Many Illinois not-for-profit corporations, both in the Chicago area and in other parts of the state, may wish to try to take advantage of a special tax-exempt status awarded by the Internal Revenue Service, or IRS.

Not only does this status give oftentimes critical tax breaks to the not-for-profit, it also gives donors to the organization the option of writing off their donations as a tax deduction. This is a strong additional incentive for the person to make a donation, particularly if that person is a high earner.

Getting tax exempt status is an involved process that requires legal or accounting knowledge and attention to detail. However, becoming tax exempt is in some sense only half the battle. To maintain tax exempt status, there are a lot of rules and regulations the organization must follow.

Among other things, these regulations limit how an organization may use its property and, in particular, prevent the organization from paying executives more than a reasonable salary.

While it is always ideal for a not-for-profit organization to make sure it complies with the laws and the IRS’s regulations, sometimes there can be a bona fide tax controversy about what an organization is or is not allowed to do. In other cases, a smaller not-for-profit may make a few honest slips in their compliance with these laws, and they may therefore be threatened with the loss of their tax exempt status.

Many residents of the Chicago area invest a lot of time and money in to causes that are dear to them, and having that dream threatened by problems with the IRS can be a real challenge. A stakeholder in a non-profit business under audit or investigation should recognize that legal options are available.