5 Steps to Prepare Your Church for an IRS Audit

How can you safeguard and protect your ministry?

Many pastors ask what they can do to protect their church during an audit, which is a valid question. Here are a few suggestions for you to consider to help safeguard and protect your ministry.

1. Maintain Board Meeting Minutes.

Recording board meeting minutes is extremely important. Board meeting minutes serve as the official documentation of the corporate acts of your church. Without board meeting minutes, your church cannot prove that the church properly approved corporate actions such as the appointment of board members, the adoption of your bylaws and policies, and the approval of salaries. As a nonprofit organization, all corporate actions of the church must be properly documented in well-maintained board meeting minutes.

2. Document All Salaries and Compensation.

The approval of salaries and compensation should be documented diligently. Salaries paid by your church should be approved by the board of directors annually during a properly called board meeting. Additionally, honorariums to guest speakers should be treated appropriately. This means that your church should obtain Form W-9 from every guest speaker, and a 1099-MISC should be given to each speaker that receives $600 or more from your church in one year.

3. Review Your Church’s Activities.

When reviewing your church’s activities, you will want to make sure that each ministry and department directly relates to your church’s purpose. If you find an activity that may be considered an unrelated trade or business activity (e.g., a bookstore or coffee shop), then you will want to consider starting a church-owned business.

4. Review Your Church’s Printed and Publicized Materials.

Since the IRS can use any printed or publicized material as a source of “reasonable belief” to begin a church inquiry, you will want to be sure to keep a close guard on such materials. This also includes your church’s website. It is best not to include any advertisement type on your church’s website because, depending on the facts and circumstances, they may be considered unrelated business activity and could potentially jeopardize your church’s tax-exempt status.

5. Review All of Your Church’s Internal Governing Documents.

There are several documents that your church must review and maintain regularly, such as:

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• Your church’s articles of incorporation, amendments, annual reports, charity registration, IRS approval letter, and any letters regarding the church updating its public record.
• Your church’s bylaws.
• Your church’s written doctrines.
• Your church’s policies and procedures. (You will want to make sure that your church has a conflict of interest policy, accountable reimbursement policy, and a benevolence policy.)
• Corporate contracts such as leases and titles to property.
• Accounting and bookkeeping records.
• Current and accurate membership records.

First published on StartChurch.com. Used by permission.