It’s that time of year again when Santa and his elves are hard at work, and people are most open with their hearts and their wallets to give back to their communities. Here are some tips for staying off of Santa’s Naughty Not-for-Profit List. The consequences for which won’t be coal; your organization could lose its tax-exempt-status!
Following these steps will help your organization stay on Santa’s Nice Not-for-Profit List and maintain your tax-exempt status as a not-for-profit organization.
1. You Better Not Forget to File
All non-profits must file a Form 990 annually. The Pension Protection Act of 2006 added a law that provides for automatic revocation of an organization’s tax-exempt status if it fails to file a required information return for three consecutive years
2. You Better Not Lobby Too Much
Lobbying is when an organization contacts, or urges the public to contact members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or when the organization advocates the adoption or rejection of legislation. While a nonprofit organizations is allowed to do some lobbying, too much can result in revocation of its tax exempt status
3. You Better Not Be Involved in Political Activity
Nonprofit organizations are prohibited from participating in any political campaign on behalf of any candidate running for public office.
4. He Sees When There is a Private Benefit or Inurement
The activities of a nonprofit should be directed toward an exempt purpose and this purpose should not serve the private interest, or private benefit, of any individual or organization more than insubstantially.
A nonprofit is prohibited from allowing its income or assets to benefit insiders. Insiders generally include board members, officers, directors and important employees of the organization.
5. He Knows When There is Too Much Unrelated Business Income
Earning too much income generated from unrelated activities can lead to the revocation of an organizations tax-exempt status. This is income that is derived from a trade or business unrelated to the organization’s exempt purpose. However, it is important to keep in mind that there are many modifications, exclusions, and exceptions to this rule.
6. He Knows If the Operation is in Accord with State Exempt Purposes
A nonprofit must pursue the exempt activities promised in its IRS application for exempt status. If an organization has deviated from its original purposes, it must inform the IRS to prevent future problems.
It can be easy to land on Santa’s Naughty Not-for-Profit List and it is important to be aware of these situations that can cause your organization to lose its tax-exempt status. If you have any questions regarding this, or any other tax matters, please do not hesitate to contact our office at (858) 558-9200.