Laws narrow IRS probes of ministries

By St. Louis Post-Dispatch

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Robert Thompson, a Michigan lawyer who participated in some of the earliest investigations of TV ministers, said the law is clear: Private inurement — excessive benefits to anyone who founds or controls a ministry — is "a drop-dead prohibition."

"If even an ounce of private benefit is found," the Internal Revenue Service (IRS) can act, he said.

But starting an IRS investigation is not easy. Religious groups receive special treatment because of the religious-freedom guarantee in the First Amendment, and resulting court rulings and laws.

"We have to have serious allegations," said Bruce Philipson, of St. Paul, Minn., the IRS group manager of tax-exempt organizations for the region. "Church audits are always going to be sensitive."

Before launching an investigation, the IRS must narrow the scope to be as specific as possible. It must receive the approval of the agency's national director of exempt organizations. And it must give the ministry up to 90 days' notice before looking at any records.

Other measures hamper the IRS' reach. First, federal law allows religious groups to enjoy tax-free status without proving that they have a charitable purpose, as other nonprofits must.

Further, religious groups never have to report finances publicly, as other nonprofits must.

Despite these safeguards for religious groups, Philipson said, the IRS usually can receive approval to start an investigation when one is merited.

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