notice of Church Tax Inquiry was mailed to the church.
6. The IRS is limited initially to an examination of church records relevant to the church's tax-exempt status for the three most recently completed tax years preceding the date of the Notice of Church Examination. If the church is not exempt for any of those three years, the IRS
may examine relevant records for the six completed tax years immediately preceding the Notice of Church Examination. The IRS may examine church records of a year earlier than the third or sixth completed taxable years if material to a determination of tax-exempt status during the three or six-year period. For examinations relating to unrelated business taxable income, when no return is filed, the IRS may assess tax for the six most recently completed taxable years preceding the date of the Notice of Church Examination. The IRS may examine church records of a year earlier than the sixth year if material to a determination of unrelated business income tax liability during the six-year period. For examinations involving issues other than determination of exempt status or unrelated business income tax liability, there is no limit on the taxable periods that may be examined if no return has been filed. If a church has filed a tax return, the normal rules for determining tax liability or assessing tax apply.
7. IRS Counsel must approve, in writing, an adverse determination concerning the tax-exempt status of an organization claiming to be a church, an adverse determination concerning the right of an organization claiming to be a church to receive tax deductible contributions, or the issuance of a notice of tax deficiency to a church or disqualified person subject to IRC § 4958 tax following a church tax examination.
8. An organization claiming to be a church is entitled to bring a declaratory judgment action under IRC § 7428 once the IRS issues a revenue agent's final report revoking or denying the church's tax exempt status.
9. An inquiry or examination begun within five years of the date of the Notice of Church Examination (or if no Notice of Church Examination is sent, a Notice of Church Tax Inquiry), must be approved by the Secretary of the Treasury, or his or her delegate. This approval is not required if the second examination does not involve the same or similar issues as the preceding inquiry or examination or if the first inquiry or examination resulted in a change to the organization's exempt status, an assessment of unrelated business income tax or other tax, or a recommendation for a substantive change in the church's operations, including accounting practices.

Memo to Area Counsel – Request Review of Notice of Church Tax Inquiry or Examination

[Use Standard EO Examinations letterhead from Letter 3609]
Date:
MEMORANDUM FOR: YOUR AREA COUNSEL
FROM: [Insert name]
[Insert title]
Subject: Request for Review and Approval of Notice of Church Tax [Inquiry/Examination] [(NCTI)/(NCTE)] for [Insert name and EIN of Church]
[SELECTABLE PARAGRAPH – INQUIRIES ONLY] You should have received or will soon be receiving the case file for the organization listed above.
I am requesting Area Counsel to provide an advisory memorandum on whether the attached proposed [NCTI / NCTE] satisfies the requirements of [IRC 7611(a)(3)(B) for church tax inquiries / IRC 7611(b)(3)(A) for church tax examinations].
We also request your opinion whether we have demonstrated a sufficient basis to satisfy the reasonable belief standard of IRC 7611(a)(2).
If we have satisfied both these requirements, we request your concurrence on whether we should proceed with a church tax [inquiry / examination]. Also, please indicate your approval (concurrence) of the [inquiry / examination] on the attached "Approval Cover Sheet."
You can:
  • Concur with issuing an [NCTI / NCTE] without comment.

  • Concur with issuing an [NCTI / NCTE], with comments.

  • Not concur with issuing the [NCTI / NCTE] because changes are required, stating the changes.

  • Not concur with conducting a church tax [inquiry / examination] at all, stating your reasons.

Our reasons for the church tax [inquiry / examination] are [ ].
[SELECTABLE PARAGRAPH – INQUIRIES ONLY] The information upon which the decision to initiate an inquiry is based on [ ].
[SELECTABLE PARAGRAPH – INQUIRIES ONLY] The specific IRC sections and regulations considered are [ ].
[SELECTABLE PARAGRAPH – INQUIRIES ONLY] The information relied on for the proposed inquiry was obtained in the following manner: [ ]
Please provide your advisory memo with a cc to the individuals listed below within [ ] calendar days from the date of this memo. I will schedule a conference in the interim to discuss proceeding with a church tax [inquiry, inquiry questions, the written reasons for our inquiry / examination and the content of the NCTE], or any other matter pertinent to the case.
Should you have any questions or concerns regarding this case, please contact me at [insert telephone number].
ATTACHMENTS: [Notice of Church Tax Inquiry / Notice of Church Tax Examination] and attachments
cc Group Manager
Area Manager
Church Tax Coordinator
Manager FSL/ET

Memorandum to Division Counsel - Transmittal of Notice of Church Tax Examination

This memo will be sent to Division Counsel along with its attachments on the same day of issuing the Notice of Church Tax Examination (NCTE) to the church.

