10 Do’s and Don’ts to Maintain Your Tax Exempt Status

Organizations worldwide have applied and received 501(c)(3) tax exempt status from the IRS for years. Groups such as private foundations along with churches, hospitals, educational institutions and charities are exempt from federal income tax under the Internal Revenue Code. Maintaining this status can be just as easy as it is to lose it. 

Each year, over 100 501(c)(3) organizations have their tax-exempt status revoked. The most common cause of revocation is due to organizations that do not file their annual information return with the IRS for three consecutive years. These organizations find themselves in distress after being revoked and find out that it can be quite the hassle to bounce back from. 
An automatically revoked organization loses the eligibility to receive tax-deductible contributions as well being removed from a list of tax-exempt organizations that most donors reference prior to giving. Eliminate the worry and concern of ever having to be revoked or losing your tax-exempt status by following these “do’s and don’ts” to ensure you stay on the right track: 


  • 1. File annual information returns with the IRS (Form 990, 990-EZ, 990-N, 990-PF and Form 1120-POL). 
  • 2. Withhold and Pay Payroll Taxes
  • 3. Keep Records
    • -Financial Records (Money coming in and out, employment tax records & asset records)
    • -Permanent Records
    • -Minutes from Board Meetings
    • -Copy of previous returns and attachments sent to the IRS from the the last three previous years. 
  • 4. Give donors that make a donation of $250 or more a written acknowledgement. If your group is soliciting contributions from individuals, you should provide a written receipt and register and file them in your annual reports with the states. 
  • 5. Serve the public – services and activities of a 501(c)(3) organization should be directed toward an exempt purpose and the overall betterment of the public. 
  • 1. Fail to file for 3 consecutive years
  • 2. Engage in Substantial Lobbying
  • 3. Participate in political campaign activity
    • -This includes campaign contributions, endorsements and public statements regarding candidates. 
  • 4.Serve private interests
    • -501(c)(3) organization activities should be directed toward an exempt purpose. 
  • 5. Unrelated Business Income
    • -Too much income received from activities not related to the purpose of the organization can become a threat for tax-exempt status to be removed.
By following these “do’s and don’ts” your organization can remain intact and effective. Losing tax-exempt status as a non-profit can strongly affect your organization in a negative way. If your organization does in fact get revoked at some point, there is still the opportunity available for you to be reinstated by the IRS. Although the law prohibits the IRS from undoing a proper automatic revocation, organizations can apply to have their exempt status reinstated. Reinstatement can happen four ways: 10 Streamlined retroactive reinstatement 2) Retroactive reinstatement process (within 15 months), 3) Retroactive reinstatement (after 15 months) and 4) Post-mark date reinstatement. 
Be sure to file those annual returns and stay in good standing with the IRS by quickly and securely e-filing with ExpressTaxExempt. As the number one authorized IRS tax e-file provider, ExpressTaxExempt offers simplified and easy-to-use versions of Form 990, 990-EZ, 990-PF, 990-N, and its newest form specifically designed for political organization returns, Form 1120-POL. So take a few minutes and file today to keep those taxes away! 
As always, feel free to contact our support team of e-file experts at 704.839.2321 for any questions or help with your e-filing experience. We’re here to assist you Monday through Friday from 9 a.m. to 6 p.m. EST or feel free to reach us 24/7 via email at support@ExpressTaxExempt.com.

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