Ca. Tax Lawyer Winter/Spring 2015, Volume 23, Number 4

IRS Rank and Church Tax Inquiries: An Analysis of Proposed Treasury Regulations Under Internal Revenue Code Section 76111

By Alexandra Eaker and Ashley Kerins2


In order to protect First Amendment rights and guard against unnecessary government interference with churches, section 7611 ofthe Internal Revenue Code of 1986, as amended ("IRC"), requires an appropriate high-level Department of Treasury ("Treasury") official to reasonably believe that a church may be carrying on an unrelated trade or business or may be otherwise engaged in activities subject to tax.3 The appropriate high-level Treasury official must document in writing the basis of his reasonable belief before the Internal Revenue Service ("IRS") can initiate a church tax inquiry.4

Section 7611 of the IRC defines an "appropriate high-level Treasury official" 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."5 The current Treasury Regulations further define the appropriate high-level Treasury official as the Regional Commissioner. The Treasury Regulations were passed when the IRS was organized in a multi-layered structure based on geography: national, regional, and district. In 1998, Congress adopted the IRS Restructuring and Reform Act, which replaced the tiered geographical structure with an issue-based structure. The IRS is now organized by taxpayer type rather than the taxpayer’s location. The IRS Restructuring and Reform Act eliminated the position of Regional Commissioner, which leaves open for debate who qualifies as the appropriate high-level Treasury official capable of making a reasonable belief determination.

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