Under the Internal Revenue Code, a non-profit organization can receive 501(c)(3) status, which results in the organization not having to pay taxes like a for-profit corporation and also allows donors to deduct their contributions to the organization on their personal tax return. However, a 501(c)(3) organization can lose its exempt status by engaging in certain types of activities.
Private or Political Benefit
Perhaps the easiest way for an organization to lose its exempt status is if the organization uses its exempt status to benefit private individuals. This can be done either directly or indirectly. In other words, if the organization uses its tax exempt status to benefit a personal and private interest, this is forbidden and could ultimately result in losing its 501(c)(3) status. Do keep in mind however, that this benefit must be substantial and not merely incidental. Consequently, a small private benefit every now and then that is incidental to the organization’s overall charitable mission should not be a concern. However, larger and more repetitive benefits to private individuals should be avoided. Additionally, a 501(c)(3) organization must not engage in political activities. In fact, the IRS asks on the 501(c)(3) application whether the organization engages in political activities and if it does, the application will not be approved.
If you have a question regarding a 501(c)(3) issue, contact one of the experienced attorneys at Trinity Law today at 717-843-8046. Our attorneys routinely represent non-profit organizations in York, Lancaster, and surrounding counties.