AboutHarvey Mechanic Expertise Federal tax issues of nonprofit 501(c)(3) public charities only. Establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer question about Nonprofit's Unrelated Business or how to fill out forms. This forum is only for legal questions about a specific nonprofit asked by members or those otherwise directly effected by the specific nonprofit organization.
Experience I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.
Question I'm president of a nonprofit 501(c)(3) organization and the question has come up several times, as we have members who have resigned due to health or financial troubles. The board wanted to pay their rent and I say as an ex-member we are not allowed to assist anyone who has had ties to the organization. Is this a true statement?
Thank You for your answer.
Answer Generally that would be prohibited as the class of your benefits should be considered larger and not just members or not favored to members.
You may be interested to read
www.irs.gov/pub/irs-pdf/p3833.pdf starting on page 5 (which is pdf
page 7 of that pdf file) "Charitable Class"
Also IRC 102(c) provides that generally gifts are not income. However,
see pdf page 15 of www.irs.gov/pub/irs-tege/eotopick99.pdf
which discusses gift tax law in connection to grants by a nonprofit
organization to an individual.
Therein: "Transfers made in connection with employment constitute
gifts only in the extraordinary instance."
The U.S. Supreme Court, in a case involving payments made in a
context with business overtones, has defined excludable gifts as
payments made out of detached and disinterested generosity and not
in return for past or future services or from motives of
anticipated benefit (Commr v. Duberstein, 363 U.S. 278 (1960))
Thus, such gifts to members may be considered compensation and, in fact, excessive compensation. Section 4958 of the Internal Revenue Code imposes an excise tax on
excess benefit transactions between a disqualified person and an
applicable tax-exempt organization. The disqualified person who
benefits from an excess benefit transaction is liable for the
excise tax. An organization manager may also be liable for an
excise tax on the excess benefit transaction.
