26 U.S.C. § 7611 — Restrictions on church tax inquiries and examinations

(a) Restrictions on inquiries: (1) In general: The Secretary can only start a "church tax inquiry" if two things happen: (A) the reasonable-belief standard in paragraph (2) is met, and (B) the notice standard in paragraph (3) is met. (2) Reasonable belief requirements: A senior Treasury official must reasonably believe — based on facts and circumstances recorded in writing — that the church either (A) may not actually qualify as tax-exempt under section 501(a) because of its church status, or (B) may be running an unrelated trade or business (as defined in section 513), or otherwise doing things that are taxable under this title. (3)(A) Inquiry notice requirements: Before starting the inquiry, the Secretary must give the church written notice. (B) That notice must include: (i) an explanation of the concerns behind the inquiry and its general subject matter; and (ii) a general explanation of the church's applicable rights (including the right to a conference with the Secretary before any records are examined) and the tax-law provisions involved. (b) Restrictions on examinations: (1) In general: The Secretary can only start a "church tax examination" after meeting paragraph (2)'s requirements, and even then only: (A) for church records, to the extent needed to figure out tax owed; and (B) for religious activities, to the extent needed to decide whether an organization claiming to be a church actually is one, for a given period. (2) Notice of examination; opportunity for conference: This requires that (A) at least 15 days before the examination starts, the Secretary sends the notice described in paragraph (3) to both the church and IRS regional counsel; and (B) the church gets a reasonable chance to have the conference described in (3)(A)(iii), but only if it asks for that conference before the examination starts. (3)(A) The examination notice must be written and include: (i) a copy of the earlier inquiry notice; (ii) a description of the records and activities the IRS wants to examine; (iii) an offer to hold a conference to discuss and try to resolve concerns; and (iv) copies of documents the IRS gathered or prepared for the exam that must be disclosed under the Freedom of Information Act. (B) This examination notice cannot be sent earlier than the 15th day after the inquiry notice was sent. (C) IRS regional counsel who gets the examination notice can, within 15 days, file an advisory objection with the regional commissioner. (4) Examination of records and activities not specified in notice: During a properly-started examination, the Secretary can also look at church records or activities that were not listed in the notice, as long as that still fits the limits in (1)(A) or (1)(B). (c) Limitation on period of inquiries and examinations: (1)(A) The Secretary must finish any church tax inquiry or examination — and make a final decision — within 2 years after the examination notice date. (B) If there is an inquiry with no examination notice, the Secretary must finish it within 90 days after the inquiry notice date. (2) That 2-year (or 90-day) clock pauses: (A) while a court case between the church and the Secretary about the inquiry or examination is pending or on appeal, while the Secretary is suing to force the church to comply, or while the Secretary cannot act because of an order in a section 7609 proceeding; (B) for up to 6 months, for any stretch longer than 20 days where the church or its agents do not comply with a reasonable IRS request for records or information; or (C) for any period both sides agree to. (d) Limitations on revocation of tax-exempt status, etc.: (1) The Secretary can only (A) decide that a tax-exempt (section 501(a)) or charitable-donation-eligible (section 170(c)) organization is not really a church, or (B) send a deficiency notice or assess an underpayment found during a church tax examination, if IRS regional counsel confirms in writing that the process substantially followed this section's rules and approves the action in writing. (2)(A)(i) For revoking tax-exempt status, taxes can generally only be assessed (or collected without assessment) for the 3 most recent tax years ending before the examination notice date. (ii) But if the organization was not actually a tax-exempt church for any of those 3 years, that window extends to the 6 most recent years. (B) For unrelated-business-income tax (section 511), taxes can be assessed or collected for the 6 most recent years ending before the examination notice date. (C) None of this extends a shorter deadline that would otherwise apply under the normal assessment-and-collection time limits. (e) Information not collected in substantial compliance with procedures to stay summons proceeding: (1) If the IRS substantially failed to follow the notice rules in (a) or (b), the conference requirement in (b)(3)(A)(iii), or the approval requirement in (d)(1), then any case to enforce a related summons is paused until the court finds all practical fixes have been made. That pause does not stop the 2-year or 90-day clock from (c) from still running. (2) This is the only remedy — no lawsuit or defense based on the Secretary not following this section's requirements can be raised any other way. (f) Limitations on additional inquiries and examinations: (1) If a church tax inquiry or examination wraps up without leading to (A) a revocation, deficiency notice, or assessment under (d)(1), or (B) a request for a significant change in the church's practices (including its accounting), then the IRS generally cannot start another inquiry or examination of that same church for 5 years — unless the Secretary approves it in writing, or it does not involve the same or similar issues as before. An inquiry or exam counts as "completed" once the time limit in (c)(1) runs out, even if nothing formally closed it. (2) That 5-year period starts on the date of the notice used to measure the deadline in (c)(1), and pauses the same way described in (c)(2). (g) Treatment of final report of revenue agent: A final report from an IRS agent counts as a "determination" by the Secretary under section 7428(a)(1). A church that gets such a report is treated, for purposes of sections 7428 and 7430, as having used up all its administrative options. (h) Definitions: (1) "Church" includes any organization claiming to be a church, and any convention or association of churches. (2) "Church tax inquiry" means any inquiry to a church (other than an examination) to figure out whether it (A) is tax-exempt as a church under section 501(a), or (B) is running an unrelated trade or business or otherwise doing taxable things. (3) "Church tax examination" means examining, for that same purpose, either (A) church records the IRS requests, or (B) a church's religious activities. (4)(A) "Church records" means all the corporate and financial records a church normally keeps, including corporate minute books and lists of members and donors. (B) This does not include records obtained through a section 7609 summons, or records obtained from a government agency. (5) "Inquiry notice date" is the date notice was given under (a). (6) "Examination notice date" is the date notice was given to the church under (b). (7) "Appropriate high-level Treasury official" means the Secretary of the Treasury, or a delegate ranked no lower than a principal IRS officer for an internal revenue region. (i) Section not to apply to criminal investigations, etc.: This whole section does not apply to: (1) any criminal investigation; (2) any inquiry or examination about someone's tax liability other than the church's own; (3) termination assessments (section 6851), assessments for flagrant political spending by a 501(c)(3) group (section 6852), or jeopardy assessments (section 6861); (4) any willful attempt to avoid or defeat a tax under this title; or (5) any knowing failure to file a required tax return.