08/11/2026
Your Church Got an IRS Notice. Now What?
Few things land in a church mailbox and cause more panic than an envelope from the IRS. Before you assume the worst, take a breath — most notices churches receive are routine, and almost all of them are fixable if you respond the right way.
Here's a straightforward guide to handling it calmly and correctly.
Step 1: Don't Panic, and Don't Ignore It
An IRS notice is not automatically a red flag for wrongdoing. Common reasons churches get one include:
- A missing or late Form 941 (payroll taxes) or Form W-2/1099 filing
- A mismatch between reported wages and what was actually filed
- A question about unrelated business income (UBI)
- A notice about backup withholding or an incorrect EIN
- Simple address or identity verification
What you should never do is set it aside and hope it resolves itself. Nearly every IRS notice includes a response deadline, and missing it can turn a minor paperwork issue into penalties, interest, or an escalated inquiry.
Step 2: Read It Carefully — Twice
Every notice has a code in the upper right corner (like CP2100, CP215, or LTR 3853C). This code tells you exactly what the IRS is asking about. Look for:
- The specific issue — what form, what year, what dollar amount
- The deadline — write it on your calendar immediately
- What response (if any) is required — some notices are informational only
Step 3: Gather Your Records
Before responding, pull together anything relevant to the notice period:
- Payroll records and filed 941s/W-2s for that quarter or year
- Your church's EIN confirmation letter
- Prior correspondence with the IRS, if any
- Bank records if the notice concerns income or deposits
Churches that keep clean digital records (giving, payroll, and member data all in one place) tend to resolve these notices in a fraction of the time — one more reason it pays to get organized before you need to be.
Step 4: Decide Who Responds
For a straightforward notice (like a late-filing penalty on a return you know was filed on time), your treasurer or bookkeeper can often respond directly with documentation.
For anything involving:
- Unrelated business income tax (UBIT)
- Questions about tax-exempt status
- Payroll tax discrepancies over a few thousand dollars
- Any notice threatening to revoke exemption
..loop in a CPA or tax attorney who works with churches. The rules around church payroll and exemption are different enough from standard nonprofit rules that general business advice can steer you wrong.
Step 5: Respond in Writing, and Keep Copies
- Respond by the method the notice specifies (mail or fax — the IRS still relies heavily on both)
- Include your EIN and the notice number on every page
- Keep a copy of everything you send, along with proof of mailing (certified mail is worth the extra few dollars)
- Note the date you responded and by whom, in case you need to follow up
Step 6: Follow Up If You Don't Hear Back
IRS response times can run 60-90 days or longer. If you haven't heard anything after that window, call the number on the notice rather than assuming it's resolved.
A Few Things Worth Knowing
- Churches are automatically tax-exempt under IRC Section 501(c)(3) and generally aren't required to file Form 990 — but this doesn't exempt payroll tax obligations, UBIT, or reporting requirements tied to employees and contractors.
- A notice is not an audit. Audits involve a specific examination letter and a different process. Most notices are automated matching issues, not the start of a deeper investigation.
- Penalties can often be abated. If your church has a clean filing history, the IRS will frequently waive first-time penalties if you request it — it's always worth asking.
The Best Fix Is Prevention
Most IRS notices trace back to the same root cause: payroll and giving records that are scattered across spreadsheets, paper files, and someone's memory. When your financial records are organized and consistent, filings go out accurately and on time — and if a notice does show up, you can answer it in minutes instead of days.
