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Nonprofit Law/Training Fees & Tax Deductions

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QUESTION: Our NPO would like to start offering trainings/certifications for mental health care workers.  The sessions will cost about $4k with 20% - $800 - as a donation to our foundation.

1) If the trainee is paying for it herself, I guess she would only get to deduct the $80 as a charitable contribution, as she's getting something in return worth $3.2k?

2) If she wants to fundraise for it, and her donors pay directly to us for the general program, and we give her a scholarship in the amount of the fundraised portion, is that legit?  Can the donors then get a charitable contribution deduction since they aren't getting anything in return?  

3) Do we have to make the 20% donation piece optional, or can we simply say that the fee is $4k and we will use 20% to sustain our mental health projects?

4) If our mission includes spreading mental health awareness and education, can this training income still be tax exempt?

ANSWER: 1-2. If a certain amount is required for training or tuition, like at a university, there is no part that is considered a donation. Even some amount is not required but donated, the donor may not take a deduction for giving to the organization for her benefit.

As to charitable deductions, see IRS Publication 526 "Charitable
Donations"  which is available at:
http://www.irs.gov/pub/irs-pdf/p526.pdf
on page 6 where the IRS lists as not deductible "Contributions to
individuals who are needy or worthy. This includes contributions
to a qualified organization if you indicate that your
contribution is for a specific person."

3.  See the above.

4. Your mission is not relevant to the IRS as any 501(c)(3) organization may engage in any charitable, educational or religious activities.  The question is whether your training program is within what the IRS refers to as educational in the exemption context. Section 1.501(c)(3)-1(d)(3) of the Income Tax Regulations defines
the term "educational" as relating to (a) the instruction or
training of the individual for the purpose of improving or
developing his capabilities or (b) the instruction of the public
on subjects useful to the individual and beneficial to the
community. An example in this section states that an organization
whose activities consist of presenting public discussion groups,
forums, panels, lectures, or other similar programs, may be an
educational organization.
http://bit.ly/bVogCq
on pdf page 5, right column

The IRS Manual as to educational purposes is at:
www.irs.gov/irm/part7/irm_07-025-003-cont01.html#d0e1748

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



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

QUESTION: Under what scenario would a 501c3 be able to provide a good or service as part of its mission, for a fee, and have a % or flat $ amount be considered a gift and therefore deductible?  I see other orgs doing this, and I'm wondering how we can structure our offerings so that a portion funds our work and the donor gets a tax benefit.

ANSWER: Tuition is treated separately so we do not look to the general rules for charitable donations when part is a charitable contribution.  As to charitable deductions, see IRS Publication 526 "Charitable Donations"  which is available at:
http://www.irs.gov/pub/irs-pdf/p526.pdf
on page 6 middle column under the heading "Contributions
You  Cannot Deduct" is "3. The part of a contribution from which
you receive or expect to receive a benefit"

However, at the top of page 2 on the right hand side is a chart "Table 1" that shows, "Not Deductible as Charitable Contributions" some items, and "tuition" is on that list.

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: thank you - is there specific literature that we can find regarding the separate issue of tuition?  if the FMV of the tuition is $3.2k, for example, then couldnt a 501c3 simply bill for the $3.2k and ask attendees if they want to make a separate tax deductible gift to the org in general?

Answer
There are two situation.  One when there is only one amount quoted as a fee and and the other when there is a fee and a request for a donation.  

See www.irs.gov/pub/irs-tege/eotopice96.pdf
"Conduit Organizations - Charitable Deductibility And Exemption Issues" which has examples of donations to schools that might be not deductible as they appear to be tuition payments, which are similar to your situation as the taxpayer has a child who is a beneficiary of the 501(c)(3) organization. Especially note on page 2.

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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