Page 104 - Washington Nonprofit Handbook 2018 Edition

PART 5. MAINTAINING FEDERAL TAX-EXEMPT STATUS FOR YOUR 501(C)(3)
ORGANIZATION

CHAPTER 27. Continuing Obligations Under Federal Tax Law

When an organization receives a determination from the Internal Revenue
Service that it is qualified under section 501(c)(3) of the Internal Revenue Code of
1986, as amended (also referred to as “section 501(c)(3)”; organizations exempt
from federal taxes under Code section 501(c)(3) also referred to as a “501(c)(3)
organization”), it is the beginning, not the end, of a compliance process that will
continue throughout the organization’s life. An organization must continue at all
times to comply with tax law requirements in order to maintain its tax exemption.
Specifically:

y The organization must be organized and operated at all times
exclusively to further charitable purposes;

y It must not allow any of its assets or net income to “inure” to the
benefit of an “insider”;

y It must not participate in any campaign for or against any candidate
for political office;

y It must not engage in attempts to influence legislation as any
substantial part of its activities;

y It must report and pay tax on any net unrelated business income; and

y It must comply with a variety of annual reporting and public disclosure
requirements.

Each of these issues is addressed in more detail below. In general, this Part
addresses nonprofit organizations exempt from federal taxes under
section 501(c)(3) of the Internal Revenue Code of 1986, as amended (also referred
to as “501(c)(3) organization(s)’) that are qualified as public charities, and not private
foundations, under federal law. A more restrictive set of rules applies to 501(c)(3)
organizations that are private foundations. The private foundation rules are
beyond the scope of this text, but are introduced and discussed briefly in
Chapter 22. A special set of rules also applies to public charities that are classified
as “supporting organizations.” An organization is a supporting organization if its IRS
determination letter identifies it as an organization described in Code

WASHINGTON NONPROFIT HANDBOOK -93- 2018