Tax exemptions, including both federal and Illinois State tax exemptions, form the cornerstone of nonprofit activity in our state. In fact, to promote greater and more robust charitable work throughout Illinois, the Attorney General encourages wise charitable giving while protecting nonprofit’s finances with tax exemptions.
However, according to the IRS, there are several ways that a nonprofit can lose its 501(c)(3) tax-exempt status without even trying. If you’ve discovered that your nonprofit has lost its tax-exempt status, then you need to contact Chicago nonprofit attorney James C. Provenza as soon as possible. At James C. Provenza and Associates, P.C., we put our clients first and do everything under Illinois and federal laws to ensure that they are able to continue their charitable work. For a free, no-obligation consultation with attorney Provenza, call our law office today at (847) 729-3939.
Ways to Lose a 501(c)(3) Tax-Exempt Status
Although it can be fairly straightforward for a legitimate nonprofit to obtain a 501(c)(3) tax-exempt status, it can be just as easy (if not easier) to lose this status. With regards to federal taxes, a nonprofit can keep its status as long as it follows the laws regarding the following areas:
- Private benefits and inurements. In other words, a nonprofit’s activities cannot serve (more than insubstantially) the private interests of any individual or organization, as well as non profit insiders.
- Lobbying. A nonprofit can lobby to a certain extent. Its lobbying activities cannot, however, be more than an insubstantial part of its overall activities.
- Political activities. All 501(c)(3) organizations cannot participate in any political campaign on behalf of (or in opposition to) any candidate running for public office.
- Unrelated business income (UBI). A nonprofit can lose its tax-exempt status if it earns too much income generated from activities unrelated to the nonprofit’s exempt purpose.
- Annual reporting requirements. Most 501(c)(3) nonprofit organizations must submit certain annual reports. Not doing so can result in the loss of a nonprofit’s tax-exempt status.
- Operating in its stated exempt purpose(s). If a nonprofit has deviated from its original purposes, it must inform the IRS or suffer a loss of its tax exemptions.
Contact Chicago Attorney James C. Provenza Today
Obtaining a tax-exempt status is a huge milestone for nonprofits, giving them the financial freedom to conduct charitable work throughout the state. And with all of the work getting your nonprofit started, claiming tax exemptions, establishing revenue, and going out to do charitable work in the community, you need to make sure that you don’t inadvertently jeopardize your work by violating state or federal regulations. Whether you lost your tax-exempt status, or you need any other legal counsel regarding your nonprofit, make sure to call Chicago nonprofit attorney James C. Provenza as soon as possible. Free consultations are available, so call today at (847) 729-3939.