Tax compliance is a critical area for nonprofit organizations, as errors can lead to significant penalties, loss of public trust, and even the revocation of tax-exempt status by the Internal Revenue Service (IRS). Understanding and adhering to tax laws is essential for maintaining a nonprofit’s integrity and ability to serve its community. This guide highlights common tax compliance issues for nonprofits and provides strategies to avoid these pitfalls.


The IRS grants nonprofits tax-exempt status because of their charitable, educational, or religious missions. However, this status comes with stringent compliance obligations, particularly regarding taxes. While nonprofits do not pay income taxes on donations or grants related to their mission, they must navigate a complex landscape of reporting and operational standards to maintain their tax-exempt status.

Nonprofit Tax Compliance. Wasilidas & Kulik CPA PC

Common Tax Compliance Issues for Nonprofits

1. Failure to File Form 990

2. Misclassifying Employees and Contractors

3. Unrelated Business Income Tax (UBIT)

4. Violations of Charitable Contribution Substantiation and Disclosure

5. Poor Tracking of Donor-Designated Funds

6. Lobbying and Political Activity Violations

The Role of CPAs in Ensuring Tax Compliance

CPAs are invaluable in helping nonprofits navigate complex tax landscapes. Here are ways they can assist:

  1. Proactive Tax Planning: CPAs can help nonprofits plan for their tax obligations, ensuring that they take advantage of all applicable exemptions and credits.
  2. Training and Education: They can provide training for nonprofit staff on tax compliance, including how to properly document and report activities to maintain tax-exempt status.
  3. Audit and Assurance Services: CPAs conduct audits that can help uncover and correct compliance issues before they become problematic.
  4. Representation Before the IRS: If issues arise, CPAs can represent nonprofits in dealings with the IRS, helping to resolve issues efficiently and effectively.


Tax compliance is essential for maintaining a nonprofit’s integrity and ability to fulfil its mission. By understanding common pitfalls and implementing strategies to avoid them, nonprofits can ensure they remain in good standing with the IRS and their donors. Working with a CPA can provide the expertise needed to navigate these challenges and maintain the focus on serving the community. Ensuring tax compliance is not just about following the law; it’s about sustaining the trust and support that keep nonprofits thriving.