Church Governance & the Board

The Policies an IRS Examiner Asks For First

Published 2026-09-19 · Church Governance & the Board

Short answer: document requests in an IRS church examination follow a predictable pattern. The organizing documents, the minutes, the conflict-of-interest policy with its signed disclosures, the compensation-setting record, the accountable reimbursement plan, and the housing allowance designations showing they were adopted in advance. None of these documents produces an outcome by itself. What they do is let the church answer questions with records instead of recollection.

Nobody assembles this file because they think an examination is coming. They assemble it because the alternative is trying to reconstruct six years of decisions in the two weeks after a letter arrives, usually by asking a former treasurer who has moved away.

This post isn't a prediction that you'll be examined. Most churches never are, and churches have specific statutory protections around how any inquiry must begin. It's a description of what a complete governance file looks like, using the pattern of what gets asked for as the checklist. Most of it comes down to minutes that record the decisions rather than the attendance.

First, the protections churches actually have

Before the list, one thing worth knowing, because it changes how you should respond to any contact.

Federal law places restrictions on how the IRS may begin a tax inquiry into a church (IRC §7611, Church tax inquiries and examinations). There are notice requirements, a required level of approval within the agency before an inquiry starts, and defined stages before an examination of church records can proceed. Churches are also generally excepted from the annual Form 990 filing requirement that applies to most other tax-exempt organizations (IRS Publication 1828, Tax Guide for Churches).

Two practical consequences:

A letter asking questions isn't automatically a church tax inquiry, and a request from someone claiming to be from the IRS should be verified before anyone hands over records.

If a genuine inquiry notice arrives, that's the moment to call a lawyer. Before you respond, before you send documents, and before anyone in the church begins tidying files. The response, its timing and its scope are legal decisions. This isn't a situation to handle with a template or a helpful board member.

Everything below is about what to have on file in the ordinary course, which is a governance exercise, not a legal one.

The organizing documents

Always first, because everything else depends on them.

• Articles of incorporation, with every amendment, as filed.
• Bylaws, current and signed, plus the amendment history and the minutes adopting each amendment.
• The IRS determination letter, if your church applied for and received one. Churches aren't required to apply, and many have never had one. That's not a defect, but if you do have one, know where it is.
• Your EIN assignment notice.
• State corporate filings showing the church is in good standing.

The recurring failure here is simple: the current bylaws exist as a Word file that doesn't match the last adopted amendment. If your bylaws and your minutes disagree, fix it now, at a meeting, in the open.

The minutes

Minutes are the church's evidence of every decision it made. Expect them to be requested for a multi-year period.

A complete minute book shows, for each meeting: the date, who attended, that a quorum was present, each motion, and the vote. It includes the annual congregational meeting as well as board meetings, and it has the signed unanimous written consents filed alongside.

What makes minutes useful isn't length. It's that decisions with financial consequences are actually recorded: compensation set, the reimbursement plan adopted, the housing allowance designated, property bought or sold, loans authorized. A board can meet faithfully for a decade and still have no record of the four decisions anyone would ask about.

The conflict-of-interest policy, and the signed disclosures

The policy alone isn't the answer to the question. The question is really *do you operate it*, and the evidence is the annual signed forms.

A complete file has the adopted policy with its adoption date, a signed disclosure from every director, officer and key employee for each year, and minutes showing what the board did about anything disclosed: the recusal, the comparison evidence, the vote.

If you have the policy but no signatures, you have the least useful half. The conflict-of-interest policy every church board needs covers the document; annual conflict-of-interest disclosures: how to run them covers the operating cycle that produces the evidence.

The compensation record

This is the area where governance documentation does the most work, because pastoral pay is where questions about insider benefit tend to concentrate (IRS, Inurement / private benefit).

A defensible compensation file shows four things, and they track the elements the IRS describes for excess benefit transactions (IRS, Intermediate sanctions):

1. Who decided. An authorized body of people without a personal stake, meaning the board or a compensation committee, with the affected person absent for the decision.
2. What they looked at. Comparability data for similar roles in similar organizations of similar size, whatever source you used, saved with the file.
3. What they decided. The total package: salary, housing allowance amount, benefits, retirement contributions, any allowances.
4. When they recorded it. Contemporaneous minutes, not a memory written up later.

