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Nonprofit Law/Budgets between a sorority and its 501(c)(3) foundation

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Question
QUESTION: Is there a conflict with a sorority listing it's foundation as part of its budget for expenditures?

ANSWER: A sorority entity which I am assuming is not a 501(c)(3) organization may give donations to affiliated 501(c)(3) organizations.  That is not considered a conflict of interest.  In fact, See IRS Publication 557 "Tax Exempt Status for Your Organization" which is available at:
http://www.irs.gov/pub/irs-pdf/p557.pdf on page 74 (footnote 2) "An organization exempt under a subsection of Code sec. 501 other than 501(c)(3) may establish a charitable fund, contributions to which are deductible. Such a fund must itself meet the requirements of section 501(c)(3) and the related notice requirements [application for exemption and annual information filings ] of
section 508(a)."

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.    


---------- FOLLOW-UP ----------

QUESTION: Say the sorority (non 501c3) and its members have donated in excess of $50,000 to the foundation.  Individuals have been receipted for tax purposes.  Should the sorority also be receipted? Can use of the money to renovate or make repairs to and pay utilities on a home purchased for the sorority to meet and the foundation to use threaten the foundation's 501c3 status if the foundation purchased it? You mention a "charitable fund"... is this established when you are granted 501c3 status or is this a separate thing?

Answer
I suggest that the sorority obtain an agreement ahead of any donations that the a 501(c)(3) organization will give the sorority an annual acknowledgement of the total of donations.

A 501(c)(3) organization may not improve real property owned by a non-exempt entity.  That would be considered too much private benefit to the owner of the real property. An extensive discussion by the IRS of the private benefit issue relating to 501(c)(3) organizations is found at:
http://www.irs.gov/pub/irs-tege/eotopich01.pdf

However, if the a 501(c)(3) organization purchases real estate it may improve the property or make repairs on it, but would need to charge the sorority at least market rate rentals for the sorority to use it.

A 501(c)(3) organization may pay for its actual utilities or rent for its own use, but, as I wrote before, not for the sorority's use.

The "charitable fund" is established first (when the a 501(c)(3) organization is set up).

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

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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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