DEPARTMENT OF THE TREASURY
Internal Revenue Service
Washington, D.C. 20224
[Enter Same Date or a later date of the NCTE]:
MEMORANDUM FOR: [Insert name]
Division Counsel
From: [Insert name]
[Insert title of Designated Official]
Subject: Copy of Church Notice of Examination Issued to [Insert name and EIN of Church]
Attached is a copy of the examination notice, as described in IRC section 7611(b), that we will issue to the above organization on [insert same date or later date]. While Area Counsel has reviewed and approved the attached examination notice, we are providing you a copy in accordance with IRC section 7611(b)(2)(A).
We believe an examination is necessary because [insert explanation].
If you have any objections to this examination, please provide an advisory opinion within 15 calendar days from the date of the notice of examination letter, as provided in IRC section 7611(b)(3)(C).
Should you have any questions or concerns regarding this notice of examination, please contact me at [insert designated official’s telephone number].
Attachments (3)

Examined No Change or Advisory Letter – Recognized Church

[Use Standard EO Examinations letterhead from Letter 3609]
[Convert template Letter 3609 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
Refer reply to:
[Insert mail symbols]
CERTIFIED MAIL
Dear [enter Salutation]:
We recently examined your records and activities for the period [insert period], as authorized by section 7611 of the Internal Revenue Code (IRC). Our examination was prompted by [insert general description of area of concern that caused the church tax inquiry].
As a result of our examination, we have determined that your activities continue to meet the requirements of IRC section 501(c)(3) and you continue to qualify as an organization exempt from Federal income tax under that section.
[SELECTABLE PARAGRAPH – ADVISORIES ONLY]
Although your exempt status under section 501(c)(3) remains unchanged, the following activities or operations, if enlarged, may jeopardize your exemption: [Specify Activities]
[SELECTABLE PARAGRAPH – ADVISORIES ONLY]
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, we will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.
To receive the Exempt Organizations' EO Update, an electronic newsletter with information for tax-exempt organizations and tax practitioners, go to www.irs.gov/charities and click on "Free e-Newsletter."
If you have questions, you can contact the person listed at the top of this letter.
  Sincerely,
   
  Director’s name
Director, Exempt Organizations Examinations
[SELECTABLE – ADVISORIES ONLY]
Addendum
 

Examined No Change or Advisory Letter – Unrecognized Church

[Use Standard EO Examinations letterhead from Letter 3609]
[Convert template Letter 3609 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
Refer reply to:
[Insert mail symbols]
CERTIFIED MAIL
Dear [enter Salutation]:
We recently examined your records and activities for the period [insert period], as authorized by section 7611 of the Internal Revenue Code (IRC). Our concerns were caused by [insert general description of area of concern that caused the church tax inquiry].
As a result of our examination, we have determined that your activities for the period were such that you were not subject to Federal income tax. Churches are not required to file for exemption from Federal income taxes. However, should you want to be recognized as exempt from federal income tax and provide advance assurance of deductibility for your contributors, you should file a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. You can get this form and instructions for completing it from any Internal Revenue office. You can also download the form and instructions by visiting www.irs.gov/eo.
[SELECTABLE PARAGRAPH – ADVISORIES ONLY]
Although we determined that you were not subject to Federal income tax for the period, the following activities or operations, if enlarged, may subject you to Federal income tax: [Specify activities]
[SELECTABLE PARAGRAPH – ADVISORIES ONLY]
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, we will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.
To receive the Exempt Organizations' EO Update, an electronic newsletter with information for tax-exempt organizations and tax practitioners, go to www.irs.gov/charities and click on "Free e-Newsletter."
If you have questions, you can contact the person listed at the top of this letter.
  Sincerely,
   
  Director’s name
Director, Exempt Organizations Examinations
[SELECTABLE – ADVISORIES ONLY]
Addendum
 

