A 501(c)(3) nonprofit’s tax-exempt status can be revoked by the IRS for the following reasons.
1. Private Benefit & Inurement
By default, all 501(c)(3) nonprofits must operate within their registered tax-exempt purpose(s). Any activity meant to enrich or benefit key members, like board members or officers, and their private interests would be a violation.
2. Lobbying
501(c)(3) nonprofits are prohibited from lobbying excessively. While some nonprofits may need to influence legislation by virtue of their purpose or mission, they should stay true to their purpose and avoid taking on partisan positions.
The IRS can and will revoke a tax exemption classification if it acquires adequate proof a nonprofit is or was involved in inappropriate lobbying.
3. Political activity
Nonprofit organizations cannot participate in political campaigns for or against any public office candidate. However, 501(c)(3) nonprofits can freely engage in non-partisan political activity that aims to benefit the general public without taking sides, like civic education or voter registration drives.
4. Failure to Submit Annual Reports
All registered 501(c)(3) nonprofits must submit annual reports, including the salaries of their directors and key employees.
Failure to submit annual reports to the IRS may lead to a nonprofit losing its tax-exempt status.
Nonprofit rules also vary at the state level. The links below demonstrate some of the key differences from state to state.