Internal Revenue Service Auditing Churches –
Is Yours Next?
Many years ago, Churches never worried about intrusion from the Internal Revenue Service. For the most part the IRS never sought entrance to Church affairs. This has all changed. Churches are being audited by the thousands, with many being closed, and some Pastors and Church Leaders are facing incarceration.
Churches and Church leaders should be cognizant of the methods the IRS will use to review them. Should they walk in the door, be nice, and if you are not a Chitwood and Chitwood client, I suggest you have someone do some serious praying (not in earshot of the auditor). Our clients do not have to worry. We take care of everything.
IRS First Steps
The most common way for the Internal Revenue Service to review Church records is to schedule a Payroll Audit of your Church. Recent updated instructions were made available to IRS auditors by the IRS Small Business and Self-Employed Division. These instructions detail procedures and steps the auditors should take when performing the payroll tax audits. The Pastor and Church Leaders would be wise to avail themselves of these instructions, and the records and documents needed for the audit.
Most of the time the auditor will send a letter or call the Church with a list of items needed for a Limited Scope Audit. While in some instances the auditor may perform a Field Examination by directly showing up at the Church or scheduling a visit to the Church for an interview and to gather needed records.
Once the auditor receives the requested information, the first step is always the same. He or she will determine if the Church has filed all required information returns, such as W-2s, 1099s, and 941s. If these forms have not been properly and timely filed, the auditor will open a penalty case or a backup withholding case.
The next step the auditor will take is to ensure that all Social Security and Medicare (FICA) tax is calculated properly, paid, and reported. If there are any incorrect payments, they will be added to the audit finding for those years. Periods with unfiled returns will be added to the years under audit.
There is no Statute of Limitations for unfiled returns – the number of years that could be added to the audit is unlimited.
The auditor will also check to make sure that all required forms have been properly filed. This would include 941s, W-3s, W-2s, 1099s, 1096s, and possibly 990-Ts. The auditors will request that any unfiled returns be completed and filed, and then they will review those reports for large, unusual, or questionable items.
The auditors will verify that any taxes that have been withheld from the employees’ payroll checks have been promptly paid on time and correctly. Please understand that Churches are now subject to Electronic Filing Requirements (EFR). Those that have not yet enrolled should do so now in the Electronic Filing Tax Payment System (EFTPS) program. Do so immediately at www.irs.gov. This provides for an easy, fast payment process, and best of all the IRS sends immediate verification of receipt of payment.
The Audit Interview
The audit is not complete without an interview of the taxpayer, unless it is a Limited Scope Audit. If it is a Field Examination he or she must tour the facility and consider what penalties, if any apply.
This can easily be the most important part of the audit. In some instances, if the interview and review of the books determine that additional taxes and penalties are unlikely, the case is not worth pursuit. However, in some cases, the auditor may determine that the facts revealed warrant an expansion of the audit.
Why You Need Chitwood and Chitwood
Clients of Chitwood and Chitwood know that in the event of an audit – Limited Scope or Field Examination – the Church knows we handle the process. Once you become our client and provide us a Limited Power of Attorney for IRS purposes, the auditors will talk to us. After all, we would be the ones to know your books.
Pastors and Church Leaders, do not attempt this audit on your own. The IRS knows 100 Tricky Questions to ask you, and trust me you do not know the right answers. WE DO!
Pastors and Church Leaders should spend their energy and focus on winning the lost to Christ and ministering to the sick and needy – not trying to do Church books or dealing with complex tax issues!
You should call and retain us immediately – the IRS is not playing games! Call our office at 800-344-0076 and let us put your mind at ease or visit our website, www.cmtc.org and register for an upcoming Church Management Tax Conference in a city near you.
DON’T DELAY – DO IT NOW!
For Chitwood and Chitwood this is “A Ministry – Not A Job!”