Have You Changed Your Programming?

Has your organization changed its programming recently?  Have you notified the IRS of the changes?

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for the exempt purposes listed in 501(c)(3).  These purposes are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. 

In addition, an organization must file an application with the IRS and be approved by the IRS to receive tax-exempt status.  When the organization files its application, it must describe its mission, programs, and activities so that the IRS can determine if it fits within the meaning of a tax-exempt organization. 

Sometimes an organization will apply for tax-exempt status with the intent to provide certain programs but then over time it adds new programs or strays from its original programming.  If the organization strays too far from what it reported in its initial tax-exempt application, the IRS may revoke its tax-exemption.  It is important that any new programs and activities still qualify for exemption under 501(c)(3). 

Any significant changes in programming should be reported to the IRS in Part III of the organization’s annual Form 990.  In this section, the IRS asks if the organization undertook a new significant program service activity prior to the end of the tax year that has not been described on a prior year return.  If it has, the organization needs to report these changes.  Correctly answering this question is critical since this is how the IRS is notified of the organization’s continued qualification for exempt status. 

Small changes to programming do not need to be reported, only significant ones.  For example, if an organization provides literacy programs to adults and then decides to add a literacy program for children, this is likely not considered a significant change.  However, if there is any question, it is better to report the change than not. 

If the organization were to change programming significantly and not report the changes to the IRS, the IRS could consider revenue from the new programming unrelated business income which the organization would be liable for unrelated business income taxes.  In extreme circumstances, the organization may even lose its tax-exempt status.

Contributed by: Carrie Minnich, CPA, MAcct | Director | DWD CPAs & Advisors