Non-Examined No Change or Advisory Letter – Recognized Church

[Use Standard EO Examinations letterhead from Letter 3609]
[Convert template Letter 3609 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
Refer reply to:
[Insert mail symbols]
CERTIFIED MAIL
Dear [enter Salutation]:
Thank you for providing information about your organization’s activities during the period [insert period] in response to our recent church tax inquiry concerning [insert general description of area of concern that caused the church tax inquiry].
[SELECTIVE PARAGRAPH – INQUIRY REGARDING QUALIFICATION FOR EXEMPT STATUS]
We used the information you provided to determine whether you meet the requirements for exemption from Federal income tax. We determined that you continue to qualify as an organization exempt from Federal income tax under IRC section 501(c)(3).
[SELECTIVE PARAGRAPH – INQUIRY OF FORM 990-T RELATED TO A CHURCH]
We [also] used the information you provided to determine your liability for unrelated business income tax under IRC sections 511 through 514. We determined that your Form 990-T, Exempt Organization Business Income Tax Return, correctly reflects your tax liability, and it is, therefore, accepted as filed.
[SELECTIVE PARAGRAPH – ADVISORIES ONLY]
Although your exempt status under section 501(c)(3) remains unchanged, the following activities or operations, if enlarged, may jeopardize your exemption: [Specify activities]
[SELECTABLE PARAGRAPH – ADVISORIES ONLY]
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, we will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.
To receive the Exempt Organizations' EO Update, an electronic newsletter with information for tax-exempt organizations and tax practitioners, go to www.irs.gov/charities and click on "Free e-Newsletter."
If you have questions, you can contact the person listed at the top of this letter.
  Sincerely,
   
  Director’s name
Director, Exempt Organizations Examinations
[SELECTABLE – ADVISORIES ONLY]
Addendum
 

Non-Examined No Change Letter – Unrecognized Church

[Use Standard EO Examinations letterhead from Letter 3609]
[Convert template Letter 3609 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
Refer reply to:
[Insert mail symbols]
CERTIFIED MAIL
Dear [enter Salutation]:
Thank you for providing information about your organization’s activities during the period [insert period] in response to our church tax inquiry under section 7611 of the Internal Revenue Code (IRC). The basis for our concern is [insert general description of area of concern that caused the church tax inquiry].
[SELECTIVE PARAGRAPH – INQUIRY REGARDING QUALIFICATION FOR EXEMPT STATUS]
On reviewing the information you provided, we determined that your activities for the period were such that you are not subject to Federal income tax. Churches are not required to file for exemption from Federal income taxes. However, should you want to be recognized as exempt from federal income tax and provide advance assurance of deductibility for your contributors, you should file a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. You can get this form and instructions for completing it from any Internal Revenue office. You can also download the form and instructions by visiting www.irs.gov/eo.
[SELECTIVE PARAGRAPH – INQUIRY OF FORM 990-T RELATED TO A CHURCH]
We [also] used the information you provided to determine your unrelated business income tax under IRC sections 511 through 514. We determined from our review that your Form 990-T, Exempt Organization Business Income Tax Return, correctly reflects your tax liability, and it is therefore accepted as filed.
To receive the Exempt Organizations' EO Update, an electronic newsletter with information for tax-exempt organizations and tax practitioners, go to www.irs.gov/charities and click on "Free e-Newsletter."
If you have questions, you can contact the person listed at the top of this letter.
  Sincerely,
   
  Director’s name
Director, Exempt Organizations Examinations
[SELECTABLE – ADVISORIES ONLY]
Addendum
 

Exam Not Completed in Two-Year Period – Recognized Church

[Use Standard EO Examinations letterhead from Letter 3609]
[Convert template Letter 3609 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
Refer reply to:
[Insert mail symbols]
CERTIFIED MAIL
Dear [enter Salutation]:
In accordance with section 7611 of the Internal Revenue Code (IRC), we have concluded our examination of your records and activities for the period [insert period]. Our concerns that led to the examination were caused by [insert general description of concerns that led to church tax inquiry].
Because we were unable to complete our examination within the two-year period provided by IRC section 7611(c)(1)(A), there is no change in your [insert tax or tax-exempt status that was the focus of the examination].
[SELECTABLE PARAGRAPH – ADVISORIES ONLY]
Although your exempt status under section 501(c)(3) remains unchanged, the following activities or operations, may jeopardize your exemption: [Specify the unresolved issues or activities]
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, we will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.
To receive the Exempt Organizations' EO Update, an electronic newsletter with information for tax-exempt organizations and tax practitioners, go to www.irs.gov/charities and click on "Free e-Newsletter."
If you have questions, you can contact the person listed at the top of this letter.
  Sincerely,
   
