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Nonprofit Law/Gymnastics booster club and equipment purchases

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Question
Thank you so much for volunteering your time for this.  It is valuable and important information our non-profit needs but cant afford, so thank you.
I am in charge of a parent non-profit group that supports a girls competitive gymnastics team. I just read a summary on the 501(c)3 and have a couple of questions regarding "private benefit".  
1.  An agreement we made with the gym owners was to donate items to the gym with a small portion (maybe 20%)of our funds raised through our fundraising events.  It was an option we chose as opposed to paying the gym a "rental fee" for use of the facility for our main fundraiser, a meet.  The gym owners do not sit on the board and it was proposed to the gym not by the gym because we feel it supports our program.  It also benefits the gym because this equipment is also used by recreation programs.  This is where I question if we are in violation.???
2.  I read the advertisements we sell for our meet program is unrelated to the organizations exempt purposes and therefore generates taxable income. Are we in violation here as well?
Thank you

Answer
It appears that the for-profit gym owner may be trying to evade some federal income taxes by, instead of receiving funds from your organization for services, which would be taxable as normal income, wants to accept equipment, which, although also taxable as income (barter income) may be less easy for the IRS to trace.

Anyway, as to your specific question 1, a 501(c)(3) organization may, in lieu of a rental fee, pay a for-profit gym with equipment.  You used the word "donate" but that is not a donation, as it is in exchange for use of space. Your organization, as any other 501(c)(3) organization is required to maintain financial records of such transactions, and that should be in the form or a rental agreement, signed by the for-profit gym.

2. Advertising revenue to 501(c)(3) organizations is generally taxable as unrelated business activities and reported on form 990-T which is available at http://www.irs.gov/pub/irs-pdf/f990t.pdf

However, note on page 5 of the 1994 IRS internal memorandum. "The Announcement further stated that the Service would not apply the guidelines to organizations that are of a purely local nature and that receive relatively insignificant gross revenue from corporate sponsors and that generally operate with significant amounts of volunteer labor."
www.irs.gov/pub/irs-tege/eotopico94.pdf

Therefore, it is possible that such advertising income would not be taxable as unrelated business.

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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