Starting and maintaining a nonprofit organization in the United States involves more than having a strong mission—it requires meeting strict IRS requirements. These rules ensure that organizations operate for charitable purposes, maintain transparency, and continue to qualify for tax-exempt status. Understanding these obligations is essential for nonprofit founders, executive directors, and compliance officers.
Obtaining Tax-Exempt Status
The first IRS requirement for a nonprofit is to apply for tax-exempt recognition. Most organizations seek exemption under Internal Revenue Code Section 501(c)(3), which applies to charities, religious groups, and educational institutions. To qualify, nonprofits must:
- Be organized for recognized exempt purposes (charitable, religious, educational, scientific, or literary).
- File Form 1023 (or Form 1023-EZ for smaller organizations) to apply for tax-exempt status.
- Adopt governing documents such as articles of incorporation and bylaws.
Without IRS approval, an organization cannot offer tax-deductible receipts to donors or enjoy exemption from federal income tax.
Filing Annual Returns
Once recognized, most nonprofits must file an annual return with the IRS using one of the Form 990 series:
- Form 990 – For larger organizations.
- Form 990-EZ – For mid-sized nonprofits.
- Form 990-N (e-Postcard) – For nonprofits with less than $50,000 in gross receipts.
These filings provide financial transparency and demonstrate that the nonprofit continues to meet the requirements for exemption. Failure to file for three consecutive years results in automatic revocation of tax-exempt status.
Maintaining Compliance for Nonprofit Organizations
The IRS imposes ongoing compliance requirements, including:
- Operational Test – Activities must align with the nonprofit’s exempt purpose.
- Private Benefit Rule – Earnings may not benefit private individuals or shareholders.
- Political Activity Restrictions – 501(c)(3) organizations cannot participate in partisan political campaigns.
- Recordkeeping – Nonprofits must maintain accurate records of finances, board decisions, and program activities.
These rules safeguard public trust and ensure nonprofit organizations remain accountable to both donors and regulators.
Key Takeaway
The IRS requires nonprofits to apply for exemption, file annual reports, and operate exclusively for charitable purposes. Failure to meet these standards risks penalties, loss of status, and damage to credibility. For nonprofit organization leaders, partnering with an experienced CPA or compliance advisor is the best way to stay on track.