The Internal Revenue Service (IRS) has proposed rules that would give the Director of Exempt Organizations the authority to pursue church tax inquiries. This became a big issue when a lawsuit, United States v. Living Word Christian Center, was filed challenging the IRS’ assertion of what officials were high ranking enough to initiate church tax inquiries. The federal district court in that case ruled that the Director of Exempt Organizations Examinations was not a high enough ranking official to initiate the inquiries.

IRS Rules state that for the IRS to inquire about a religious organization’s tax exempt status, "an appropriate high level Treasury official" must believe that the inquiry should occur. The legislative history section of IRC Section 7611 indicates that "an appropriate high level Treasury official" was "interpreted to mean an IRS regional commissioner or higher level official," according to BNA ($$). The IRS reorganization eliminated the regional commissioner positions.

The IRS has now proposed these rules to address the confusion of what constitutes a "high level Treasury official" that was created after the reorganization. The Director of Exempt Organizations is closer to the former regional commissioner position than the Director of Exempt Organizations Examinations (the one the court rejected), "but is still one step removed," according to BNA.

Several attorneys that specialize in exempt organization issues expect that the IRS will receive numerous comments regarding this change. Marc Owens, a former IRS director of exempt organizations and an attorney with Caplin & Drysdale, told BNA that "[t]here will be a lot of comments because that position, the director of exempt organizations, is not equivalent to a regional commissioner." Owens also said that the regional commissioners brought a fresh perspective because they were outside of the everyday dealings of the exempt organizations division.

Greg Colvin, a partner with Colvin & Adler, told BNA that "[h]opefully, this regulation will remove a procedural obstacle and bring us closer to an ultimate resolution of what political ‘intervention’ really means."