One threat to the Temple’s financial security came from its belief that the Internal Revenue Service was about to cancel its tax-exempt. The perception was not without cause.
In February 1978 the IRS informed the organization that it was conducting an examination to determine if the Temple were receiving income from any activity subject to income tax. In other words, the agency was investigating, and had been investigating for two years, whether or not the Temple was adequately reporting unrelated business income, which was taxable. In the February letter, the IRS District Director asked for organizational documents, financial statements, payroll tax returns, and copies of licenses and permits to operate commercial activities. The lawyer handling the IRS case for the Temple quickly determined that it was not an official audit and learned that it was negative publicity about Peoples Temple that prompted the most immediate IRS move against the church.
In spite of the ad hoc nature of the IRS’ request, its investigation was still pending on November 18, 1978.
In the meantime, the California Franchise Tax Board – the state’s taxing authority – also conducted an investigation of the Temple’s tax-exempt status. It is unknown whether the state probe was coordinated with the federal review, whether it was also as a result of negative publicity, whether it was undertaken as part of a regular review process, or whether there was another stimulus. Unlike the IRS investigation, however, the state formally exonerated Peoples Temple and notified it on April 27, 1978 that the corporation “is now in good standing with the Franchise Tax Board.”