Corporate or trust income tax at the highest rate (21% for corporations, 35% for trusts, in 2019)[i] applies if a nonprofit entity fails to qualify, engages in prohibited transactions, or stops operations that are exempt from taxation.[ii] 378 entity 501(c)(3) exemptions are listed by the IRS as having been revoked through formal hearings since 2005, and many more of these and other types of exempt entities have had their exemptions automatically revoked for failure to file required tax forms.[iii] If your organization wants to become and remain exempt, it needs to be ready for a denial of application for recognition of the exemption, tax audit, audit challenge, tax court or federal court case that challenges your exemption. For a free guide to obtaining, maintaining, and restoring federal income tax exemptions, send an email with “Federal Tax Exemption Whitepaper” to firstname.lastname@example.org.
[i] Trading Economics, https://tradingeconomics.com/united-states/corporate-tax-rate, accessed 10/25/2019.
[ii] IRS Publication 557, “Revocation”, page 6, and see UBIT explanation at https://www.irafinancialgroup.com/learn-more/self-directed-ira/what-is-the-ubti-tax-rate/, accessed 10/25/2019.
[iii][iii] Internal Revenue Service, “Revocations of 501(c)(3) Determinations”, https://www.irs.gov/charities-non-profits/charitable-organizations/revocations-of-501c3-determinations, accessed 10/24/2019, as well as spreadsheet of names linked in article. For the list of automatic revocations, see link to full list at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search-bulk-data-downloads, accessed 10/25/2019.