When an organization files for a nonprofit 501c3 tax exempt application, it has to abide by the rules set by the IRS. There are certain conditions on which a firm’s tax exempt status might be revoked. Non-profits need to follow extra set of rules provided by the IRS. To revise some important points, we have listed a few here.
There are some conditions which you agree on while filing for a nonprofit 501c3 tax exempt application. These rules set by the IRS are strict in nature and anyone found dodging these rules can say their tax exempt status good bye.
No Involvement in Political Activities
A very clear and transparent, and not to forget the most important rule set by the IRS for the nonprofit tax exempt firms, is that they cannot be involved in any political activities. No nonprofit can contribute money in any political activity nor can they participate in it. This might cause your tax exempt status to be revoked and heavy excise tax against the organization and its managers.
Recently this rule has been clearly defined and revised due to some nonprofit’s involvement in political parties.
Lobbying under limits
Though the IRS allows lobbying, it has some conditions on the money spending for any party or activity. If the amount exceeds the amount stated by the IRS which is appropriate for lobbying, then the nonprofit might face cancellation of its tax exempt status. A nonprofit can participate in lobbying only if it does not hurt or manipulate the legislation.
No profit distribution
First of all, to set the record straight, the IRS does not allow non profits to earn massive profits from other sources or funds. If you do, then you are not allowed to distribute these profits amongst your managers, leaders, and other employees. This is because a nonprofit organization is not to benefit the internal people of the organization, but to benefit the society or the cause they are handling.
If your nonprofit organization is earning money and profits from outer sources, meaning that it is earning through activities that are not related to its nonprofit operations, then it has to pay taxes for it. The IRS files taxes on any unrelated business or activity that you have going besides your nonprofit organization. The IRS may file taxes of more than $1000 on such activities.
Too much profit and you are out
When a nonprofit is dealing with unrelated business activities, spending most of its time making that business work, and earning massive profits, then the IRS will revoke the firm’s tax exempt status. This is because the IRS does not allow a nonprofit to deal in a side business which is not related to its nonprofit cause, and earning a lot of profit from it.
All of the guidelines mentioned above are to help the nonprofit organizations. While filing for a nonprofit 501c3 tax exempt application, one must consider and learn these rules so that its tax exempt status stays safe and the IRS doesn’t get a chance to revoke it.
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