  Director’s name
Director, Exempt Organizations Examinations
[SELECTABLE – ADVISORIES ONLY]
Addendum
 

Exam Not Completed in Two-Year Period – Unrecognized Church

[Use Standard EO Examinations letterhead from Letter 3609]
[Convert template Letter 3609 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
Refer reply to:
[Insert mail symbols]
CERTIFIED MAIL
Dear [enter Salutation]:
In accordance with section 7611 of the Internal Revenue Code (IRC), we have concluded our examination of your records and activities for the period [insert period]. Our concerns that led to the examination were caused by [insert general description of concerns that led to church tax inquiry].
Because we were unable to complete our examination within the two-year period provided by IRC section 7611(c)(1)(A) there is no change in your tax liability. Churches are not required to file for exemption from Federal income taxes. However, should you want to be recognized as exempt from federal income tax and provide advance assurance of deductibility for your contributors, you should file a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. You can get this form and instructions for completing it from any Internal Revenue office. You can also download the form and instructions by visiting This is the link to the landing page for Exempt Organizations, charities and non-profit organizations at irs.gov.
[SELECTABLE PARAGRAPH – ADVISORIES ONLY]
Although we did not change your tax liability for the period, the following activities or operations, if enlarged, may subject you to Federal income tax: [Specify Activities]
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, we will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.
To receive the Exempt Organizations' EO Update, an electronic newsletter with information for tax-exempt organizations and tax practitioners, go to www.irs.gov/charities and click on "Free e-Newsletter."
If you have questions, you can contact the person listed at the top of this letter.
  Sincerely,
   
  Director’s name
Director, Exempt Organizations Examinations
[SELECTABLE – ADVISORIES ONLY]
Addendum
 

Consent to Suspend the Period to Conduct a Church Tax Inquiry

DEPARTMENT OF THE TREASURY
Internal Revenue Service
Washington, D.C. 20224
Date:
 
Consent to Suspend the Period to Conduct a Church Tax Inquiry
[Insert Name of Organization], an organization recognized as a church or a convention or association of churches, or that claims to be a church, and the Internal Revenue Service, by [insert Authorized Official] mutually agree, as provided in section 7611(c)(2)(C) of the Internal Revenue Service of 1986, to suspend the running of the 90-day period provided in IRC 7611(c)(1)(B), for completing the church tax inquiry which began on [insert examination notice date] and expires on [insert expiration date].
The IRC section 7611(c)(1)(B) 90-day period shall be suspended pursuant to IRC section 7611(c)(2)(C) from the date an authorized representative of the [insert name of church] executes this consent until [insert suspense expiration date].
Unless further extended by mutual agreement of the parties or unless otherwise extended as provided by IRC 7611(c)(2), the 90-day period for completing this church tax inquiry will expire on [insert new expiration date].
By signing this agreement, the signatories represent that they possess the authority to bind the terms set forth herein.
_
Name of Organization
_ _ _
By Authorized Official Title Date
Internal Revenue Service
_ _ _
By Authorized Official Title Date

The authorization for executing this consent on behalf of the IRS is delegated to group managers, EO Examinations (Tax Exempt and Government Entities (TE/GE)). See IRM 1.2.46.4, Delegation Order 7-3 (formerly DO-137, Rev. 3).

Consent to Suspend the Period to Conduct a Church Tax Examination

DEPARTMENT OF THE TREASURY
Internal Revenue Service
Washington, D.C. 20224
Date:
 
Consent to Suspend the Period to Conduct a Church Tax Examination
[Insert Name of Organization], an organization recognized as a church or a convention or association of churches, or that claims to be a church, and the Internal Revenue Service, by [insert Authorized Official] mutually agree, as provided in section 7611(c)(2)(C) of the Internal Revenue Service of 1986, to suspend the running of the two-year period provided in IRC 7611(c)(1)(A), for completing the church tax examination which began on [insert examination notice date] and expires on [insert expiration date].
The IRC section 7611(c)(1)(A) two year period shall be suspended pursuant to IRC section 7611(c)(2)(C) from the date an authorized representative of the [insert name of church] executes this consent until [insert suspense expiration date].
Unless further extended by mutual agreement of the parties or unless otherwise extended as provided by IRC 7611(c)(2), the two year period for completing this church tax examination will expire on [insert new expiration date].
By signing this agreement, the signatories represent that they possess the authority to bind the terms set forth herein.
_
Name of Organization
_ _ _
By Authorized Official Title Date
Internal Revenue Service
_ _ _
By Authorized Official Title Date

The authorization for executing this consent on behalf of the IRS is delegated to group managers, EO Examinations (Tax Exempt and Government Entities (TE/GE)). See IRM 1.2.46.4, Delegation Order 7-3 (formerly DO-137, Rev. 3).

