How can you lose 501c3 status

General Accounting Office, in the IRS made a total of nine revocations of tax-exempt status -- that's nine out of over one million nonprofits that lost their status. There's probably a better chance that your nonprofit's office will be hit by a meteor. Odds aside, this doesn't mean that you can freely flout the tax laws.

The IRS can -- and often does -- impose fines, penalties, and back taxes on nonprofits that break the rules. And if the worst happens, and the IRS revokes your nonprofit's tax-exempt status, get ready for financial trouble.

Your ex-nonprofit will be treated as a regular taxable corporation as of the date of revocation. This means all the income it receives will be taxable, and donors will not be able to deduct their contributions. However, contributions received by the former nonprofit will be treated as nontaxable gifts made during the years the organization was considered to be tax-exempt. But gifts obtained under false pretenses -- for example, in cases where donors were lied to about how the money would be used -- are taxable income to the ex-nonprofit.

If that's not bad enough, the ex-nonprofit's officers and directors may have to pay excise taxes if they engaged in excess benefit transactions. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site.

The attorney listings on this site are paid attorney advertising. In some states, the information on this website may be considered a lawyer referral service.

Assuming you have been filing your state corporate annual report each year, your nonprofit should still legally exist as a nonprofit corporation. State incorporation is what makes your nonprofit a real entity. Verify that your corporate status is still active at the state, then move on to number 4. Once your status has been revoked, you have to apply to the IRS to get it back.

You will use Form just like you did the first time, except you will need to indicate that it is an application for reinstatement, not a first time filing. Be prepared to provide the same level of detail as before, except you will be mostly reporting prior year activities rather than a forward-looking projection. Also, if any one of the three years of Form filing you missed was a year where your nonprofit was required to file a Form EZ or Form standard form , as opposed to Form N, you will need to prepare the higher version of Form for each of the three years you missed and include that with your Form It is likely the IRS will have follow-up questions for you once they receive your application.

But assuming your program is still c 3 -qualifying, you should be able to have your tax-exempt determination restored. Hopefully your nonprofit never has its status revoked.

It is a legal necessity. Failure to file Form not only jeopardizes your tax-exempt status, it also publicly telegraphs a disregard for transparency and accountability.

The best way to never lose status is to always keep complete and accurate financial records and to timely file Form with the IRS each and every year. But if you find yourself in this dilemma, you can get it back. We work with dozens of revocations every single year, so reach out if we can help you.

He is registered with the IRS as an Enrolled Agent and specializes in c 3 and other tax exemption issues. You guys prepared, filed and got us approved for our c 3. So thankful for you. We are a Christian church. So what do we need to do? Hi, Daphne. You are correct…a c 3 recognized as a church is exempt from filing Form For charitable organizations, unrelated business income is any income from trade or business activity that is not wholly related to its tax-exempt purpose.

The federal government generally considers this type of revenue to be taxable. You most likely have people in your organization who purchase goods or services on behalf of the ministry using an expense account. How those expenses are paid or reimbursed could open up pastors, employees, and volunteers to personal taxable income. Learn the difference between accountable and non-accountable spending , and how to stay compliant with IRS guidelines. Charitable organizations are prohibited from taking part in activities that result in an individual advantage or benefit, also known as inurement.

Take our Fraud Prevention Quiz , and discover how to protect your ministry while cultivating good governance. However, if lobbying becomes a substantial part of its activities, a church could jeopardize its exempt status.

Learn the key factors used to determine lobbying and political campaign intervention. Other documents for public inspection may apply to your ministry as well. Click the link below to see the complete list.