8 Action Steps for Avoiding Nonprofit Online Presence Tax Traps

Social media and the web are powerful tools for communicating with supporters and furthering an organization’s mission. However, the IRS also considers them official vehicles of communication. That means published statements and electronic media activities are subject to the restrictions that apply to all nonprofit organizations, and prohibited communications can result in revocation of tax-exempt status.

In the digital age, organizations must implement and follow a proactive nonprofit online presence policy to avoid IRS penalties and sanctions associated with unrelated business income tax (UBIT), nonprofit lobbying, and non-exempt activities. Following the organization’s established general communications policy is simply not enough.

To mitigate the tax traps of nonprofit online presence, we recommend 8 action steps.

1. Pay attention. It’s tempting to turn over the website and social media responsibilities to a tech-savvy volunteer and forget about it, but this mistake can be costly. Someone in the organization who understands the rules and consequences must be the designated supervisor for all online activity. It’s too important to risk accidental violations.
2. Link with care. Be extremely cautious in adding links to organization pages. The same things that are prohibited on organization pages are off limits in hyperlinked content.
3. Plan ahead. Create and enforce a social media policy that defines policies, procedures, and all relevant standards for online content and conduct. Train everyone in the organization on how to follow it, and make sure those involved in online communications stay up-to-date on the rules.
4. Mind your mission. The IRS monitors Facebook and other online media sites to verify that activities are consistent with the organization’s stated mission. Make sure that web-based communications align with the mission as described on Form 1023/1024, Form 990, and elsewhere.
5. Toe the political line. Political statements or partisan discussions that support or oppose one candidate or piece of legislation are off-limits for nonprofits. If any candidate or issue is mentioned, then be sure to provide information about all of the options in a non-partisan way. Think of it this way: Education is okay, but opinion is off-limits.
6. Watch for incidental income. Often, organizations are surprised to learn that online fundraising activities such as sales of t-shirts or other goods create taxable income. Selling or renting mailing lists, site advertising, and links to sites that are commercial in nature are also common triggers. Check with the organization’s financial advisors before agreeing to sales of products or advertising, or any other activities that could generate revenue.
7. Avoid advertising. Any advertisements – or site links – could create UBI and possibly other risks to tax-exempt status.
8. Keep a record. Certain social media communications may need to be preserved to ensure availability in case of an IRS audit. It’s not enough to assume that an internet service provider has records; the responsibility to retain these records falls on the organization. The web is a rich resource for sharing your mission and connecting with donors. Used wisely, it’s one of the most effective and cost-efficient vehicles for communicating with large audiences to spread the news of your accomplishments and needs. Just remember that maintaining your tax-exempt status depends on following the same stringent rules online as you do in other kinds of communication.

Build a Better Nonprofit Online Presence with CRI

CRI’s not-for-profits CPAs can help your organization build a better online presence by crafting an online policy that avoids the traps of unrelated business income tax (UBIT), lobbying, and non-exempt activities.