Notice of Suspension of 2-Year Period - Delays in Church’s Response

[Use Standard EO Examinations letterhead from Letter 3598]
[Convert template Letter 3598 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
CERTIFIED MAIL
Dear [enter Salutation]:
On [insert date], in a telephone conversation between your representatives and [insert name of Examiner] of our office, you indicated that you would be unable to provide the documents and information we requested in writing by [insert date].
Section 7611(c)(1)(A) of the Internal Revenue Code (IRC) provides that the Internal Revenue Service must complete any church examination within two years of the examination notice date. IRC section 7611(c)(1)(B) provides that this two-year period is suspended for any period in excess of 20 days from the date of the request (but not in excess of six months) during which a church or its agents fail to comply with any reasonable request of the Service for church records or other information.
As of this date, you have not provided the requested documents and information to us. Because you have not provided the information within 20 days of [insert date], the two-year time limit for completing the examination set forth in IRC section 7611(c)(1)(A) is suspended, in accordance with IRC section 7611(c)(2)(B). This suspension of the two-year period became effective on the 21st day after the information document request date of [enter IDR date]. Therefore, the effective date of the suspension is [insert effective date of suspension].
If you have questions, you can contact the person listed at the top of this letter.
  Sincerely,
   
  [Insert Group Manager’s name]
Group Manager

Suspension Consent Request Cover Letter

[Use Standard EO Examinations letterhead from Letter 3600]
[Convert template Letter 3600 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
Response due date:
[Insert response due date]
CERTIFIED MAIL
Dear [enter Salutation]:
The [90-day / two-year] period provided in Internal Revenue Code [7611(c)(1)(B) / 7611(c)(1)(A)] for completing the church tax [inquiry / examination], which began on [date of inquiry /examination letter] will expire on [insert date]. We’re requesting your consent to suspend the running of the [90-day / two-year] period for completing the church tax [inquiry / examination] and to extend the date until [insert date].
We’re enclosing two (2) forms titled Consent to Suspend the Period to Conduct a Church Tax [Inquiry / Examination]. Please sign and return all forms in the enclosed envelope within five business days from the date of this letter. After we accept them, we'll return signed copies.
An officer of your organization, authorized power of attorney, or trustee that possesses the authority to bind the organization to the terms set forth in the enclosed forms must sign the forms. Before signing, you should understand your rights concerning the consents.
These rights include:
  1. You have the right to refuse to extend the [90-day inquiry / two-year examination] period.

  2. You have the right to request the suspension be limited to a specific date.

If you have questions, you can contact the person listed at the top of this letter.
Thank you for your cooperation.
  Sincerely,
   
  [Insert name of agent]
Internal Revenue Agent
Enclosures (1)  

Executed Suspension Consent Cover Letter

[Use Standard EO Examinations letterhead from Letter 3598]
[Convert template Letter 3598 to Word; edit to incorporate content below; delete letter number at bottom-right corner]
[This letter is issued by the Group]
  Date:
[Insert date]
Taxpayer ID Number:
[Insert number]
Form:
[Insert Form number]
Tax periods ended:
[Insert tax periods ended]
[Insert name of church]
[Insert care of name, if applicable]
[Insert first line of street address]
[Insert second line of street address, if applicable]
[Insert city, state, ZIP code]
Person to Contact / ID Number:
[Insert name]
Employee ID number: [Insert number]
Contact telephone number:
[Insert number]
Contact fax number:
[Insert fax number]
CERTIFIED MAIL
Dear [enter Salutation]:
We are enclosing a signed copy of the Consent to Suspend the Period to Conduct a Church Tax [Inquiry Examination] form for your records. The [90-day / two-year] period to conduct a church tax [inquiry / examination] is suspended until [insert expiration date]. Please keep it for your records.
If you have questions, you can contact the person listed at the top of this letter.
  Sincerely,
   
  [Insert name of agent]
Internal Revenue Agent
Enclosures (1)