The IRS details six core areas of 501(c)(3) status that have separate regulations: private benefit/inurement, lobbying, political campaigns, unrelated business income (UBI), annual reporting obligations and operating within your stated exempt purpose.
- Private Benefit/Inurement: 501(c)(3) organizations cannot allow assets or income to benefit insiders, like directors, employees, board members or officers. When the organization benefits insiders, both the organization and the insiders could have to pay penalty excise taxes.
- Lobbying: Lobbying cannot be more than an insubstantial part of a 501(c)(3) organization’s activities, but they can engage in some lobbying.
- Political Campaigns: Every 501(c)(3) organizations is prohibited from participating in political campaigns on behalf of or in opposition to candidates running for any public office on the local, state or federal level. What can be considered political campaign intervention? Read the guide by the IRS here.
- Unrelated Business Income (UBI): If an organization generates too much income from activities unrelated to their organization, that could jeopardize its tax-exempt status. What is UBI, and is your organization affected? Read the IRS UBI guide here.
- Annual Reporting Obligations: Most 501(c)(3) organizations need to complete annual reporting requirements, like completing a Form 990 every year, to continue receiving their exemption. If you fail to meet annual reporting obligations for three consecutive years, you can lose your tax-exempt status.
- Operating Within Your Stated Exempt Purpose: If you change your mission and activities from the stated purpose on file with the IRS, you should update your records to prevent potentially losing your status.