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How to lose a nonprofit’s tax-exempt status in Georgia

On Behalf of | Sep 9, 2022 | IRS Audits

Maintaining a nonprofit’s tax-exempt status in Georgia is critical to its success. There are specific types of activities that can jeopardize this status, so it is important to be aware of them.

Private benefit/inurement

If your nonprofit organization holds an IRS tax exemption, all its activities should be focused on furthering its charitable purpose. It shouldn’t serve private interests or unduly enrich any of its insiders. You can violate this rule if your organization gives preferential treatment to certain people or groups, such as friends or family members. Similarly, inurement can come off as paying excessive salaries or providing other forms of compensation to its employees or directors.

Lobbying

A nonprofit risks losing its tax-exempt status by spending more than 20% of its time or money trying to influence legislation through direct contact with legislators or other government officials. The same applies if it tries to influence legislation in any way that would benefit itself or its insiders.

Engaging in politics

The IRS doesn’t allow nonprofits to directly or indirectly participate in any political campaign at the federal, state or local level on behalf of or in opposition to any candidate. This includes making donations to candidates or political parties, as well as engaging in any type of electioneering.

Unrelated business income

IRS audits of nonprofits often focus on whether the organization is generating unrelated business income (UBI). This is income from activities that are not directly related to the nonprofit’s mission. For example, if your nonprofit rents out office space to for-profit businesses, the rent payments would be considered UBI.

UBI can jeopardize a nonprofit’s tax-exempt status because it is subject to corporate taxes. If your organization desires to engage in one, then any profits that would be generated from the UBI must be used for charitable purposes and cannot be distributed to insiders.

Nonprofit organizations are held to high standards by the IRS. Therefore, any activity besides the ones involving fulfilling its charitable purpose or mission is a risk.