Please help find references! This page will be a growing
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BoardSource Non-Profit Essentials
Idealist.org - Non-Profit FAQs
California Corporations Code - see Division 2, "NONPROFIT PUBLIC BENEFIT CORPORATIONS"
Tech Soup - the Technology Place for Nonprofits
"Protecting Your Nonprofit Corporation's Tax-Exempt Status" from nolo.com, the nation’s leading provider of do-it-yourself legal solutions for consumers and small businesses. Our goal is to help people handle their own everyday legal matters -- or learn enough about them to make working with a lawyer a more satisfying experience.
Excerpts from the above article:
Limits on Nonprofit Activities
In addition to keeping corporate records, nonprofit corporations must follow some additional rules and abide by certain prohibitions in order to retain their tax-exempt status:
- Nonprofit corporations cannot contribute money to political campaigns. Nonprofit corporations with a 501(c)(3) tax exemption (the most common) are not allowed to participate in political campaigns or contribute money to them. If they do, the IRS can revoke their nonprofit status, and can assess a special excise tax against the organization and its managers.
- Nonprofit corporations can engage in only limited lobbying activities. Tax-exempt 501(c)(3) nonprofits that influence legislation to any "substantial degree" face the loss of their nonprofit status. However, for tax-exempt nonprofits that want to participate in lobbying, the IRS simply sets a limit on the money they can spend on political activities. (See Lobbying Toolkit, below, for more details)
- Nonprofit corporations must not distribute profits to members, officers, or directors. A nonprofit corporation cannot be organized to financially benefit its members, officers, or directors. However, reasonable salaries and expense reimbursements are permitted.
- Nonprofit corporations must pay taxes on income from "unrelated activities." Sometimes, a nonprofit organization will earn income through activities that aren't directly related to its nonprofit purpose; for example, the directors of an organization dedicated to preserving open space may collect a consulting fee for advising other nonprofits. The IRS requires nonprofits to pay corporate income taxes on such unrelated income over $1,000, whether or not the group uses that money to fund its tax-exempt activities. For more information on unrelated activities, see Earning Income as a Nonprofit Corporation.
- Nonprofit corporations cannot make substantial profits from unrelated activities. If a nonprofit spends too much time on unrelated activities, or if the unrelated activities generate "substantial" income, the group's nonprofit status may be jeopardized. Nonprofit corporations that plan to engage in activities that aren't related to their tax-exempt purpose should consult a lawyer or tax expert with experience in nonprofit law. For more information on unrelated activities, see Earning Income as a Nonprofit Corporation.
- When a nonprofit corporation dissolves, its assets must be distributed to another tax-exempt group. Since tax-exempt organizations and their assets cannot be owned, they can never be sold. If the directors of a nonprofit decide to disband the organization, they must donate its assets to another nonprofit group. This also means that once property goes into a nonprofit corporation, it cannot later be distributed to a member or director.
Nonprofit Lobbying Toolkit: "Can Charities Lobby? Yes They Can, and Should!" Exerpts of great resource on lobbying by non-profits from Colorado Nonprofits. Click here for original source (pdf).
Tax Concerns When Your Nonprofit Corporation Earns Money It's a myth that your 501(c)(3) nonprofit organization can't make a profit, but some of it may be taxable.
Excerpts from the above article:
Nonprofit corporations, by definition, exist not to make money but to fulfill one of the purposes recognized by federal law: charitable, educational, scientific, or literary. Under state and federal tax laws, however, as long as a nonprofit corporation is organized and operated for a recognized nonprofit purpose and has secured the proper tax exemptions, it can take in more money than it spends to conduct its activities.
In other words, your nonprofit can make a profit. Whether or not a nonprofit's income is taxable depends on whether the activities are related to the nonprofit's purpose.
Making a Profit From "Related" Activities
Tax-exempt nonprofits often make money as a result of their activities and use it to cover expenses. In fact, this income can be essential to an organization's survival. As long as a nonprofit's activities are associated with the nonprofit's purpose, any profit made from them isn't taxable.
The organization may use this income for its own operating expenses (including salaries for officers and staff) or for the benefit of the [organziation]. What it cannot do is distribute any of the income to the nonprofit's officers, directors, or others connected with [the organziation].
Making a Profit From "Unrelated" Business Activities
Sometimes nonprofits make money in ways that aren't related to their nonprofit purposes. While nonprofits can usually earn unrelated business income without jeopardizing their nonprofit status, they have to pay corporate income taxes on it, under both state and federal corporate tax rules. (Generally, the first $1,000 of unrelated income is not taxed, but the remainder is.)
In some situations, excessive unrelated business activities can also prompt the IRS to reconsider a nonprofit's 501(c)(3) tax-exempt status. To avoid this, a nonprofit should never let its unrelated business activities reach the point where it starts to look like a regular commercial business. For instance, unrelated business activities shouldn't absorb a substantial amount of staff time, require additional paid staff or volunteers, or produce much more income than that generated by the organization's exempt activities.
Activities That Are Not Taxed
Because the difference between "related" and "unrelated" activities can be confusing, the IRS has said that some activities will not be taxed, even if they aren't related to the nonprofit's purpose. Here's a quick rundown of the activities that aren't taxed:
- activities in which nearly all the work is done by volunteers
- activities carried on primarily for the benefit of members, students, patients, officers, or employees (such as a hospital gift shop for patients or employees)
- sales of merchandise that has been mostly donated to the nonprofit (such as a thrift store)
- the rental or exchange of mailing lists of donors or members, and
- the distribution of items worth less than $5 as incentives for donating money (such as stamps or pre-printed mailing labels).
Using Your Nonprofit’s Website to Help Fundraise Make sure site visitors don't leave without considering making a donation or getting involved.
Maintaining Operating Reserves This article by Tom Raffa discusses nonprofit organizations need to maintain the balance between operating income and expenses to be prepared to weather periods with revenue shortfalls. Found on The Nonprofit FAQ of Idealist.org
Create a Strategic Plan for Your Nonprofit