Court: EO Director Not High‐Level Official for Church Audit Purposes

• Published date: 01 May 2018
• DOI: http://doi.org/10.1002/npc.30456
• Date: 01 May 2018

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

COURT: EO DIRECTOR

NOT HIGH-LEVEL

OFFICIAL FOR CHURCH

AUDIT PURPOSES

The US District Court for the District of South Carolina, on March 13, held

that the director of the Exempt Organizations Division holds too low a rank in the

IRS bureaucracy to qualify as the official to initiate church tax audits (United States

v. Bible Study Time, Inc.).

Facts

BST is opposing enforcement of a summons issued to it by the IRS, in part on

the grounds that the underlying church tax inquiry and church tax examination

were not properly initiated (IRC § 7611). The IRS official who signed the inquiry

notice was the director of the Exempt Organizations Division. The authority to

make these church audit determinations was delegated to the IRS commissioner;

the commissioner delegated that authority to the Tax Exempt and Government

Entities Division commissioner by Delegation Order 193 (November 8, 2000).

The government asserted that the authority to make the church audit determi-

nations was redelegated by language in the Internal Revenue Manual by the TE/

GE commissioner to the director of the Exempt Organizations Division.

Law

A church tax inquiry and a church tax examination may be initiated by an

appropriate high-level Treasury official; that individual is defined as the “Secretary

of the Treasury or any delegate of the Secretary whose rank is no lower than

that of a principal Internal Revenue officer for an internal revenue region” (IRC

§ 7611(h)(7)). The reference to a principal Internal Revenue officer is to the abol-

ished position of regional commissioner.

Analysis

The court, having found that Delegation Order 193 is reasonably interpreted

to make the delegation of authority to the TE/GE commissioner, ruled—after

pages of painstaking analysis—that the positions of TE/GE commissioner and for-

mer regional commissioner are “comparable (before and after IRS reorganization)

in terms of rank.” © 2018 Wiley Periodicals, Inc.

View this newsletter online at

wileyonlinelibrary.com

DOI:10.1002/npc

Analysis of current developments in tax

and related law for nonprofit organiza-

tions and their professional advisors.

Volume 35 Number 5

May 2018

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Provisions of Appropriations Act 2

Court Dismisses Lawsuit

Challenging “Two-for-One”

Executive Order 2

IRS Conjures New Basis for

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Employment Taxes 3

Foreign Foundation Held Able

to Treat Assets of Foreign

Investment Vehicle as Those

of Disregarded Entity, With

Income Subject to Excise Tax 3

Donor-Advised Fund Corner 4

Developments Concerning

Endowment Tax 6

Particular Services Rule Dooms

Exemption 7

Other Recent IRS Private Letter

Rulings 7

Schedule B Update 7

Supreme Court Saves Us

From Felony Prosecution

for Tax Obstruction 8

Other Developments 8