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Doesn't the IRS usually have oversight over compliance with the law?

Yes. But, the IRS is an administrative agency, meaning that it enforces the laws that Congress enacts. The Constitution grants Congress broad authority to conduct investigations into the need for legislation.

When churches report information to the IRS, what do they report, and what is the IRS concerned about?

Churches report very little information to the IRS, other than compensation and withheld taxes (Forms W-2, 1099, 941, etc.). As I noted, churches are exempt from filing the annual information return (Form 990) that most other public charities are required to file with the IRS each year.

What kind of transparency is legally required of churches?

Very little. The constitutional guaranty of religious liberty has restrained Congress from requiring churches to comply with several laws that have been enacted to promote greater transparency by both for-profit and nonprofit organizations.

Where is the line between what a church can legally provide for its pastor, like a house, and what it cannot, presumably cosmetic surgery?

The tax code permits a church to provide compensation to its pastor in any amount, and in any form, so long as this is done consistently with the law. The main limitation is that a church, like any public charity exempt from federal taxation under section 501(c)(3) of the tax code, cannot pay unreasonable compensation to any staff member. Paying unreasonable compensation will jeopardize a church's tax-exempt status.

So a church could pay for cosmetic surgery for its pastor?

Yes, so long as the total amount of compensation paid to the pastor is reasonable in amount. The IRS cannot prescribe the form of compensation that a church pays its pastor. The First Amendment would prohibit this. The problem in these cases is that a church fails to report a taxable benefit as taxable income. This can lead to significant problems.

As you said, the Constitution gives churches broad freedom to operate. In your opinion, how much abuse of that freedom would justify Congress in requiring more financial transparency in church operations? Is this investigation a signal that some people are suspicious of the way churches have operated with little IRS oversight?

I am sure that some people are suspicious of church autonomy, but that's a consequence of the unique constitutional protections that churches enjoy. A few years ago, a proposal was made to eliminate the exemption of churches from the annual Form 990 reporting requirement that applies to most other charities. It got nowhere. Abuses by local churches would have to be widespread, persistent, and significant for Congress to even consider greater scrutiny. We are nowhere near that point. Televangelists are a different matter entirely, due to their high visibility, revenue, and the perceived abuses recounted in Senator Grassley's recent letters.

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CT's reports on the investigation include:

Praise and Dismay for Senate Scrutiny of Ministries' Finances | While some cheer inquiry into alleged misuses of church funds, others fear government intrusion. (Nov. 6, 2007)

Senate Committee Investigating Six Major Ministries | Sen. Grassley probes "possible misuse of donations" to Benny Hinn, Joyce Meyer, and others. (Nov. 6, 2007)

Joyce Meyer has responded to criticism about her church's finances in the past.

A 2003 Christianity Today editorial said financial transparency was a must, even when not legally required.

Other articles on faith-word churches and fiscal responsibility include:

First Church of Prosperidad | Arlene Sanchez Walsh on the African-style prosperity gospel right in our backyards—in immigrant Latino churches. (July 6, 2007)

Televangelist Report Card | A recent study reveals how religious broadcasters actually use their airtime. (October 22, 2001)

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November (Web-only) 2007, Vol. 51