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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I want to start a company that offers a yearly percentage

Customer Question

i want to start a company that offers a yearly percentage back to my customers based on what they spend or they can choose to reinvest in new products or split that percentage and do both.now if they choose to reinvest the money will be used partly for new products partly for charitable cause. can i be a 5013c
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

You may run such activity via a 501c3 charitable organization - that is not an issue.
But that sounds a business activity... and as such might be subject to the Unrelated Business Income tax for that charitable organization.

An activity is an unrelated business (and subject to unrelated business income tax) if it meets three requirements:
1.It is a trade or business,
2.It is regularly carried on, and
3.It is not substantially related to furthering the exempt purpose of the organization.

.

Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income.

You will find details in following publication

http://www.irs.gov/pub/irs-pdf/p598.pdf

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