You did a lot of work to achieve tax exempt status for your nonprofit. Unfortunately, simple slip-ups can cause your organization to lose that privilege. To run a nonprofit successfully, every person involved in its maintenance should know the reasons the Internal Revenue Service might revoke your tax exempt status.
Your tax exempt status hinges on the following six guidelines.
Don’t Use A Nonprofit for Personal Financial Gain
Nonprofit means nonprofit. If you or any members inside of your organization benefit substantially from your non-profit activities, you could lose your status. The purpose of nonprofits is to benefit the community and to help others. That is why the our nation has declared them worthy of tax exemption. Using your organization to become rich is a violation the IRS will notice.
Adhere to your Nonprofit’s Mission
When nonprofits file for tax exemption, they are required to state their goal. How will they provide service to their communities? The ventures of that organization should aim at achieving their goals. If the organization has stated it will help impoverished children, its activities need to follow suit.
Keep Nonprofit Business Ventures on Target
Business ventures unrelated to stated organization goals may fall outside IRS guidelines. How much money are you generating with endeavors not directly related to your purpose? The more those fringe earnings grow, the more likely your organization’s status will be questioned. If you earn too much with unrelated business housed under your nonprofit title, you might get into trouble. Keeping your nonprofit earnings targeted toward your stated goal is vital for maintaining nonprofit status.
Nonprofit Organizations Should Not Engage in Politics
Your organization members may feel strongly about local or national elections. However, any political activity they engage in needs to be separate from your nonprofit. A nonprofit may not engage in political campaigns at any level, including small, local elections. Throwing your organization’s hat into the political ring constitutes a violation and you may quickly lose your status.
Lobby with a Light Touch
Lobbying provides organizations a voice in politics. It provides politicians with a greater awareness of who is operating in their community and what their needs are. While nonprofits are not prohibited from lobbying, they need to apply prudence. You don’t want the IRS to determine that a significant portion of your activities lean toward lobbying. They will revoke your tax exempt status. In other words, your nonprofit should maintain its primary focus on helping your community rather than engaging in politics.
Nonprofits Must File Annually
Failure to file annual reports is the most common reason nonprofits lose their status. The organization falls behind in its income tax reports and, just like that, their status is automatically revoked. The Cullinane Law Group of Texas reports that over 500,000 organizations have lost their tax exempt status since 2011 due to inconsistent yearly return filing. In fact, the IRS has a surprising number of website pages dedicated to explaining how it happens and how to re-apply. If you help to operate a nonprofit, it’s vital to pay close attention to your yearly IRS tax returns.
Make Sure Not to Lose Your Tax Exempt Status
Don’t make the mistakes that lose tax exempt status for your nonprofit. The key is prevention. Recovering from a revocation is not always easy. Sometimes it is impossible. If you lend a hand in running a nonprofit, make sure everyone there understands the rules and follows them.
Furthermore, it’s important to know that fiscal years do not always follow the same schedule. Your team should certainly know yours. For those yearly filings, consider retaining the services of a certified public account. Professional CPAs will remind you of the yearly obligation and keep your filings in good order.