Guide Reveals Key IRS Audit Priorities for Religious Nonprofits

Ever wondered what it might be like for the IRS to audit your ministry? The Audit Technique Guide for Religious Organizations provides some clues.

This published resource is designed for IRS agents auditing religious organizations (other than churches) to highlight key areas for review and provide specific procedures during the various phases of an audit.

More specifically, the guide instructs agents to conduct the following audit procedures on key areas in any 501(c)(3) religious organization audit:

  • Determine that the organization is both organized and operated for IRC Section 501(c)(3) purposes.
  • Ensure the organization operates for public purposes rather than private interests.
  • Determine whether the organization engages in any substantial nonexempt activity, such as trade or business, social or recreational activities.
  • Ensure the organization’s assets are permanently dedicated to IRC Section 501(c)(3) purposes.
  • Evaluate the organization’s procedures to account for funds disbursed to individuals or non-IRC Section 501(c)(3) organizations.
  • Determine if the organization pays, directly or indirectly, any excessive compensation, fees, allowances, or taxable benefits.
  • Determine whether the organization has participated in any substantial legislative activities.
  • Determine whether the organization has intervened in any political campaign on behalf of or opposition to any candidate for public office.
  • Verify the organization’s foundation status.

Christ-centered ministries should use this resource to evaluate their tax law compliance in the areas listed above, not only in case the IRS comes knocking, but also for the sake of being above reproach and carrying out their ministries with the highest levels of excellence and integrity.   

See Audit Technique Guide for Religious Organizations and Internal Revenue Manual 7.25.3, Religious, Charitable, Educational, Etc.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.


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