Fraudulent mail-order schemes prompted IRS interest.

Legislation that would limit the Internal Revenue Service’s (IRS) authority to audit churches is making headway through both houses of Congress. Sponsored by Sen. Charles Grassley (R-Iowa) and Rep. Mickey Edwards (R-Okla.), the Church Audit Procedures Act is intended to stop a potential problem before it gets out of hand.

Only 10 churches underwent an IRS audit in 1982. But growing numbers—particularly among independent congregations—have been receiving “preexamination” letters and questionnaires from the IRS.

What this amounts to, according to a member of Edward’s staff, is “defacto government certification for churches.” Since 1969, Congress has allowed the IRS to tax business income that is unrelated to a church’s primary religious mission. The proliferation of new religions, as well as fraudulent mail-order schemes to evade taxes by forming a “church,” is prompting the IRS interest. But Congress did not authorize IRS fishing expeditions that reel in established churches and phony ones alike, Grassley and Edwards said.

Their bill would require the IRS to limit its investigation to one year’s records, explain to a pastor why his church is under scrutiny, and abide by a three-year limit on the assessment of back taxes. In addition, the act would give churches the right to prohibit an IRS procedure if their rights are violated.

With these safeguards in place, supporters of the measure say bona fide churches will be protected from ordeals similar to the one experienced by Gulf Coast Covenant Church in Mobile, Alabama. A five-year IRS investigation cost the church $100,000 as well as hundreds of man-hours. The investigation ended abruptly with a complete exoneration.

The church’s ...

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