How Nonprofits Can Work With For-Profit Partners Without Losing Exemption
Many nonprofit leaders believe one thing:
“If we’re good with the IRS, we’re fine.”
In Massachusetts, that assumption can be dangerous.
It’s not just the IRS that regulates nonprofits. The Commonwealth does too — and the state has real enforcement power.
The IRS Is Only Half the Story
Yes, the IRS grants federal tax-exempt status.
Yes, you file Form 990 annually.
Yes, the IRS can revoke your exemption.
But in Massachusetts, nonprofits are also regulated by the
Massachusetts Attorney General’s Non-Profit Organizations / Public Charities Division.
That office oversees charitable organizations operating in the Commonwealth.
And they are not a paperwork formality.
They confirm whether your nonprofit is in good standing at the state level.
They review required filings.
They investigate complaints.
They can take enforcement action.
Why This Matters More Than Most Nonprofits Realize
Many organizations assume:
- “We filed our 990.”
- “We have our IRS determination letter.”
- “We’re covered.”
Federal compliance does not automatically mean state compliance.
Massachusetts nonprofits must meet separate state requirements. That includes mandatory filings, governance obligations, and reporting duties that are distinct from federal filings.
If your organization falls out of compliance with the Attorney General’s office, the consequences can escalate quickly.
The Attorney General Has Independent Enforcement Authority
The Massachusetts AG’s office can:
- Open investigations
- Demand records
- Review governance practices
- Question how funds are used
- Take action against organizations and individuals
This is not theoretical.
Nonprofits do not need to commit fraud to attract scrutiny. Missed filings, poor documentation, and governance breakdowns can trigger review.
The State and the IRS Do Not Always Move Together
Another misconception:
“If the IRS hasn’t contacted us, we must be fine.”
That is not how it works.
The Attorney General’s office can raise concerns independently of the IRS.
And in Massachusetts, state good standing plays a role in maintaining state-level tax exemption recognition.
Your federal determination letter does not shield you from state enforcement.
Why Nonprofits Get This Wrong
It’s simple.
Most nonprofit boards:
- Focus on fundraising and programming
- Rely on accountants for federal filings
- Assume compliance is “annual paperwork”
What they don’t realize is that state oversight is ongoing.
By the time an organization hears from the Attorney General’s office, the issue is rarely minor.
What You Should Do Now
If you’re running a Massachusetts nonprofit, ask:
- Are we current with all required state filings?
- Is our governance documented properly?
- Are we confident we’re in good standing with the Attorney General?
- Would we be prepared if the state requested records tomorrow?
If you’re not sure, that’s the time to act — not after a letter arrives.
Don’t Assume You’re Covered
The IRS regulates nonprofits So does Massachusetts.
Ignoring one of those regulators can create real risk.
Concerned about your nonprofit’s standing? Contact Laura Brown.