It would be disastrous to non-profit charitable organizations if they should lose their tax-exempt status. Therefore, it is incumbent upon the leaders of such organizations to familiarize themselves with any situations that could jeopardize this status. To help with that familiarization, here is a list of some of the issues that should be watched for to facilitate protection of tax-exempt status.
For charitable organizations to maintain their tax-exempt designation under the 501(c)(3) code, they must agree to abide by specific rules and regulations. These rules include;
- Refrain from organizing and operating in the interest of private entities. This includes the person creating the organization or their family.
- Refrain from activities that are intended to influence legislative activities. Included in this is creating advertisements in the name of the organization or using its funds to promote specific legislative agendas.
- Refrain from participation in or intervening on behalf of or opposing certain political campaigns or candidates running for public office.
- Refrain from activities that violate public policies or public laws.
Any non-profit organization faces stiff penalties or loss of tax-exempt status if they engage in any of the activities spelled out in the points above. Along with following these rules, all non-profits are required to file annual returns with the Internal Revenue Service. The penalty for failing to do this could set in place an automatic revocation of the much cherished tax-exempt status held by the organization.
- Non-profit organizations that lose tax-exempt status will be forced to pay income taxes as a corporation on all future annual revenue.
- Beginning with the effective date of the tax-exempt status revocation, the organization could face penalties such as paying back taxes at the corporate income tax levels.
- Revocation of exemptions for state tax payments connected to a federal tax-exempt status may also be a penalty.
- The organization will lose its listing with the IRS Publication 78 which lists all organizations that are eligible for receiving charitable contributions that qualify as tax-deductible.
- Once the tax-exempt status is revoked, contributors will no longer be able to take a tax deduction for any donations to such organizations.
- Additionally, non-profits that have lost their tax-exempt status are less likely to receive grants from private foundations. Typically, such grants are only given to tax-exempt charities because of the hefty excise tax imposed by federal tax law and most foundations are not willing to pay extra for their contributions.
It cannot be stressed firmly enough how important it is for non-profit organizations to protect their tax-exempt status. This is why it is so vital that leaders of such organizations educate themselves on all the guidelines concerning how to maintain what was worked so hard for to create. Leaders could be a specific member or members of the board or staff, but failure to stay on top of all activities within the organization could result in losing the many benefits offered by exemption from paying certain income taxes leaving less available funds for other activities.
Flynn Financial Group Inc