Potential Tax Issues Related to Your Website
Posted on Wednesday, March 12, 2014
There’s a lot of information about an organization that can be found on its website. The IRS knows this and that’s why Form 990 specifically asks for the organization’s website. The IRS is looking at nonprofit websites for unrelated business income and other potential tax issues. Below are some of the specific issues the IRS is looking at.
Is your mission listed on your website consistent with the mission listed on Form 1023, Application for Recognition of Exemption? If your organization stops doing all or a significant amount of the exempt purpose it originally told the IRS it was going to do, the organization could lose its exempt status.
Unrelated business income
Many nonprofits have advertising on their websites, and the rules for advertising on the internet are the same as on paper. Online advertising is considered unrelated business income and is taxable. Types of advertising on an organization’s website may include the following:
- Paid advertising resulting from flat rate fees, pay-per-view or click-through charges
- Hyperlinks to other websites
- Pro-bono advertising
- Online periodicals
Online storefronts are also becoming popular with nonprofits. The IRS uses the same analysis for sales made online as those made through brick and mortar stores to determine if the transaction results in unrelated business income. Merchandise is evaluated on an item-by-item basis to determine whether the sales activity furthers the accomplishment of the exempt purpose or if it is unrelated.
Another revenue generating means is online auctions. Some organizations conduct their own auctions while many have turned to outside service providers. The IRS looks at how much control the nonprofit has over the auction to determine if it constitutes unrelated business income.
501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition of) any candidate for public office. The IRS issued Revenue Ruling 2007-41 and specifically stated, “A website is a form of communication. If an organization posts something on its website that favors or opposes a candidate for public office, the organization will be treated the same as if it distributed printed material, oral statements or broadcasts that favored or opposed a candidate.”
Make sure you monitor your organization’s website for potential tax issues and be sure to keep the site up to date. You never know who’s looking at it.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.