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socrateaser, Lawyer
Category: Legal
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Experience:  Retired (mostly)
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may a 501c3 give charity or assistance to a private individual

Customer Question

may a 501c3 give charity or assistance to a private individual or family
Submitted: 3 years ago.
Category: Legal
Expert:  socrateaser replied 3 years ago.

This is a complicated question. Assuming that we are talking about providing benefits to someone who is not a director, employee or other "insider" to the 501(c)(3), the issue is whether or not the benefits provided serve a private rather than public interest.

Tax Court, in American Campaign Academy v. Commissioner, 92 TC 1053 (1989), provides a useful definition of "private benefit:" "nonincidental benefits conferred on disinterested persons that serve private interests." We will consider each part of this definition in turn.

So, for example, if a charity runs a soup kitchen and feeds 100 persons daily, then while each person may receive a nonincidental benefit, the interest served is really public, because it's not just one person or family receiving soup every day. Similarly, if the charity is providing college scholarship grants to 10 deserving high school students every year, then this too is not a private benefit, because the interest is public educational welfare.

But, if the charity is generating a scholarship for those same 10 students, and then the next year, it generates another scholarship for 5 of the same 10 students, and no new students, then that suggests that the charity is engaged in transferring a private benefit, because there appears no effort to continue a public purpose in scholarship grants.

Hope this helps.