Not-For-Profits: Don’t Lose Your Tax Exempt Status

Once your nonprofit has received its 501(c)(3) tax exempt status, don’t think all your worries are over. You will still need to be mindful of taking any actions that will draw the attention of the IRS and could possibly jeopardize your nonprofit status. Here are five activities that could cause your nonprofit to lose its tax exempt status:

Private Benefit – Your nonprofit must serve the public good and not benefit private individuals or the private interests of any organization. Profits must go back into the organizations activities, not to people. However, you can pay reasonable wages to staff.

Lobbying – Some lobbying is permitted under certain circumstances but the rules are very tricky. It may be better to not lobby at all nor encourage anyone to support, propose, or oppose any legislation. If you engage in too much lobbying, the organization could be stripped of its exempt status and face a fine.

Political campaign activity – 501(c)(3) organizations cannot endorse or oppose any candidate for public office. This includes contributions to a political campaign and even public statements for or against a candidate.

Unrelated Business Income (UBI) –Your organization may not receive income from a regularly-carried-on trade or business that is not related to your mission. Too much UBI can threaten your tax-exempt status if it takes up more time and attention than your mission.

The main thing is to be sure to keep your focus on your organization’s mission and its not-for-profit accounting procedures to keep the IRS at bay. As long as all activities revolve around that purpose, then you shouldn’t have to worry about losing your tax exempt status.