Roedel Parsons Koch Blache Balhoff & McCollister

Tips for maintaining tax-exempt status

It is common knowledge that charitable organizations generally qualify for tax-exempt status. After all, they are not in business to make a profit, so it makes sense that they do not have to pay annual taxes to the IRS. However, what many people do not realize is that it is possible for a charitable organization to lose its status as a tax-exempt “501(c)(3)” under the IRS rules.

Here are a few things to do in order for an organization to remain tax exempt as a 501(c)(3):

  • Avoid engaging in activities, such as political lobbying, that are unrelated to the organization’s primary purpose.
  • Accurately classify and report all paid workers, whether they are employees or independent contractors.
  • Make certain information available to the public upon request.  This includes the organization’s exemption application, the determination letter and the annual tax returns from the past three years. These documents must also be kept at the organization’s main office during regular business hours, in case someone from the public should visit the office in person and request these documents.
  • Keep accurate financial records and file the appropriate annual tax returns. Recordkeeping should include preserving minutes from governing board meetings and other information used to prepare tax returns.

It Is Not Necessary To Do It All Alone

Maintaining tax-exempt status may feel like a very complex undertaking, depending on the size of the organization and its activities. However, financial experts and business law professionals can assist throughout the organization’s lifecycle, making the process manageable and ensuring ongoing compliance with state and federal laws.

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