As a Neighborhood Association looking to become a 501(c)(3) organization, there are several potential pitfalls that you should be aware of in order to avoid common mistakes that could jeopardize your nonprofit status. One common pitfall is failing to meet the IRS requirements for tax-exempt status, such as not operating exclusively for charitable purposes or not having a proper organizational structure in place. Another pitfall is not keeping accurate records and failing to file required annual reports, which could result in penalties or loss of tax-exempt status.

To avoid these pitfalls, it is important to thoroughly understand the IRS requirements for 501(c)(3) organizations and to ensure that your Neighborhood Association complies with all regulations. This includes having a clear mission statement that demonstrates your charitable purposes, establishing a board of directors with proper oversight and governance, and maintaining accurate financial records. Additionally, it is crucial to file Form 1023 or 1023-EZ with the IRS to apply for tax-exempt status and to submit annual Form 990 informational returns to maintain your status.