AboutHarvey Mechanic Expertise US 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 questions about Nonprofit's unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation.
To search my previous answers you can do a Google search: site:allexperts.com/q/nonprofit [with your other search terms appended].
Experience I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.
Education/Credentials B.S. Columbia University in New York City, 1970
J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude
Question QUESTION: My school district has established a college scholarship fund funded through a teacher/district employee payroll deduction. The scholarships are for the benefit of district employees' children only. Are my contributions tax deductible?
ANSWER: Generally donations to a public school district are deductible if the donation is going solely for public purposes.
see the middle column at the top of page two of IRS publication 526
www.irs.gov/pub/irs-pdf/p526.pdf
---start of excerpt ---
Deductible As
Charitable Contributions
Money or property you give to:
• Churches, synagogues, temples,
mosques, and other religious
organizations
• Federal, state, and local
governments, if your contribution is
solely for public purposes (for
example, a gift to reduce the public
debt)
...
Now, certain donations, otherwise deductible are not deductible, as when the donations are to are earmarked to an individual or small group. 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
--start of excerpt ---
The group of individuals that may properly receive
assistance from a charitable organization is called a charitable
class. A charitable class must be large or indefinite enough that
providing aid to members of the class benefits the community as a
whole.
--end of excerpt ---
More details are found starting at pdf page 6 of
www.irs.gov/pub/irs-tege/eotopick99.pdf
Therefore, deductibility will depend upon how many children there are who are in or going to college and otherwise eligigle for the scholarship grants. As that program is similar to an employer-related grant program it appears that the guidelines of Revenue Procedure 85-51 apply.
www.irs.gov/pub/irs-tege/rp85_51.pdf
There we see a safe-harbor if the grants to employer's children "does not exceed 10 percent of the number of employees' children who can be shown to be eligible for grants". However, that Revenue Ruling, starting on page 3 goes into other factors that the IRS would look at, such as the selection committee. Note
www.irs.gov/pub/irs-lafa/den0688r.pdf which was a denial for exemption for a non-complying program.
In the end, unless the school district obtains from the IRS some advance approval, your deduction may be questioned by the IRS, if they audit your individual tax return.
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
---------- FOLLOW-UP ----------
QUESTION: Would the conclusion change if the scholarships were available to all students?
ANSWER: Yes, certainly. Then the other factors would need to be satisfactory, for example, an impartial committee to decide the awards.
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
---------- FOLLOW-UP ----------
QUESTION: I apologize for the follow ups. Do we then still revert to a private foundation including the 10% rule and advance approval?
Answer A government instrumentality is never considered a private foundation. I only sent you the IRS ruling about private foundation as "similar" to your situation. Now, if the scholarship fund is separate and want to apply to the IRS for 501(c)(3) organization status, that may be possible and then after the IRS approval, donors will have confirmation of the deductible status of normal donations. If the fund wants to apply for exemption status -- a quick summary of the differences between public charities and
private foundations can be found at:
www.guidestar.org/news/features/foundations.jsp
Also see www.irs.gov/pub/irs-pdf/p557.pdf starting on page 26,
right column and "Qualifying as Publically Supported" starting on
page 31
A good article that explains some of the basic issues of private
foundations is at http://tinyurl.com/2o7554
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
