FAQ: Maintaining Nonprofit Status

What makes a nonprofit?

1. The organization must have an exempt charitable purpose. 
2. It must be operated exclusively for the exempt purpose with which it applied for nonprofit status.
3. No earnings  can be paid to any private shareholder or individual. (This does not mean that you cannot have employees; this refers to money given beyond wages, or outside of the normal wage for a position.
4. It may not be an “action organization” –  it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Does being a nonprofit exempt organization mean I automatically pay no taxes?

No. Being an exempt nonprofit means you are not subject to corporate income tax or property taxes. 

If you complete additional forms you can become exempt from paying state sales tax, though you still have to collect sales tax from eligible transactions.

All employers, regardless of exemption status, are subject to payroll taxes.

What forms are required to maintain my status?

• FEDERAL:
  • IRS Form 990: Exempt organIzations are not required to pay taxes, but they are required to file the appropriate 990 form (specific form is based on your level of income). 990s are available for the public to inspect and can be critical for how the public learns about and perceives a nonprofit organization.
• STATE (Pennsylvania):
  • State Sales Tax Exemption
    • Sales Tax Exemption Application (REV-72) – renewed every five years
    • PA Exemption Certificate (REV-1220) – As Needed
  • Annual Statement
    Beginning in July 2025, all nonprofits must complete an annual statement filed with the Department of State. The statement will be free for nonprofit organizations.
    As of publication, the form is not yet ready; this page will be updated when it is received.
  • Charitable Solicitation Registration: In order to ask for or accept donations in Pennsylvania, nonprofits must file one of the following forms annually.
    • BC-10 (Charitable Organization Registration) – Exemptions can be found on this chart.  Public libraries that receive state aid are exempt from this BC-10 requirement. Cost to file ranges from $15-$250 based on gross contributions.
    • IPPC (Institution of Purely Public Charity): There are three exemptions from filing this form: 1. A BC-10 has been filed; religious institutions; or organizations with public contributions of less than $25,000 (provided their budget does not exceed $5,000,000). Cost to file is $15.
    • Note: These registrations only apply to Pennsylvania. If you raise funds in other states (eg. sending a fund drive letter to someone who lives in Florida), you may need to complete other registrations. Learn More
  • Small Games of Chance: While small games of chance (raffles, pull tabs, etc.) are eligible activities for your library to partake in to raise money and awareness of issues, keep in line with the rules governing those activities, which includes procuring an annual license. Small Games of Chance (SGOC): Overview

What could cause me to lose my exempt nonprofit status?

• Failure to file required forms: There is an automatic revocation of Federal nonprofit status after three years of failure to file the 990 forms. Penalties apply to late filings on both the federal and state level and can be significant.
• Giving private benefit or inurement: A 501(c)(3) organization’s activities should be directed toward some exempt purpose. Its activities should not serve the private interests, or private benefit, of any individual or organization more than insubstantially.  A 501(c)(3) organization is also prohibited from allowing its income or assets to benefit  insiders – typically board members, officers, directors and important employees of an organization. If an organization benefits insiders, the insiders and the organization could be subject to penalty excise taxes and the organization could lose its tax-exempt status.
• Changing your charitable purpose: An organization must pursue the exempt activities it promised in its IRS application for exemption. If an organization has deviated from its original purposes, it must inform the IRS to prevent future problems. 
• Participating in disallowed political activity: Section 501(h) permits certain eligible section 501(c)(3) organizations to elect to make limited expenditures to influence legislation. These limited exceptions to the lobbying prohibition must be reported to the IRS with Form 5768 or they will also be considered unallowable.
• Earning too much income from unrelated activities – Unrelated Business Income (UBI) is income that a nonprofit organization generates on a regular basis that is unrelated to the organization’s exempt purpose (for example, a cafe or gift shop attached to a museum). This income is taxable (known as UBIT) and generating too much can jeopardize the nonprofit status. However, there are some modifications, exclusions and exceptions. For more information about what constitutes unrelated business income of an exempt organization and how it is taxed, see Publication 598, Tax on Unrelated Business Income of Exempt Organizations.

Where can I learn more?

• IRS Stay Exempt Resources The IRS provides a video library of resources related to maintaining federal charitable status
• Pennsylvania Bureau of Business and Charitable Organizations Resources