SECTIONS ON THIS PAGE
- Filing a Complaint/Referral with the IRS Against a Tax-Exempt Non-Profit
- Some Key Documents and Links
- Form 13909: Categories of Charges
- Limitations on Investigations of Churches
- IRS Review Process and Options
- Disclosure Prohibition on IRS Examinations
- Filing a Complaint with a State Agency Against a Tax-Exempt Non-Profit
- Locating Non-Profit and Business Regulators in Each State
- A Research Example from Washington State
- Civil Lawsuits as an Option for Redressing Wrongs
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Filing a Complaint/Referral with the IRS
Against a Tax-Exempt Non-Profit
Some Key Documents and Links
For the process on filing a complaint with the IRS or the state entity in charge of charitable corporations and other business, read these references in the order given. They should help understand the flow of the process.
- IRS Complaint Process – Tax-Exempt Organizations
- Fact Sheet 2008-13: IRS Complaint Process for Tax Exempt Organizations (IRS archived version; need to update).
- Form 13909 – Tax-Exempt Organization Complaint (Referral) Form. Note the list of specific kinds of charges that can be filed (see section below).
- Fact Sheet 2008-14: Examination and Compliance Check Processes for Exempt Organizations (IRS archived version; need to update).
Form 13909: Categories of Charges
Form 13909 has checkboxes for 10 different kinds of charges that can be filed. I’ve copied those below, and numbered them for easier reference. Take a look at these and see how they summarize the three key prohibited activities, and other items noted in the IRS Compliance Guide for 501(c)(3) Public Charities,
- Directors/officers/persons are using income/assets for personal gain.
- Organization is engaged in commercial, for-profit business activities.
- Income/assets are being used to support illegal or terrorist activities.
- Organization is involved in a political campaign.
- Organization is engaged in excessive lobbying activities.
- Organization refused to disclose or provide a copy of Form 990.
- Organization failed to report employment, income, or excise tax liability properly.
- Organization failed to file required federal tax returns and forms.
- Organization engaged in deceptive or improper fundraising practices.
- Other (describe).
Limitations on Investigations of Churches
Form 13909 states in the section on Specific Instructions (page 2, point #6): “If your referral relates to a church please be aware that Congress has imposed special limitations, found in IRC section 7611, on how and when the IRS may conduct civil tax inquiries and examinations of churches. You can find out more about these special limitations in Pub. 1828, Tax Guide for Churches and Religious Organizations, in the section on Special Rules Limiting IRS Authority to Audit a Church.”
See Publication 1828, page 26, for the one-page overview of Tax Inquiries and Examinations of Churches. Note that the investigation restrictions on the IRS do not apply to issues of criminal investigations and investigations into tax liability of persons connected with the church (such as a minister or donor). It also appears the IRS can still pursue “excess benefit transactions” between the church and insiders, which is one aspect of inurement (one of the key problems non-profits face).
The current special status for churches may not last. So, this an issue to watch because our culture is shifting on the question of whether religious non-profits should be given special treatment. The change in public attitude has been sparked in great part by continued cases where church leaders grossly misuse resources, lack transparency, institute excessive benefits for insiders — but still escape legitimate scrutiny simply by incorporating as a religious non-profit church.
IRS Review Process and Options
To understand what happens if an IRS investigation is involved, see the entire section on The Review Process in Fact Sheet 2008-13: IRS Complaint Process for Tax Exempt Organizations. Here is an excerpt that looks at the standard of evidence used by the IRS in deciding what actions to take.
Upon receipt, research is done to confirm the identity of the organization in question and once this is complete, information is entered into a database to help the IRS keep track of the progress of the review.
An experienced EO revenue agent then performs a thorough technical analysis of the allegation made on the referral. The agent uses a “reasonable belief” standard to evaluate the facts and to determine whether EO should take further action. Before taking action, the revenue agent must determine that the facts create a reasonable belief that the allegations may be true when considered fairly and in light of other reliable information. [Emphasis in the original on the word may. Retrieved August 29, 2014.]
