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Nonprofit Law/Trading Properties - follow-up

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QUESTION: What would be the issues involved with a non-profit tax-exempt org., 501(c)(3)designation (church) to trade its property (a single family house, housing a priest for a more expensive single family house/property which is being donated to our church for our preist to live in.

(but there is a slight twist to the transaction)....

the donor of the new property would like to trade for our property to help us out, but his property is of much greater value..........  Consequently, he would like to recieve a tax-write off for the difference in value of his property he is trading for our property......

question 1:  Can we trade our property in this manner knowing that any asset our church owns cannot enure to the benefit of an individual, as per IRS law I believe...... (does this really apply in this circumstance?)

question 2:  If we can do this, is there particular clauses, phrases, etc, that need to be put into a contract to protect us and the donor in this type of transaction

thank you

ANSWER: 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. The contract would specify the trade and then donor will get a benefit because his property is of higher value. A bargain sale of property to a qualified organization (a sale or exchange for less than the property's fair market value) is partly a charitable contribution and partly a sale or exchange. That is discussed, starting at the bottom of page 12
http://www.irs.gov/pub/irs-pdf/p526.pdf under the heading "Bargain Sales"

As for what to put into the contract, that would be very specific.  I would be willing to work on your matter, but I would need to spend a substantial amount of time and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below.

However, I will inform you that there would need to be professional appraisals done for both properties and that is much more important than the phrases in the contract.

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 for responding.....We may need your services in the near future if things come to pass as expected.

Just one more question to clarify.......

Regarding the IRS rule/law that non-profit assets cannot enure to the benefit of an individual (i.e our house/property ending up in an individual's name/ownership via a trade.

Would indeed trading our property for another property to someone outside of our church membership in this manner fall into this type of category/determination by the IRS, and be dis-allowed, ----or does "enuring to the benefit of an individual" not apply in this type of transaction?


thank you

Answer
Inurement would not apply when you are getting more value in return.  You already explained that you would be getting real property from the individual which is worth more than what you are giving to him.

Inurement is discussed by the IRS at
http://www.irs.gov/pub/irs-tege/eotopicc90.pdf

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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