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Is Your Oraganization’s Tax Exempt Status in Jeopardy?

Not-for-profit and tax-exempt are not synonymous. An organization can be organized under state law as a not-for-profit organization, but must still meet specific requirements in order to be considered tax-exempt under section 501(c)(3) by the IRS. Failing to follow these requirements could cause an organization to lose its tax exempt status.

Just because an organization is classified as a charitable organization, does not mean it is automatically considered tax-exempt by the IRS under the Internal Revenue Code Section 501(c)(3). IRS Publication 557 entitled “Tax-Exempt Status for Your Organization” lays out the requirements for an organization to be considered tax-exempt.

First and most importantly, the IRS will automatically revoke an organization’s tax-exempt status if the organization fails for three consecutive years to file an IRS Form 990. Depending on the organization’s size, you may qualify to file a Form 990-EZ or Form 990-N. Private foundations must file Form 990-PF.

Here are some other requirements from the IRS:

  1. The organization must be organized and operated exclusively for religious, educational, scientific, or other charitable purposes set forth in IRC 501(c)(3).
  2. Net earnings may not inure to the benefit of any private individual or shareholder.
  3. No substantial part of its activity may be attempting to influence legislation.
  4. The organization may not intervene in political campaigns.
  5. The organization’s purposes and activities may not be illegal or violate fundamental public policy.

A violation of any of the above requirements could cause an organization to lose its tax-exempt status under IRC Section 501(c)(3). For more information, check out the IRS Publication 557, “Tax-Exempt Status for Your Organization” which is available on the IRS website at