Nonprofit Law/501c3 donating

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Question
Someone donated 10000.00 to our organization, a 501 c3. we would like to earmark that donation  for medical payments to an individual who will have years of medical expenses not covered by insurance or Medicaid.  The individual is  the grand daughter of one of our members.

Answer
A 501(c)(3) organization needs to serve public, not private interests. Section 1.501(c)(3)-1(d)(1)(ii) of the regulations provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest. To meet the requirement of this subsection, the burden of proof is on the organization to show that it is not organized or operated for the benefit of private interests, such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled, directly or indirectly, by such private interests. http://goo.gl/6S6fc

The IRS does not, however, prohibit a disinterested board from deciding to grant funds for the medical care of a relative of a member of the organization if the beneficiary is poor or a "low-income" family. http://goo.gl/pKwiY

 The IRS would look at all of the facts and circumstances of the situation, such as the total amount of grants of the organization in relationship to the amount of the grants to the relative of a member and how many members your organization has.  You did not inform me as to the total amount of grants your organization expects to give this year, nor whether the grand-daughter and her family (if she is a minor)are in the "low-income" family classification.  But if the facts circumstances are not highly favorable to your organization, which I doubt, then such a grant to the grand-daughter of one of your members would jeopardize the organization's 501(c)(3) status.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic

Expertise

I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about 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 possible 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. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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