Nonprofit Law/inurement

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Question
I was in conversation recently with an organization that offers Donor Advised Funds, it is a 501c3. I was told that the organization had received a real estate donation and was seeking to sell the property to a non-profit for 20% of the fair market value. I was told that the land which was donated must be bought by and used for christian ministry/nonprofit purposes. The land is made up of 3 different tax lots. Two of the tax lots have been purchased by two different organizations (both ministry/nonprofits) who are collaborating together. The third tax lot (which is highly developed for farm use and has a large house on it) is still available. What I was told was that the land of this third tax lot has already been leased to a farmer for the next three years while the house is going to be leased to the two aforementioned organizations conjointly on a yearly basis. I was also told that the person who donated the land is an investor in the farmers enterprise. Originally one of the non-profits was going to buy the 3rd tax lot but backed out after the land had already been leased to the farmer. The justification for the land being leased to a farmer was that the non-profit was going to have an agriculture program that would be a "learning lab" for students. But it seems to me like there might be some inurement (since the donor is an investor in the farm enterprise and could be seen as an insider because of being in a donor advised fund). But since the organization doesn't have to listen to the recommendation of the donor maybe this wouldn't hold up. But there might be still personal benefit. How do I establish personal benefit is occuring? What are the limitations on how much personal benefit?

Answer
A 501(c)(3) organization may not sell or lease assets for less than the fair market value, unless the purchaser is another public charity 501(c)(3) organization. There are exceptions, but just because a 501(c)(3) organization labels a project as a "learning lab" does not mean that the project is exclusively for charitable, religious or educational purposes.  If not, the lease or sale to an individual is prohibited even if the individual receiving the benefits is not an insider.  Inurement relates to an insider.

An detailed discussion by the IRS of the private benefit issue relating to 501(c)(3) organizations is found at http://www.irs.gov/pub/irs-tege/eotopich01.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. 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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