The Law Offices of Arnold van Dyk

Keeping Your Non-Profit Organization Tax Exempt Status

April 23, 2017

It is very much important to know about the functioning of an organisation, when you are aspiring to achieve a non-profit status for it.  There are key differences in running and creating a regular organisation if these differences are not maintained then the status of non-profit can be stripped off. Here are some steps and tips which can help you maintain the non-profit status of your organisation.

Obey the corporate formalities.

A non-profit organisation is also bound to follow the terms of the corporate law, and it must have a board of directors in charge of important policy decisions. There must be officers who make the decisions regarding the day-to-day running of the corporation. Likewise, it is not mandatory for a non-profit organisation to have owner or shareholder, because it cannot be owned or sold by one person. Instead, it is dissolved and all of its assets are distributed.

Maintain and preserve corporate records.

It must also maintain its record like any other organisation, if it does not do so the status of tax exemption can be stripped off. By definition, record keeping means: ‘’ maintaining accurate minutes of the meeting of the directors and documenting any important decisions.’’

Not only keeping it save but the arrangements of the record in an easy-to-manage is also very much important.

Beware of the restrictions and limits of the non-profit organisation.

Not only keeping comprehensive and precise corporate records, your non-profit organisation must abide by other rules and regulations, in order to retain and preserve its tax-exempt status.

These rules are as under.

  1. Your organisation is not allowed to contribute in any political campaign.

You must remember that your organisation cannot participate in any political campaign. However, a regular organisation can do so. If tax exempted organisation contribute in any political campaign, then it would be a clear violation of the law and your status can be stripped off and special excise tax will be imposed upon your organisation.

  1. Your corporation would not be allowed to distribute its profits among officers, directors or members.

Non-profit organisations are not allowed to give financial benefits to its officers, members or even its directors. However, these employees are entitled to a reasonable salary.

  1. Your organisation is allowed to engage in political lobbying in a limited amount.

It is a sign of danger that when your organisation is proved to influence legislation in substantial degree, then it could face problems in the form of losing its tax-exempt status. However, it can take part in legislation in a limited way set by the IRS.

  1. Your non-profit organisation cannot gain a huge amount of profits from unrelated activities.

If your non-profit company grasps the substantial amount of profits from activities dissimilar to its resolve, its status could be cancelled. Extraordinary attention should be paid to its unrelated activities.

  1. Your Non-profit organisation must distribute all of its resources and assets to another tax-exempt group on dissolution

A non-profit organisation cannot simply be sold. Instead, when the directors decide to dissolve a non-profit corporation, all of its assets of must be donated and distributed to another tax-exempt group.

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Arnold van Dyk

About the Author

I am passionate about solving people's tax problems. Outside of work I enjoy reading, playing tennis, and traveling.

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