How Tax-Exempt Statuses Can Be Revoked Part 1

For many, the laws and regulations of our tax organization can be a complicated obstacle course of technicalities and amendment forms. This statement can hold even more truth for entities that hold a 501(c) tax exemption status. Last week, we covered the basics of what a tax-exempt status is and what that entails. As premier tax attorneys in Maryland, JDKatz works to guide clients through the intricacies of tax exemptions and the myriad of rules that follows suit. We offer a comprehensive set of services for our clients that cover everything from tax advice to qui tam lawsuits. Our expert attorneys are knowledgeable and ready to offer concise tax advice for a variety of fields. One area that produces a lot of headaches for citizens is the retention of their 501(c) status. Organizations that are categorized as 501(c)(3) non-profits can expect little trouble from their friendly IRS agent as long as they generally abide by six benchmarks.

Political Involvements

The act of favoring or encouraging one political party or representative or any other is a violation that can result in a revocation of tax-exempt status. This is widened to include any contributions that a non profit makes to any political campaign or office. Members of the entity in question are forbidden from making any comments in favor of any party in an official stance representative of their organization. As this year’s election has come to a close, the number of non profits coming under scrutiny is higher than normal. Our advice is to steer clear of politics in any official capacity.

The IRS has reminded citizens that their organizations are allowed to engage in political activities as long as it occurs with the goal of offering voter education, assistance, and promoting the voting process. As long as you are neutral in your organization’s dealings, all should be smooth sailing through the political landscape.


Tax-exempt entities will come under scrutiny if it lobbies for legislative changes to a large enough degree. While this statement is not very concise, it points citizens in the right direction for how to effectively lobby as a non profit organization. The IRS defines lobbying as the result of when organizations contact the public or members of the government with the purpose of proposing, supporting, or opposing a select piece of legislation. Lobbying can also be present when an organization promotes the rejection or adoption of legislation.

However, the IRS has also stated that organizations can lobby to a certain extent, as long as it is not considered substantial. In order to measure the legitimacy of your organization’s lobbying, the IRS offers an “expenditure test” that is helpful for determining how much lobbying your entity can undertake. This 501(h) form is derived from the Internal Revenue Codes where the rules for lobbying expenses are laid out in full.

Regardless of our informational blogs and IRS guidelines, there are still a number of ways in which a non profit entity can commit and error and lose its tax-exempt status. Next time, we’ll look into more areas that 501(c) organizations commonly commit mistakes in and how people can work to avoid erring in their daily operations. If you’re in need of tax advice for any number of reasons, we can help! JDKatz is your source for top-notch tax attorneys in Maryland and D.C. Contact us today to see what we can do for you!