Conduct and Activities Inconsistent with a Nonprofit’s Mission Could Lead to Legal Challenges and Loss of Tax Exempt Status

An article recently appeared in The Nonprofit Quarterly concerning the pitfalls a nonprofit organization faces when it chooses to operate outside of its mission.

The bottom line is that an organization can be exposed to legal challenge and possible loss of IRS exempt status as a result of inappropriate conduct or activity.

Know your Status

We highly encourage all nonprofit leaders to know what section of the IRS code their organizations are exempt under and to remain familiar with the applicable restrictions that each type of entity is subject to.  In addition, an annual review of your mission statement will help to ensure that the activities your nonprofit is conducting are consistent with that statement.  There is no reason why an organization’s mission statement can’t be amended to be more reflective of current activity, but those changes would have to be made in accordance with the rules governing your bylaws.  Also, if your organization’s mission has changed or increased substantially you need to inform the IRS of these changes through the 990 reporting process.  The IRS will review the changes and should approve them  as long as they determine that the new activities are consistent with charitable purposes or purposes allowable within your tax exempt status.

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