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Local 601c3 To Run Bar/restaurant

Business Law discussions

Local 601c3 To Run Bar/restaurant

Postby Tremain » Mon Apr 04, 2016 7:13 pm

A local 501C3 in my community is proposing to operate a bar and restaurant as a way to make money for their organization.  They also sell tickets and have fund-rasing event to make money for thier expenses. Is running a bar/restaurant legal under the federal tax code?
Tremain
 
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Joined: Mon Mar 17, 2014 8:54 pm

Local 601c3 To Run Bar/restaurant

Postby Ebeneser » Tue Apr 05, 2016 4:45 pm

IRS Publication 598 "Tax on Unrelated Business Income of Exempt

Organizations" at

www.irs.gov/pub/irs-pdf/p598.pdf

explains that,  if products or services are not directly related to

the charitable, educational, religious or other purpose or function

constituting the basis for its exemption(other than for production

of income), then the activities are generally taxable.

Their exact wording is found in the middle column of page 3

"Unrelated business income is the income from a

trade or business that is regularly carried on by

an exempt organization and that is not substan-

tially related to the performance by the organiza-

tion of its exempt purpose or function, except

that the organization uses the profits derived

from this activity."

The IRS has declared, "Nonprofit organizations that are granted

Federal tax exemption based on their mission-related purposes

are allowed by the IRS, within certain limits, to generate income

from unrelated business activities."

www.irs.gov/pub/irs-soi/97eounrl.pdf on pdf page 1. But, the

organization could, if it has more unrelated activities than

the IRS's vague "certain limit", be jeopardizing its exemption

depending upon the facts and circumstances. Two of the main factors

is the gross income of the activity in relation to the gross income

of the organization's total income and staff time spent on the

activity. Court cases reveal that 5% is probably safe, whereas 20%

or more can jeopardize exempt status. Harvey Mechanic, Attorney at Law - [email protected]

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.
Ebeneser
 
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Joined: Thu Feb 06, 2014 3:36 am

Local 601c3 To Run Bar/restaurant

Postby Jianguo » Fri Apr 08, 2016 10:21 am

A local 501C3 in my community is proposing to operate a bar and restaurant as a way to make money for their organization.  They also sell tickets and have fund-rasing event to make money for thier expenses. Is running a bar/restaurant legal under the federal tax code?
Jianguo
 
Posts: 47
Joined: Thu Jan 02, 2014 1:23 am


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