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Nonprofit Law/Hosting for-profit to raise funds

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Question
As part of a one-day fundraiser, can a non-profit offer inside space to for-profits for a donation? For example, can a non-profit "rent" (for a donation) a table to a craft maker who sells their wares during the event?

Answer
The word "donation" is not accurate in this context. In an Internal Memorandum from the year 2000,"Fund Raising Issues:"
the IRS explained further, "where a payment is made in return for
an item or benefit, the presumption is that such payment is the
purchase price and not a gift."
www.irs.gov/pub/irs-utl/topict00.pdf on page 12

A nonprofit may license the use of space to a for-profit entity but then the income may be unrelated business income to the nonprofit. However, as you wrote that it is a one-day fundraiser and I am assuming then that you only have this one day annually, then it is not regularly carried on and would not result in unrelated business tax. IRS Publication 598 "Tax on Unrelated Business Income of Exempt
Organizations" at
http://www.irs.gov/pub/irs-pdf/p598.pdf
explains that,  if products or services are not directly related to
the charitable, educational, religious or other purpose or function
constituting the basis for its exemption (other than for production
of income), then the activities are generally taxable.

Their exact wording is found in the middle column of page 3
"Unrelated business income is the income from a
trade or business that is regularly carried on by
an exempt organization and that is not substan-
tially related to the performance by the organiza-
tion of its exempt purpose or function, except
that the organization uses the profits derived
from this activity."

I am assuming that this income from the for-profits would not constitute more than 10% of the organization's annual income.

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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