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Nonprofit Selling Gifted Assets

Business Law discussions

Nonprofit Selling Gifted Assets

Postby Odale » Tue Sep 13, 2016 1:54 pm

Is it possible to set up a nonprofit organization that receives gifted items(e.g., a sofa) and then sells the item to a willing buyer(e.g., "Joe Public") and then donates all the proceeds to other charitable organizations.  The charitable "purpose" of the organization would be educational(i.e., for people to learn about the needs of nonprofit organizations, how to negotiate, etc.).  Specifically, I want to know:

1) whether the donate gifts(e.g., the sofa) would be tax deductible for the giver;

2) if so, under what type of nonprofit organizational structure; and

3) what other constraints/requirements apply(e.g., does the organization have to sell the donated sofa to John Public for a particular or "fair market" price).

NOTE: I want to set up an organization like this but I need to know that the donated gifts(the sofa) will be tax deductible for the giver and that there are not overly-burdensome constraints on the organizational leaders when they go to sell the donated items or try to trade the items for other more valuable items.

Thank you.
Odale
 
Posts: 46
Joined: Sat Jan 18, 2014 2:28 am

Nonprofit Selling Gifted Assets

Postby orlondo100 » Wed Sep 14, 2016 10:12 pm

1. First you would need to establish a 501(c)(3) organization as then donations would be deductible.  

Your educational activities would need to be substantial and for the public, not a small group of persons.  

Section 1.501(c)(3)-1(d)(3) of the Income Tax Regulations defines

the term "educational" as relating to(a) the instruction or

training of the individual for the purpose of improving or

developing his capabilities or(b) the instruction of the public on

subjects useful to the individual and beneficial to the community.

An example in this section states that an organization whose

activities consist of presenting public discussion groups, forums,

panels, lectures, or other similar programs, may be an educational

organization.http://bit.ly/bVogCq

on pdf page 5, right column

2. As for the sales business, 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.

However, in the middle column of page 7 there is an exception discussed for

the sales of donated merchandise.

3.  The organization is expected to then sell the donated goods for a fair market price, or at least very close to that price.  Otherwise, if it sells for less to persons who are not in a charitable class(like the poor or senior citizens, for example), then the organization would be seen as benefitting people other than those in a charitable class and it would not be eligible as a 501(c)(3) organization.  Internal Revenue Code section 501(c)(3) which is available at:http://pages.citebite.com/w8p5e1ayxjv has, in part, that the 501(c)(3) organization must be "operated

exclusively for religious, charitable, ... or educational purposes. Operating for the benefit of persons not in a charitable class would then put you not in compliance with the regulations. Harvey Mechanic, Attorney at Law - [email protected]  
orlondo100
 
Posts: 48
Joined: Fri Apr 01, 2011 7:01 am

Nonprofit Selling Gifted Assets

Postby Jaymin » Thu Sep 15, 2016 9:39 pm

Is it possible to set up a nonprofit organization that receives gifted items(e.g., a sofa) and then sells the item to a willing buyer(e.g., "Joe Public") and then donates all the proceeds to other charitable organizations.  The charitable "purpose" of the organization would be educational(i.e., for people to learn about the needs of nonprofit organizations, how to negotiate, etc.).  Specifically, I want to know:

1) whether the donate gifts(e.g., the sofa) would be tax deductible for the giver;

2) if so, under what type of nonprofit organizational structure; and

3) what other constraints/requirements apply(e.g., does the organization have to sell the donated sofa to John Public for a particular or "fair market" price).

NOTE: I want to set up an organization like this but I need to know that the donated gifts(the sofa) will be tax deductible for the giver and that there are not overly-burdensome constraints on the organizational leaders when they go to sell the donated items or try to trade the items for other more valuable items.

Thank you.
Jaymin
 
Posts: 46
Joined: Thu Mar 20, 2014 11:12 pm


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