Congratulations if you have jumped through all of the hoops to become a 501(c)(3) organization.
But now you must be careful that your actions don't draw attention from the IRS or cause you to lose your exempt designation.
Following are the activities that could cause your organization to lose its tax-exempt position:
Private benefit/inurement
A nonprofit differs from a for-profit organization in that it does not benefit the private interests of any individual or organization. A nonprofit organization must serve the public good. Profits are not paid to individuals but channeled back into the organization's activities. However, you can pay reasonable salaries to staff.
Inurement goes a bit further in that it prohibits the nonprofit from allowing any of its income to be paid to or property sold (below fair market price) to insiders such as officers, directors, or employees. This requirement is "absolute" which means that any such payment or sale will allow the IRS to strip your exempt status.
Lobbying
An organization lobbies when it attempts to influence legislation. A 501(c)(3) organization has to be very careful if it engages in lobbying. Some lobbying is permitted under certain circumstances. This is tricky so it may be better to not lobby at all nor encourage anyone to support, propose, or oppose any legislation. If you engage in too much lobbying, the organization could be stripped of its exempt status, and face a fine. For more details on how the IRS handles the issue of lobbying on the part of 501(c)(3) organizations, see its tutorial on the subject.
Political campaign activity
501(c)(3) organizations cannot endorse or oppose any candidate for public office. This includes contributions to a political campaign and even public statements for or against a candidate. This prohibition is "absolute," meaning that any violation can be cause for the IRS to strip the 501(c)(3) of its tax-exempt status.
A 501(c)(3) may invite a political candidate to speak at an event IF no fundraising occurs, IF an equal opportunity to speak is extended to other candidates seeking the same office, and IF the organization does not indicate its support for or opposition to any candidate.
Activities that generate too much unrelated business income (UBI)
The area of UBI is complex but basically it means that your organization may not receive income from a regularly-carried-on trade or business that is not related to your mission. If you generate funds from a business activity but it is not regular, you will probably have to pay taxes on that income but it won't jeopardize your tax-exempt status. An example would be selling merchandise once a year at a fair.
If your organization earns more than $1000 during the year, it must file IRS form 990-T, Exempt Organization Business Income Tax Return. Too much UBI can threaten your tax-exempt status. You could be in trouble if UBI takes up more time and attention than your mission. The IRS provides an excellent online tutorial on UBI that goes into the intricacies of this kind of income.
The best course to follow in order to make sure your tax-exempt status is never taken away is to focus on your mission...the reason your organization was founded...and make sure that all of your activities revolve around that purpose.
