Comments on: The Dirty (Half) Dozen Nonprofit No-Nos

By: How Much is Too Much?: The Limits of Benevolence | Foundation Group

How Much is Too Much?: The Limits of Benevolence | Foundation Group — Tue, 13 Dec 2011 20:11:40 +0000

[...] the very definition of it. But, there is a definite line between charity and what the IRS calls inurement (or private benefit). This economic recession has caused many churches and charities to be [...]

By: Greg McRay, EA

Greg McRay, EA — Wed, 13 Jul 2011 23:16:37 +0000

This is one the classic situations where you have to interpret a broad rule into specifics. The IRS requires 501c3 public charities to operate governmentally at arms-length. This requires a board of directors who can form a quorum of individuals without a stake in the outcome of decisions. In other words, a majority of the board cannot be related by blood, marriage or outside business ownership…otherwise there is no protection against self-dealing. I recommend reading IRS Publication 557 for a better, overall look at some of these issues.

By: Jackie

Jackie — Tue, 12 Jul 2011 20:43:54 +0000

In item #1 you stated that “the IRS requires tax-exempt organizations to be structured such that control rests within a group of individuals.” I have been working on filling out the necessary paperwork and nowhere can I find where the IRS requires such a structure. Can you direct me to a location on the IRS website or a page from form 1023, please? Thank you!

By: Greg McRay, EA

Greg McRay, EA — Wed, 27 Apr 2011 03:20:52 +0000

Your organization may already be ruined. This is the very definition of a “dictator”…and it is profoundly unhealthy. If the other board members are sympathetic to the situation, they can certainly stand up, assert their authority and take control of the situation. Your dictator will either get in line or leave. Either way, one of your first orders of business is cultivating a good donor base. Sounds grim…I wish you luck.

By: Laura Putney

Laura Putney — Mon, 25 Apr 2011 16:13:24 +0000

I am working with a non-profit corporation that has one main donor, who is also the chairman of the board. He makes ALL decisions, and if anyone challenges a decision, he threatens to pull the financing, and the organization would effectively close. How can other stakeholders challenge him without ruining the organization?

By: Greg McRay, EA

Greg McRay, EA — Wed, 22 Sep 2010 14:51:39 +0000

OK…too complex to answer in this format. There is an obvious conflict-of-interest involved. The question is whether or not is rises to the level of private benefit, what the IRS calls inurement. If the board member owns the property, but the organization is using it for its programs, it is usually fine for the organization to pay for wear and tear, utilities and other maintenance directly attributable to that use. What the organization cannot due is make improvements to the property that directly benefit the owner by increasing the value of the property. I recommend you contact our office and schedule a consulting appointment with one of our team members to explore this more in depth.

By: BORIS RICHARD

BORIS RICHARD — Tue, 21 Sep 2010 01:07:02 +0000

I would like to know if a organization make use of property that a board member owns and the org.make use of the utilities, water, electricty, tractor, etc. should he or she be a board member if they compensate the organization by making a dollar amount donation can the property owner use that as a taxable donation or is this a conflict of intrest if so how should this matter be handled the org. is a 5o1 c3

By: Greg McRay, EA

Greg McRay, EA — Wed, 16 Sep 2009 14:16:49 +0000

Your example would be a case where the dues are so low, the IRS would disregard the benefit and allow the dues to be deductible to the donor.

By: Durwood Thrasher

Durwood Thrasher — Tue, 08 Sep 2009 18:33:32 +0000

I don’t understand what you mean by “accessed regularly”. The benefits are received monthly (newsletters) and annually (membership directory) by the members. They are not available to the general public.

The members’ annual dues are $25, but we have a significant number of life members (who paid several years’ dues in advance, and continue to receive the newsletters and directories). All members are voting members. The cost of producing and mailing the newsletters and directories is a little over 90% of the dues collected. The liability insurance costs another 12% of the dues collected, but I don’t know the extent of liability coverage for the individual members (if any).

So, how much of the members’ dues are “in excess of the benefit”?

By: Greg McRay, EA

Greg McRay, EA — Tue, 01 Sep 2009 18:03:03 +0000

Fantastic question, Durwood. This one confuses a lot of people. Here is my stab at it…

The general rule is this: if membership includes benefits, dues are not deductible. However, if a sizable discrepancy exists between the dues amount and the benefit, then the amount in excess of the benefit is usually considered deductible. Another situation exists when the amount of annual dues is $75 or less and member benefits can be accessed regularly. In this case, the IRS disregards the benefit and allows the entire amount to be considered a charitable contribution.

Check out Revenue Ruling 68-432 for more information on larger dues amounts and deductibility. I hope that helps.