Nonprofit Tax Guidance Explained by a Nonprofit Lawyer
Nonprofit taxes aren’t easy. And if you get them wrong, your entire mission could be at risk.
Whether you’re running a local shelter or a national foundation, staying compliant with tax law is essential. You want to focus on doing good—not deciphering tax codes or worrying about losing your exempt status.
That’s where a nonprofit lawyer comes in.
Why Nonprofit Taxes Aren’t “Simple”
It’s a common misconception: “We’re a nonprofit, so we don’t pay taxes.”
Not quite.
Yes, many nonprofits are exempt from federal income tax under IRS Code § 501(c)(3) or other classifications—but that doesn’t mean you’re exempt from filing, reporting, or following the rules.
Here’s what you’re still responsible for:
- Applying for and maintaining tax-exempt status.
- Filing annual Form 990 or its variant (every year—on time)
- Complying with state-level charitable registration and tax rules.
Miss a step? The IRS can revoke your status. The state can assess penalties. Donors may back away.
Are You Really Tax-Exempt?
Think all nonprofits are created equal? They’re not.
A 501(c)(3) organization is the most common—and it allows donors to deduct contributions. But there are other types, like 501(c)(4) social welfare groups, and they come with different rules.
Also, being “tax-exempt” doesn’t mean everything is off-limits.
If your organization earns income from activities unrelated to your mission—think gift shops, rental income, or sponsorship deals—you may owe UBIT (Unrelated Business Income Tax).
Didn’t know that? You’re not alone. And the IRS doesn’t take ignorance as an excuse.
Common Tax Pitfalls for Nonprofits
Even well-meaning nonprofits slip up. These are the red flags we see often:
- Missing filing deadlines — Especially for Form 990. Three years in a row? Your exempt status is gone.
- Poor recordkeeping — Without proper books, you can’t prove where donations go.
- Engaging in political activity — Nonprofits can’t support candidates. Period.
- Excessive lobbying — Some advocacy is allowed, but too much? Risky.
Each of these can lead to fines, audits, or worse—shutting down your operation entirely.
How a Nonprofit Lawyer Can Help
You don’t need to go it alone. A nonprofit lawyer can step in at every stage. Before you file anything, they help you choose the right structure and classification. During your operations, they guide your reporting, compliance, and donor communications. If there’s trouble, they’re ready to respond to IRS inquiries or defend your status. Think of it as legal insurance for your mission!
Already in Trouble?
If you’ve already received a scary letter—or worse, lost your status—don’t panic.
Here’s what to watch for:
- A letter from the IRS or state agency.
- Notice of penalties or revoked status.
- Board members unsure of what to do next.
The sooner you act, the better your chances of fixing it.
We’ve helped nonprofits get reinstated, negotiate penalties, and prevent shutdowns. But timing matters. The longer you wait, the harder it gets.
Don’t Let Tax Issues Derail Your Mission
You started your nonprofit to make a difference—not to drown in paperwork or lose sleep over compliance.
Let a nonprofit lawyer help you stay on track.
Whether you need a one-time consult or ongoing legal guidance, we’re here to protect your purpose—and your peace of mind.