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We are looking at maybe having a fulfillment outsource to…

Customer Question
we are looking at maybe...
we are looking at maybe having a fulfillment outsource to where they buy the inventory, collect from credit cards, ship and then just send us the proceeds, less the cost of inventory, sales tax and shipping and handling. When they send us a check that's just a third party agreement so they won't be responsible to pay income tax on it. What line item form of income is that for tax purposes...we're a 501 3c.
Thank you
Submitted: 2 years ago.Category: Finance
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Answered in 8 hours by:
2/24/2016
Financial Professional: BK-CPA, Certified Public Accountant (CPA) replied 2 years ago
BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 933
Experience: Owner of a CPA firm
Verified

Hello and thank you for your question.

This sounds like unrelated business income to your 501(c)(3). If so, it appears in a few places on the Form 990 / 990-T:

1) Form 990, Part I, Line 7a / 7b

2) Form 990, Part VIII, line 10 (column c)

3) Form 990-T, line 1

See IRC 511 and following for the tax on unrelated business income:

https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-F/part-III

See also IRS Pub 598: https://www.irs.gov/publications/p598/

If you determine this is not an unrelated trade or business, then you would be ok reporting this on the Form 990, Part VIII, line 10, columns B or D as applicable.

Thank you again for your question.

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Customer reply replied 2 years ago
I'm sorry, I was under the impression I would get an answer, not have to go read through what is free to obtain. this is a paid service..correct.there are many NFPs that do this.
Customer reply replied 2 years ago
maybe if I ask a simpler question. can I contract to be a third party collecting funds on their behalf, passing them on and not having to state it as income on my end?
Financial Professional: BK-CPA, Certified Public Accountant (CPA) replied 2 years ago

I'm no longer interested in helping you. I'm opting out.

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Customer reply replied 2 years ago
Have a good evening
Financial Professional: TaxRobin, Senior Advisor replied 2 years ago
TaxRobin
TaxRobin, Senior Advisor
Category: Finance
Satisfied Customers: 17,810
Experience: 15 years of experience in financial advising with emphasis on tax issues.
Verified

You asked if you could act as a third party and pass funds on without accounting for them as income first. No, you cannot do that. You would report as income then show as a disbursement.

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Customer reply replied 2 years ago
I wonder how all the other vendors are doing it then. It's like the crowd funding sites, no? they are collecting money and then giving it to the recipient. I wonder how they can do that?
Financial Professional: TaxRobin, Senior Advisor replied 2 years ago

Those third parties are showing it as income but then deducting it.

All accounting deals with all that comes in then shows all that goes out.

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