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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3908
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Im an officer of a non-profit organization. A foundation wishes

Resolved Question:

I'm an officer of a non-profit organization. A foundation wishes to give a 5-digit sum to the non-profit and has asked that we direct the funds to an employee of our non-profit. The foundation to which the funds were originally given is a non-profit as well. Can these funds be passed to an employee of the non-profit on whose board I sit as a gift? Or only as taxable wages? And are there any risks to the non-profit status of the organization on whose board I sit?

So to summarize: Non-profit A wishes to give funds to Non-profit B and wants those funds to be gifted to an individual who is an employee of Non-profit B.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

You raise an important question ... Risk most certainly does exist here

NPVAdvisor :

In the Internal Revenue Code, the nondistribution constraint is embodied in the prohibition against inurement

NPVAdvisor :

The inurement prohibition forbids the use of the income or assets of a tax-exempt organization to directly or indirectly unduly benefit an individual or other person that has a close relationship with the organization or is able to exercise significant control over the organization.

NPVAdvisor :

The essence of the inurement proscription is found in the language of Code § 501(c)(3), which provides that no part of a 501(c)(3) organization’s net earnings can inure to the benefit of any private shareholder or individual.

NPVAdvisor :

Can a case be made that this is to pay for work to be done that directly furthers the non-profits mission?

NPVAdvisor :

My opinion is that documenting that the incremental wages are going to a new position or additional/incremental work that will directly address the (further the) mission of the organization is the way to do this with the least amount of risk

Customer:

To answer your final question: it's pretty much "gray," in my opinion. To be more explicit about the situation, a non-profit religious organization ("Non-profit A" in my original description) wanted to give $10,000 to one of our pastoral staff (who is employed by our church, "Non-profit B"); and they wish to give the money to our church and ask/hope that we will simply pass it through to the pastoral staff person as a gift. (We've always resisted this in the past, because the original gift to Non-profit A was tax-advantaged/deductible; etc.)

Customer:

The person who controls the disbursement of funds from "Non-profit A" simply wished to express gratitude to our pastoral staff.

NPVAdvisor :

I completely agree with your intuition ... the IRS terminology here is "excess benefit transaction" but it IS a facts and circumstances test

NPVAdvisor :

Again, if this was done along with some letter of documentation of an expectation that the efforts of whatever nnon-profit is involved be "furthered," continued." etc willl help

NPVAdvisor :

Just to give you the tests check use...

NPVAdvisor :

sorry the test's (factors) IRS would use if this were looked at in an audit of the for 990:

NPVAdvisor :

Factors the IRS will consider include:



  • The size and scope of the organization’s regular and ongoing activities that further exempt purposes before and after one or more excess benefit transactions occurred;

  • The size and scope of one or more excess benefit transactions relative to the size and scope of the organization’s regular and ongoing exempt functions;

  • Whether the organization has been involved in repeated excess benefit transactions,

  • Whether the organization has implemented safeguards that are reasonably calculated to prevent future violations, and

  • Whether the excess benefit transaction has been corrected or the organization has made a good faith effort to seek correction from the disqualified person or persons who benefited from the excess benefit transaction.

Customer:

OK. Apart from the matter of this test factor, are there any issues regarding the funds themselves: that is, they were donated to org. A as an income-tax deductible gift; do those funds need to be taxed as income when passed to org. B's (our church's) employee? or can it simply be gifted?

NPVAdvisor :

Art more than science here, but having it be wages, especially given the tax incentive that exist for clergy, would CERTAINLY carry less risk

Customer:

OK. Thanks for your help with this. Appreciated much.

NPVAdvisor :

YW.

NPVAdvisor :

Here's an excellent resource: (these folks are excellent) ... no association , but appreciation

NPVAdvisor :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3908
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.
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Expert:  Lane replied 1 year ago.

Thanks much.

Lane

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