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Nonprofit Law/Community Foundation and 501(c)(4)

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Question
Could a donor make a donation to a 501(c)(3) community foundation to a "transportation fund" at the community foundation with the intent that the Community Foundation would then make a grant (with expenditure responsibility) from the "transportation fund" to a local 501(c)(4) advocating for better transportiaotn in a local impoversighed area?

Answer
The donor's intention is not the only factor that the IRS would look at.  The real issue is whether the facts and circumstances of the transactions are such that the donation is a pass-through to the 501(c)(4) organization. The IRS often uses a "Substance over Form" doctrine.

The concept of the substance over form doctrine is that the tax results of an arrangement are better determined based on the underlying substance rather than an evaluation of the mere formal steps by which the arrangement was undertaken.  For instance, two transactions that achieve the same underlying result should not be taxed differently simply because they are achieved through different legal steps.   As the Supreme Court stated some years ago in Minnesota Tea Co. v. Helvering, 302 U.S. 609, 58 S. Ct. 393, 82 L. Ed. 474 (1938), "A given result at the end of a straight path is not made a different result because reached by following a devious path." 302 U.S. at 613, 58 S. Ct. at 394.

I am not determining here that the donor is using a devious path.  I would need copies of the oral and written communications between the potential donor and the 501(c)(3) organization before I could give my opinion as to what the actual substance of the transactions is.  From what you wrote, though, it appears that the transactions may very well be treated by the IRS in the same way that one transaction would be treated -- a payment by the donor the the 501(c)(4) organization. I can draft documents to clarify the issues and make it that the donation to the 501(c)(3) organization should be treated by the IRS as a deductible donation, but that would involve a substantial amount of work. I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. If you want to hire me for the drafting work, send me an email directly to my email address below and I will quote you my fees.

I can also set up a fund for the 501(c)(4) organization so that donations directly to that fund are deductible by donors as charitable donations.

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

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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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