What activities can jeopardize a nonprofit organization's tax-exempt status?
IRS regulations prohibit 501(c)(3) public charities from specific types of activities and require certain levels of reporting and public disclosure. An organization that fails to abide by these rules may be placed under sanction or have its tax-exempt status revoked by the IRS. These regulations include:
- Private benefit/inurement -- An organization may not permit an insider (someone with a personal or private interest in the organization) to benefit substantially from the activities of the organization.
- Lobbying – Defined by the IRS as “attempting to influence legislation,” lobbying by 501(c)(3) organizations is permitted on some level; however the amount of lobbying activities must be limited so that it's not a substantial portion of the organization's activities.
- Political campaign activity/electioneering -- 501(c)(3) organizations and their representatives (while acting in an official capacity) may not campaign for or against candidates for elected office.
- Unrelated business income (UBI) -- An organization may lose its exempt status if it generates excessive income from a regularly-carried-on trade or business that is not substantially related to the organization's exempt purpose.
- Annual reporting obligation -- Except for churches and subordinate organizations, all 501(c)(3) public charities are required to file some version of the Form 990 with the IRS on an annual basis. While smaller organizations with gross receipts under $50,000 were previously exempt from this requirement, these charities must now file the Form 990-N (e-Postcard) each year to stay compliant.
- Operation in accord with stated exempt purpose -- An exempt organization is expected to operate in accordance with the charitable purpose or purposes outlined in its application for recognition of tax-exempt status (Form 1023 or 1023-EZ). An organization must notify the IRS of any substantial changes to its operating purpose.
See also: Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities
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IRS [PDF]
Compliance Guide for 501(c)(3) Public Charities
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National Council of Nonprofits
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The National Council of Nonprofits provides a series of brief articles outlining activities that may place an organization’s tax-exempt status at risk. See them all here: https://goo.gl/qymP7x
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A brief article describing reporting requirements and certain prohibited activities for tax-exempt organizations. From legal publisher Nolo.
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Hurwit & Associates
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Provides a list of proactive measures a nonprofit can take to ensure compliance with IRS regulations and public accountability.
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National Council of Nonprofits
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Stay Exempt
Stay Exempt is an IRS microsite exclusively for 501(c)(3) organizations. The site includes a virtual workshop and a collection of online mini-courses on topics related to obtaining and maintaining tax exempt status for a nonprofit organization.