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Nonprofit Law/501(c)3 paying for vocational training--1099 required?


If a 501(c)3 pays vocational skills training fees for low-income clients directly to the service provider, is the nonprofit required to issue a 1099-MISC to the recipient of the benefit?  Can the nonprofit request the client to create a repayment plan (no interest)?  Is that considered program revenue?

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I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations that are not private foundations.  Therefore, I am assuming that you are inquiring for a public charity.

I am also assuming that the service provider is a corporation.  If it is not, then let me know. see which is the IRS' instructions for form 1099-Misc. which has on the right column of page 1:
--- Start of Excerpt ---
Exceptions.  Some payments do not have to be reported
on Form 1099-MISC, although they may be taxable to the
recipient. Payments for which a Form 1099-MISC is not
required include all of the following.
Generally, payments to a corporation. But see
Reportable payments to corporations, later.
Payments for merchandise, telegrams, telephone,
---End of Excerpt---

As to your specific question, whether the nonprofit is required to issue a 1099-Misc to the recipient of the benefit (the "beneficiary"), the answer is "no". The Internal Revenue Code at section 102(a) provides that  gifts are not income.  "Gross income does not include the value of
property acquired by gift..."

Certainly a nonprofit can contract with a beneficiary for a no-interest loan.  For example, Rev. Rul. 64-274, 1964-2 C.B. 141, describes an
organization that provides free housing, scholarships, and books,
to students who could not otherwise attend college because of a
lack of funds.  The Service ruled that this organization was exempt
because it was advancing education by relieving the poverty of the
students.  It was serving a charitable class.  Similarly, the
Service recognized an organization making low-interest, unsecured
loans for educational purposes to students needing financial
assistance as exempt under IRC 501(c)(3) in Rev. Rul. 63-220, 1963-
2 C.B. 208.

In that case, the gross income from repayments is program service revenue.  The IRS explained in their instructions to Form 990-EZ "Program service revenue also includes income from program-related investments. These investments are made primarily to accomplish an exempt purpose of the investing organization rather than to produce income. Examples of program-related investments are scholarship loans and low-interest loans to charitable organizations, indigents, or victims of a disaster." (page 11, right column).

Harvey Mechanic, Attorney at Law -

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


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. 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 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 "" without the quotes and then add your search terms before hitting enter.


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.


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

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

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