Most, if not all, exempt organizations know that a sure-fire way to lose exemption status is failing to file the required 990 form
with the IRS
each year. After failure to file for three consecutive years, your tax-exempt status is automatically revoked – no warnings, no questions asked.
Many hours of operating a tax-exempt organization get poured into reaching mission goals and accomplishing community objectives. Legal situations of compliance with federal or state laws are usually an afterthought until you find yourself caught up in litigation. A verified checklist dedicated to preserving your organization’s tax-exempt status can be helpful outside of staying up-to-date with the required IRS Form 990
Even though running a nonprofit or charity is challenging as is, here are four steps you can take towards securing your tax-exempt status:
Appraise executive members’ compensation and contracts on a yearly basis.
Payment cannot significantly exceed guidelines set by the industry. It’s typically seen as a conflict regarding your organization’s mission when overpaying particular members, which can cost you your section 501(c)(3) status. Your business arrangements should not be overabundant, but approved in a formal manner and reasonable.
Stay current on any taxes you may need to pay towards unrelated business income.
This is money earned from any consistent service or activity that doesn’t work towards the mission of your exempt organization. The goal is to keep any unrelated business income as small as possible; you can quickly lose exemption status if your organization’s priority shifts to separate activities. For more information, head over to our easy-read blog titled “Unrelated Business Income.”
Create either written or digital receipts of donations from contributors.
The law requires that a donor receives documentation from your exempt organization regarding any gift that is worth a minimum of $250. It’s also a good idea to have a record of the Fair Market Value of services and products your organization provides. Both federal and state governments require information such as donations, goods, and services for annual reporting. You can become more aware of state-specific filing requirements by visiting your state’s official website.
Learn the stipulations regarding lobbying activities.
Similar to unrelated business income, if there is an excess amount, your tax-exempt status is lost in an instant. There are strict limits and requirements from both the federal and state level about lobbying – including a secure, detailed account of such activities and their expenses. We have more information about lobbying in our blog, “Lobby Party.”
Not only is it important for you to file your tax-exempt returns to the IRS every year, but following these steps can also help support the information that you’re reporting. Don’t forget that filing on time is just as important – based on your organization’s tax year period, your tax deadline is the 15th day of the 5th month after the year end date.
If you need extra time to file, consider e-filing IRS Form 8868 to extend your deadline. You can have your tax extension for exempt organizations transmitted and approved in minutes with ExpressExtension. And once you’re ready to file the IRS Form 990, you can visit our affiliate site, ExpressTaxExempt, to e-file the same way you did the extension.
If you have any questions or need further assistance e-filing your extension, call our live support in Rock Hill, South Carolina. You can reach us at (803) 514-5155, Monday through Friday from 9 a.m. to 6 p.m. EST, or send us an email 24/7 with support@ExpressExtension.com.