The EO revenue agent has four options for how to proceed, based on “reasonable belief” about the allegations:
- Close the case.
- Hold it for later re-evaluation.
- If it has certain characteristics it must be forwarded to a committee that evaluates such Referrals on a monthly basis.
- Instigate an examination of the organization when the evidence warrants it.
There is still the possibility of a state investigation by the State agencies that govern charities, even if the IRS does not go the route of investigation with a non-profit where there are credible questions about the legitimacy of its actions. See IRS Complaint Process – Tax-Exempt Organizations:
In addition to oversight by the IRS, tax-exempt organizations are subject to oversight by State charity regulators and State tax agencies. You may also want to send a copy of the referral you send to us to your state charity regulator [link not active; website being revised] and/or state tax agency. [Retrieved August 29, 2014.]
The major section below deals with pursuing claims and complaints with state government and regulatory offices.
Disclosure Prohibition on IRS Examinations
In the section on Acknowledgement and Disclosure Prohibition, IRS Fact Sheet 2008-13 notes that “Section 6103 of the Internal Revenue Code prohibits the IRS from disclosing whether it has initiated an examination or the results of any examination. Therefore, the IRS cannot communicate with the original source of a referral beyond the acknowledgement letter.”
This means if one or more people file a Complaint with the IRS against Mars Hill Church, no one at the church would necessarily know because the existence of submissions is not revealed unless the EO revenue agent makes a decision to pursue an investigation. (It could, if a submitter happened to say something that got back to the leaders, though.)
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Filing a Complaint with a State Agency
Against a Tax-Exempt Non-Profit
Locating Non-Profit and Business Regulators in Each State
As noted above, the IRS Complaint Process – Tax-Exempt Organizations page states: “In addition to oversight by the IRS, tax-exempt organizations are subject to oversight by State charity regulators and State tax agencies. You may also want to send a copy of the referral you send to us to your state charity regulator [link not active; website being revised] and/or state tax agency.”
The state tax agency link goes to a page entitled State Links for Exempt Organizations. “State government websites with useful information for tax-exempt organizations, including registration requirements for charities, taxation, information for employers, and more.” Clicking on a state link in that list goes to a list of links for information on the different kinds of organizational forms having state regulations:
- State Charities Regulation
- State Tax Filings
- State Filing Requirements for Political Organizations
- State Nonprofit Corporation Filings
- SBSE Business Filing Information
A Research Example from Washington State
For instance, in the state of Washington, complaints against registered non-profit corporations are handled by the Office of the Attorney General. In the Safeguarding Consumers section of the Attorney General’s website, there is a link to File a Complaint. That takes you to page where you can find out more in the Consumer Issues A-Z section on complaints specifically against Charities. (Note the options listed there, such as arbitration or mediation, Small Claims Court, etc.) There is also an online General Consumer Complaint Form. (Note that complaints submitted become part of public information/public record, so be sure to read the “Public Record Disclosure and Agreement” section carefully.)
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Civil Lawsuits as an Option for Redressing Wrongs
Even if a complaint to the IRS and/or state does not ensue, it is still possible that civil suits might be filed against the individual actors and/or institutions involved – despite probable reluctance by most Christians to take ministers or ministries to court.
As an important sidenote, it is crucial to realize that this reluctance by Christians to sue Christians may be in the process of change, with more willingness these days to consider legal action. A few prominent situations have arisen in recent years where church or ministry leaders, plus their organizations and/or networks, allegedly refuse to take responsibility for things like failure to report known or suspected child abuse within the church, failure to hold toxic leaders in their association accountable for bullying behaviors, and failure to address long-term sexual harassment.
At some point, survivors of such abuse who have attempted to follow biblical processes for reconciliation and restitution may conclude that the leaders will never truly repent and take responsibility on their own. So, the problem becomes the entire organizational system, whether it is a single church or parachurch ministry, an informal association of churches, or a formal denomination. And then it is not as difficult to consider filing suit against a toxic organization (and its leaders) as a way to force the issues into the light and prevent it/them from continuing to inflict abuse on the next generation.