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Protecting your nonprofit’s tax-exempt status

On Behalf of | Jul 13, 2021 | Corporate & Business Tax

Nonprofits serve a vital function to our society and, in return, enjoy a number of benefits, including tax-exempt status. Once the process of obtaining tax-exempt status is complete, nonprofit leaders must turn their attention to the tricky task of maintaining the advantages it affords.

The National Council of Nonprofits shares some helpful advice to help organization leaders navigate these complex issues. A few ways to avoid losing nonprofit status include:

  • Be careful that your activities do not inadvertently benefit a private interest
  • Do not devote substantial nonprofit assets to influencing legislation
  • Stay clear of participating or appearing to participate in political campaigns or take actions that benefit specific people running for elected office
  • Be mindful of what percentage of charitable donations is going toward salaries and other administrative costs and what percentage is going toward the charitable interest
  • Always keep up-to-date with your tax filing obligations. Failing to file the appropriate tax forms on time could result in penalties or even the loss of your not-for-profit tax-exempt status.

Avoid costly outcomes

Losing nonprofit status is a stunning blow with many adverse consequences. If this were to happen, your organization would not only lose its tax-exempt status but may also have to pay back taxes and penalties. Your donors would no longer be incentivized to contribute to your cause, as their donations would no longer be deductible.

If you operate a nonprofit and have questions about maintaining your 501(c)(3) or other tax-exempt status, talk with an attorney who has experience handling nonprofit law matters. If you have already received notice your status may be in jeopardy, your attorney can help you mitigate and possibly avoid the problems that would result from such an outcome.


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