What are the consequences if a club loses its tax-exempt status?
April 13, 2023 | 50,00 EUR | answered by Björn Ley
Dear tax advisor,
I am Fanni Kohlstein and I am the head of a non-profit organization that is dedicated to promoting education and culture. Lately, I have heard that there have been some legal changes regarding the non-profit status of organizations and I am concerned that our organization may potentially lose its non-profit status.
Our organization has been recognized as non-profit for many years and we benefit from tax advantages, donations, and grants. We regularly hold cultural events and offer educational programs for children and teenagers. It would be a significant financial burden for us if we were to suddenly lose our non-profit status.
Therefore, my question is: What are the consequences if an organization loses its non-profit status? How would it affect our finances, our activities, and our collaboration with other institutions? Are there ways to maintain or regain non-profit status if it has been lost?
Thank you in advance for your support and advice.
Sincerely,
Fanni Kohlstein
Dear Mrs. Kohlstein,
Thank you for your inquiry regarding the charitable status of your association. As a long-time tax consultant specializing in association taxation and charity, I can understand your concerns well and will be happy to provide you with a detailed response.
When an association loses its charitable status, it has various consequences. Firstly, the association loses the status of being charitable, which means it is no longer tax-exempt. This means that the association becomes liable for taxes on income such as donations, grants, or potential profits from that point onwards. This can lead to significant financial burdens, as the association suddenly has to pay taxes that were previously waived due to its charitable status.
Furthermore, the loss of charitable status has implications for collaboration with other institutions. Many funding bodies, foundations, companies, and even individuals prefer to support charitable organizations. If your association loses its charitable status, these funding sources may be discontinued, which could have a negative impact on your finances and activities. Collaborations with other charitable organizations or institutions may also become more difficult, as they often only work with charitable associations.
However, there are ways to maintain or regain charitable status if it has been lost. Firstly, it is important to identify and rectify the causes of losing charitable status, which are often breaches of the statute requirements, unauthorized commercial activities, or faulty accounting. Through appropriate measures and adjustments, you can try to restore charitable status.
It is advisable to seek professional support from a tax consultant or lawyer with expertise in the field of charity to best accompany and support the process.
I hope that this information has been helpful to you, and I am available for further questions.
Best regards,
Björn Ley, Tax Consultant
