Learn how to protect your tax-exempt status while running a successful nonprofit.

Nonprofit corporations are organized very much like regular corporations; however, running a nonprofit corporation means complying with a few special rules. Here’s what you need to know.

The Organizational Structure of Nonprofit Corporations




Corporate Records

All nonprofit corporations must keep good corporate records. These records help to preserve directors’ limited personal liability and protect your organization’s tax-exempt status. Good recordkeeping means preparing minutes of directors’ and members’ meetings and documenting important corporate decisions.

You’ll want to organize these materials in a corporate records book, which should also contain a copy of your articles of incorporation, bylaws and tax exemption determination letters from the IRS and your state tax agency, if applicable.

Keeping Financial Records

In addition to keeping records of important decisions, your nonprofit corporation must record any financial transactions in a double-entry bookkeeping system and keep other financial records in order to file an annual corporate tax return.

Limits on Nonprofit Activities

In addition to keeping corporate records, nonprofit corporations must follow some additional rules and abide by certain prohibitions in order to retain their tax-exempt status:

  • Nonprofit corporations cannot contribute money to political campaigns.Nonprofit corporations with a 501(c)(3) tax exemption (the most common) are not allowed to participate in political campaigns or contribute money to them. If they do, the IRS can revoke their nonprofit status, and can assess a special excise tax against the organization and its managers.
  • Nonprofit corporations must pay taxes on income from “unrelated activities.” Sometimes, a nonprofit organization will earn income through activities that aren’t directly related to its nonprofit purpose; for example, the directors of an organization dedicated to preserving open space may collect a consulting fee for advising other nonprofits. The IRS requires nonprofits to pay corporate income taxes on such unrelated income over $1,000, whether or not the group uses that money to fund its tax-exempt activities.
  • Nonprofit corporations cannot make substantial profits from unrelated activities. If a nonprofit spends too much time on unrelated activities, or if the unrelated activities generate “substantial” income, the group’s nonprofit status may be jeopardized. Nonprofit corporations that plan to engage in activities that aren’t related to their tax-exempt purpose should consult a lawyer or tax expert with experience in nonprofit law.
  • When a nonprofit corporation dissolves, its assets must be distributed to another tax-exempt group. Since tax-exempt organizations and their assets cannot be owned, they can never be sold. If the directors of a nonprofit decide to disband the organization, they must donate its assets to another nonprofit group. This also means that once property goes into a nonprofit corporation, it cannot later be distributed to a member or director.

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