Which condition could lead to revocation of a nonprofit's tax-exempt status?

Which condition could lead to revocation of a nonprofit's tax-exempt status?

• A. Too much unrelated business income
• B. Having a large endowment
• C. Operating in multiple states
• D. Donating to political campaigns

Answer: (C)

Tax-exempt status can be revoked when an organization engages in activities that violate the requirements for its exemption. For 501(c)(3) charities, political campaign activity is a clear violation, so engaging in or supporting political campaigns could lead to losing tax-exempt status. Excess unrelated business income mainly triggers taxes on that income (UBIT) and can threaten exemption if it becomes the substantial part of the organization’s activities, but it doesn’t automatically revoke the status. A large endowment isn’t itself a threat to tax-exempt status, and operating in multiple states doesn’t by itself cause revocation—many nonprofits operate nationwide while staying compliant. Donating to political campaigns, however, directly conflicts with the restrictions on 501(c)(3) organizations and is the condition most likely to result in revocation.

Tax-exempt status can be revoked when an organization engages in activities that violate the requirements for its exemption. For 501(c)(3) charities, political campaign activity is a clear violation, so engaging in or supporting political campaigns could lead to losing tax-exempt status.

Excess unrelated business income mainly triggers taxes on that income (UBIT) and can threaten exemption if it becomes the substantial part of the organization’s activities, but it doesn’t automatically revoke the status. A large endowment isn’t itself a threat to tax-exempt status, and operating in multiple states doesn’t by itself cause revocation—many nonprofits operate nationwide while staying compliant. Donating to political campaigns, however, directly conflicts with the restrictions on 501(c)(3) organizations and is the condition most likely to result in revocation.