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Is it legal (IRS rules) to have a charity trust fund that…

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Is it legal (IRS rules)...
Is it legal (IRS rules) to have a charity trust fund that runs a non-profit business that can sell share (stocks) in the open market?
I am expecting this organization (trust fund + the non-profit business) will be fully tax exempt. No taxes even in the capital gain.
I understand, that no one, not even the founder, can use any of the profit for their personal benefit.
Submitted: 4 months ago.Category: Capital Gains and Losses
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12/4/2017
Tax Expert: taxmanrog, CPA, MST, MA replied 4 months ago
taxmanrog
taxmanrog, CPA, MST, MA
Category: Capital Gains and Losses
Satisfied Customers: 1,035
Experience: Licensed CPA with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Welcome to Just Answer! Thank you for giving me the opportunity to assist you! I will do my best to help!

Can you please clarify what shares the trust fund will sell? Shares in its non-profit business? Or shares in stocks that it purchases through a stockbroker (i.e., in companies such as IBM, Microsoft, or any publicly traded company)?

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Customer reply replied 4 months ago
Either 1) dividend paying share or 2) pure growth share
Is it possible for a non profit organization to sell any kind of share, whose value will increase in peoples' eyes. Yes, organization would like to sell the shares/stocks in NY Stock Exchange or Nasdaq etc.
I understand, the founder, can not use any of the profit for their personal benefit.
Tax Expert: taxmanrog, CPA, MST, MA replied 4 months ago

Yes, it is perfectly legal for a charity to invest in the market, buying and selling stocks for a profit, as well as getting dividends and/or interest. If you look at the financial statements of most charities, you will see significant investment income. Most colleges are tax-exempt entities, and they have large endowment funds where they buy and sell stocks and receive investment income. These are the activities that help pay the expenses of the charity.

With any charity, the founder cannot use the profits for personal benefit. This is not limited to a charitable trust. In fact, in most businesses the owners cannot use the profits for personal benefits without suffering tax consequences.

I hope that this answers your question. If you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great week!

Roger

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Customer reply replied 4 months ago
Sorry, my fault. I did not explain it correctly.
Can a non-profit charity organization sell its own share to public in the market?
I did not mean buying and selling other companies shares. That I know is no problem.
Tax Expert: Lane, JD, CFP, MBA, CRPS replied 4 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Capital Gains and Losses
Satisfied Customers: 14,007
Experience: Have been providing Financial and Tax advice for 30 years.Concentration in Corporations, Estate, Income Tax and Business Planning
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Hi, It doesn't appear that anyone's picking this up.

...

My name's Lane -

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice to clients on three continents since 1986.

If you’ll please bear with me for a minute I’ll type up my initial response, and then we can go from there if you have further questions on this

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Tax Expert: Lane, JD, CFP, MBA, CRPS replied 4 months ago

Public charities are already owned bu the public. That's what makes them public non-profits. It's that furtherance of the public good, what IRS calls the non-profit's tax exempt purpose, that allows for the non==profit status in the first place.

...

That non-profits have actual owners is a very common misconception. When a non-profit winds up it's operations, for example, the nonprofit must contribute any assets left over to another non-profit.

...

The very basic underpinning of the public charity, and even the private foundation, is that, once a donor has funded them, the donor no longer owns the assets and the assets can no longer be used for his/her private benefit.

...

Hope this helps.

...

You can read more about this here:

...

Hope this helps to clarify,

Lane

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Lane
Lane, JD, CFP, MBA, CRPS
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