You Received Your Tax-Exempt Status Now How do you KEEP IT?

Congratulations! Your non-profit has secured tax-exempt status, a significant milestone that reflects your commitment to making a positive impact. However, obtaining tax exemption is just the first step; maintaining it requires ongoing attention and compliance with specific regulations.

Compliance Matters

To sustain this tax-exempt status, compliance with IRS regulations is crucial. Here are key steps to ensure your organization remains eligible:

A. Record-Keeping:

Maintain accurate and detailed financial records, including income, expenses, donations, and activities. This helps demonstrate compliance with non-profit guidelines during audits.

What kind of financial records should I keep? You should track at least four categories of financial records:

1. Money Coming In – keep records of all your money coming in including cash register receipts, bank deposit slips, receipt books, credit card slips, and 1099-MISC documents you send to IRS invoices. Save these records for at least three years after the date for which you file your tax return (with the understanding some parties, like insurance companies or creditors, may require you to keep these records longer.)
2. Money Going Out – keep records of all your money going out, including account statements, canceled checks, credit card sales slips, petty cash slips, and invoices. Save documents on materials you purchase and services you pay for. Save these documents for three years after the date your tax return is due.
3. Employment Records – save all employment tax records including documents that show salaries, wages, benefits paid, and taxes withheld. Keep these for a minimum of four years.
4. Asset Records – save all your documents that show what your organization owns and uses including buildings, furniture, and investments. These include documents like purchase and sales invoices, real estate closing statements, and canceled checks. Ensure these records are very detailed, including dates of when assets were required, purchase prices, deductions taken, cost of improvements, etc.

Things to Note:

• The IRS doesn’t require your organization to use a specific recordkeeping system.
• If your organization has multiple programs, you should maintain separate records for each program.

B. Annual Reporting:

File the necessary annual information returns (Form 990) with the IRS, providing an overview of the organization’s activities, finances, and governance. If your a church, or an association of churches you most likely do not have to file a form 990 but if you’re not sure, Curry Law, LLC, can help give you a straight answer. It is very important you file this paperwork. Your organization is at risk of losing it’s tax-exempt status if you fail to follow your annual reporting requirements.

C. Adherence to Purpose:

Ensure your activities align with your stated mission. Deviating substantially from your declared purpose might jeopardize your tax-exempt status. The biggest ways organizations jeopardize their tax-exempt status is to engage in substantial lobbying, any political campaign intervention, activities generating excessive unrelated business income, providing a substantial benefit to a private individual or organization and allowing  benefit/inurement (allowing corporate assets to accrue to the substantial benefit of corporate insiders).

4. Avoiding Substantial Unrelated Business Income:

Limit corporate activities generating unrelated business income (UBI) as it might be subject to taxation and could impact your tax-exempt status if excessive. UBI is income from a trade or business activity that your organization conducts regularly. Remember, to keep your tax-exempt status, your business activities must further your tax-exempt purpose (e.g. religious, educational, charitable). If your organization is regularly involved in a business or trade that is not substantially related to accomplishing your tax-exempt purpose, you may need to report that income as an UBI. For example, a tax-exempt hospital can fill prescriptions for patients but if it starts regularly filling prescriptions for the general public, this must be reported as UBI. Another example is many churches now have coffee shops. Generally, the income from a coffee shop is unrelated to the church’s tax-exempt religious purpose and must be reported as UBI. As of 2023, if your gross UBI equals or exceeds $1,000 you must file a form 990-T. Additional forms may need to be filed depending on your tax liability.

The Role of Legal Experts

Navigating the complexities of tax-exemption maintenance demands attention to detail. Partnering with Curry Law, LLC can be invaluable in safeguarding your non-profit’s tax-exempt status. Curry Law, LLC can help by providing:

1. Compliance Guidance:

Offering tailored advice on maintaining compliance with IRS regulations, ensuring your organization adheres to all necessary procedures.

2. Audit Support:

In the event of an audit, having legal representation can streamline the process, providing necessary documentation and support to demonstrate compliance.

3. Strategic Counsel:

Curry Law can offer strategic counsel, helping your organization proactively anticipate and address potential issues that may impact your tax-exempt status.

4. Customized Solutions:

Curry Law can create personalized strategies that align with your non-profit’s specific goals, ensuring long-term sustainability and compliance.

Securing tax-exemption is a significant accomplishment, but preserving it requires ongoing diligence. Consider Curry Law to provide you with the expertise and support needed to navigate the complex landscape of non-profit tax compliance.

Contact us today!

These materials are provided for informational purposes only. They do not constitute legal or tax advice and do not create an attorney-client relationship with you.