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Nonprofit Law/Gift to the outgoing President of a 501(c)(3) organization

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Question
QUESTION: Which tax form(s) have to be filed if the cash value of the gift (paid with a budget line) to an outgoing President is over $600?

ANSWER: The IRS explains:
--- Start of Excerpt ---
The Internal Revenue Code defines corporate officers as employees
for FICA, FUTA, and FITW purposes.  
---End of Excerpt---
http://goo.gl/ypkKS

Therefore, all compensation given to the President is considered paid to an employee and would be reported on Form W-2.

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..."
http://codes.lp.findlaw.com/uscode/26/A/1/B/III/102

However, section 102(c) of the Code has "Subsection (a) shall not exclude from gross income any amount transferred by or for an employer to, or for the benefit of, an employee...."

You indicated that the money was "paid with a budget line".  I searched that phrase in Google and got zero results for that exact phrase. https://goo.gl/AsbW0O - please let me know if you mean that before the fiscal year of the last year of work of the President that the organization became legally obligated to give the money later to the President.  Otherwise, the payment may be considered by the IRS as a distribution to an insider, which is generally not allowed for 501(c)(3) organizations.

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.

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

QUESTION: The gift of merchandise is paid out of a budget line for the 501(c)(3) and the payment for the gift exceeds $600. The President is a volunteer and does spend time on the volunteer job during the one year that the office is held.The budget is set at the beginning of the organization's fiscal year and the check to pay for the gift is made out to the gift vendor by the end of the fiscal year.

Under the circumstances outlined above, is this an event that needs forms filed? Thanks.

Answer
It seems that what you are saying is that the President knew at the start of the year that he was going to be getting, by the end of the year merchandise worth more than $600 from the organization. As I wrote earlier, then, that is to be treated as compensation and the value of the benefits would be reported with a W-2.

Under State law you may also run into unintended consequences -- See the story about "Volunteers" who were promised gifts at http://goo.gl/F0OKL which is a newspaper story describing a situation when the State
determined that organizations that promised "volunteers" gifts over the value of $50 per quarter were subject to state wage regulations for employees. That was an Oregon case but other state laws are
similar. That case was about a sports foundation's "volunteers" being promised a season pass if they work roughly two dozen days helping put on races at the ski area.

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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