A section 501(c)(3) organization will jeopardize its exemption if ceases to be operated exclusively for exempt purposes. An organization will be operated exclusively for exempt purposes only if it engages primarily in activities that accomplish the exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities does not further an exempt purpose. A 501(c)(3) organization:

* must absolutely refrain from participating in the political campaigns of candidates for local, state, or federal office

* must restrict its lobbying activities to an insubstantial part of its total activities

* must ensure that its earnings do not inure to the benefit of any private shareholder or individual

* must not operate for the benefit of private interests such as those of its founder, the founder's family, its shareholders or persons controlled by such interests

* must not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose, such as a school's operation of a factory

* may not have purposes or activities that are illegal or violate fundamental public policy.

In addition to loss of the organization's section 501(c)(3) exempt status, activities constituting inurement may result in the imposition of penalty excise taxes on individuals benefiting from excess benefit transactions.

http://www.irs.gov/charities/charitable/article/0,,id=123299,00.html

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