Executive Summary

issues common to all tax-exempt organizations, which can also affect churches.

GAO's Analysis

Religious Organizations
That Are Not Churches

Religious organizations that are not churches generally are required to apply for tax-exempt status and to file annual information returns, which enables IRS to subject them to various examination programs. For fiscal years 1981 through 1987, between 2 and 3 percent of all exempt organizations that IRS examined were religious organizations that were not churches. (See ch. 2.)

Churches

Churches are excused from filing for tax-exempt status and filing
annual information returns but must file tax returns if they have income
in excess of $1,000 from sources substantially unrelated to their exempt
purposes. The law also imposes special examination procedures that IRS
must use when reviewing churches for tax law compliance. (See ch. 3.)

Religious Broadcasters

Difficulties in
Administering Tax Laws
Applicable to Churches

IRS views religious broadcasters either as religious organizations that are
not churches, as churches, or both. There is no uniform set of tax rules
specifically applicable to religious broadcasters. The rules that apply
depend on how the religious broadcaster has organized its operations. If
a religious broadcaster has organized his or her operations as a religious
organization that is not a church and has applied for and been recog-
nized by IRS as tax-exempt, the laws and programs applicable to all char-
itable tax-exempt organizations would generally apply. If a religious
broadcaster has organized his or her operations as a church, special
rules and programs applicable only to churches would apply.

IRS believes it has difficulty administering the tax laws applicable to churches. IRS officials said that churches generally do not file applications for recognition of tax-exempt status or file annual information returns. Also, if a church is examined, special examination procedures must be used which contribute to IRS' difficulty in administering these tax laws. Further, other issues that apply to all tax-exempt organizations, including churches and religious organizations that are not churches, can cause difficulties in administering the tax laws for

Recommendations

Executive Summary

churches, according to IRS officials. These issues include, for example, determining what types of activities are not substantially related to a tax-exempt organization's purpose, for the purpose of imposing unrelated business income tax. (See ch. 4.)

When religious organizations, including religious broadcasters, organize and operate as churches, the information they provide to IRS is generally limited. As a result, IRS' ability to identify noncompliance with the tax laws usually depends on information it receives from the media and the public. The limited sources and amounts of information, along with the restrictions of the church audit procedures that IRS must apply to churches have discouraged IRS' activities in this area to the extent that IRS had completed a total of 67 examinations between fiscal years 1984 and 1987.

This report provides information on how IRS ensures tax law compliance of churches and other religious organizations. It contains no recommendations.

Agency Comments

IRS program officials reviewed a draft of this report and suggested some clarifications that GAO considered in preparing the final report.