Also keep in this file: the accountable reimbursement plan the board adopted and the receipts that substantiate reimbursements under it (IRC §62, accountable plans); any bonuses, love offerings or special gifts routed through the church and reported as compensation; and any related-party arrangements involving staff family members.

The housing allowance designations

A specific, recurring request, and the easiest one to fail on a technicality.

Keep, for each year and each minister: the board action designating the allowance, with the date it was adopted, showing it preceded the compensation it applies to. A designation only ever applies to pay earned after it's adopted. It works prospectively, and it can't be applied to pay already earned (IRS, Ministers' Compensation & Housing Allowance). A file that shows a December designation for the year that's ending answers the question badly, and no later paperwork changes that.

Alongside the designations, keep the church's record of the minister-status determination for each person treated as a minister, plus the credential that supports it: the ordination, commissioning or licensing record.

The other three policies boards are asked about

Beyond conflicts of interest, two more policies travel with it in the governance questions the IRS asks tax-exempt organizations, and a third is worth having for the same reason:

• Document retention and destruction. What's kept, for how long, and by whom, plus a rule that destruction stops immediately if litigation or an investigation is anticipated.
• Whistleblower. A defined route for reporting suspected wrongdoing that doesn't run through the person concerned, with non-retaliation language.
• Financial controls. Separation of duties in counting, depositing, signing and reconciling; a second approval above a threshold; how designated and restricted gifts are tracked.

A worked example: what a complete file looks like

A church of two hundred keeps one binder and one folder on the church drive, mirrored, with six tabs.

Building it the first time takes a couple of evenings and a few phone calls to people who have the missing pieces. Maintaining it takes about twenty minutes a quarter, because each new item gets filed as it's created.

The value isn't that it will impress anyone. It's that every question about how a decision was made has a document behind it, and no one has to remember.

How churches get this wrong

Everything is in one person's email. The single most common finding. When that person leaves, the church's institutional memory leaves with them.

Policies adopted but never operated. A conflict-of-interest policy with no signed forms, a retention policy nobody follows, a whistleblower policy with no named contacts.

Compensation decided informally. A number agreed in a hallway and entered in payroll, with no minute, no comparability data and the pastor present for the conversation.

Designations adopted late. The housing allowance voted in February for the year already running, or never re-adopted after a pastoral change.

Minutes that record attendance and nothing else. Faithful meetings, no evidence of decisions.

Tidying files after a letter arrives. Don't reorganize, delete, backfill or reconstruct records once you have any reason to think an inquiry, investigation or claim is coming. It creates a far worse problem than whatever the original gap was. Preserve what exists exactly as it is, and get counsel.

Common questions

Are churches required to file Form 990?

Churches are generally excepted from the annual return that most tax-exempt organizations file. The governance questions on that form still describe what the IRS treats as sound practice, which is why the same three policies keep appearing in requests from insurers, lenders and denominations too.

Does having all these policies protect the church?

It gives the church the ability to answer with records rather than recollection, which is a real advantage. It isn't a commitment to any particular result, and no document set can be. Anyone who tells you a template produces a specific outcome with a tax authority is selling something the document can't do.

How far back do requests usually reach?

Assume several years. That's the practical argument for keeping minutes and designations permanently rather than to a retention schedule. They're cheap to store and impossible to recreate.

We are missing years of minutes. What now?

Don't manufacture them. Record what you do have, note the gap honestly, and start keeping them properly from this meeting forward. A documented gap is a manageable fact; invented minutes are a much more serious problem.

What if an IRS letter actually arrives?

Don't respond alone, and don't send anything yet. Note the date received, preserve records exactly as they are, tell the board chair, and contact a licensed attorney who handles church tax matters. Churches have specific procedural protections around how an inquiry may proceed, and the first response shapes everything after it.

Which policy should we adopt first if we have none?

Conflict of interest, because it's the one most likely to be asked about and the one that changes behavior most. Then whistleblower, then document retention. Adopt each at a board meeting, minute it, and put the annual operating step on your governance calendar.

The practical wrap

The document request isn't really a test of your policies. It's a test of whether your church can show how its decisions were made. Build the six tabs, file each item as it's created, and keep the minutes and designations permanently. Then the answer to almost any question is a folder rather than a search, and if a real letter ever arrives, your first call can be to a lawyer instead of to a former treasurer.

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*Faith Docs provides self-help document templates, not legal advice. We are not a law firm. For representation, consult a licensed attorney.*