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Originally Posted by bignasty
I am right. Cite a source proving me wrong.
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No problem.
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To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.
The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.
Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct.
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Source:
http://www.irs.gov/charities/charita...=96099,00.html
To recap:
1) The expenses of a non-profit (administrative, fundraising, programming) must be tied directly to its exempt purposes.
2) Expenses may not inure to any private shareholder or individual, meaning that no single person can benefit unreasonably from a non-profit's activities.
3) Expenses cannot go toward attempting to influence legislation as a substantial part of the non-profit's activities.
These are the rules.
In reality, a non-profit can spend 100% of its revenue on salaries if it wanted to, as long as no private inurement took place.
There is no such thing as a 10%/90% rule as you're suggesting. Either you heard wrong or the "reporter" was blowing smoke.