Opinion ID: 185153
Heading Depth: 2
Heading Rank: 1

Heading: Taxation of Churches

Text: 2 The Internal Revenue Code (Code) exempts certain organizations from taxation, including those organized and operated for religious purposes, provided that they do not engage in certain activities, including involvement in any political campaign on behalf of (or in opposition to) any candidate for public office. 26 U.S.C. § 501(a), (c)(3) (1994). Contributions to such organizations are also deductible from the donating taxpayer's taxable income. Id. § 170(a). Although most organizations seeking tax-exempt status are required to apply to the Internal Revenue Service (IRS or Service) for an advance determination that they meet the requirements of section 501(c)(3), id. § 508(a), a church may simply hold itself out as tax exempt and receive the benefits of that status without applying for advance recognition from the IRS. Id. § 508(c)(1)(A). 3 The IRS maintains a periodically updated Publication No. 78, in which it lists all organizations that have received a ruling or determination letter confirming the deductibility of contributions made to them. See Rev. Proc. 82-39, 1982-1 C.B. 759, §§ 2.01, 2.03. Thus, a listing in that publication will provide donors with advance assurance that their contributions will be deductible under section 170(a). If a listed organization has subsequently had its tax-exempt status revoked, contributions that are made to it by a donor who is unaware of the change in status will generally be treated as deductible if made on or before the date that the revocation is publicly announced. Id. § 3.01. Donors to a church that has not received an advance determination of its tax-exempt status may also deduct their contributions; but in the event of an audit, the taxpayer will bear the burden of establishing that the church meets the requirements of section 501(c)(3).See generally id. § 3.04; Rev. Proc. 80-24, 1980-1 C.B. 658, § 6 (discussing taxpayers' obligations in seeking a ruling or determination letter). 4 The unique treatment churches receive in the Internal Revenue Code is further reflected in special restrictions on the IRS's ability to investigate the tax status of a church. The Church Audit Procedures Act (CAPA) sets out the circumstances under which the IRS may initiate an investigation of a church and the procedures it is required to follow in such aninvestigation. 26 U.S.C. § 7611. Upon a reasonable belief by a high-level Treasury official that a church may not be exempt from taxation under section 501, the IRS may begin a church tax inquiry. Id. § 7611(a). A church tax inquiry is defined, rather circularly, as 5 any inquiry to a church (other than an examination) to serve as a basis for determining whether a church 6 (A) is exempt from tax under section 501(a) by reasonof its status as a church, or 7 (B) is ... engaged in activities which may be subjectto taxation.... 8 Id. § 7611(h)(2). If the IRS is not able to resolve its concerns through a church tax inquiry, it may proceed to the second level of investigation: a church tax examination. In such an examination, the IRS may obtain and review the church's records or examine its activities to determine whether [the] organization claiming to be a church is a church for any period. Id. § 7611(b)(1)(A), (B).