Discussion:Non-profit Cash Infusion
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ATLsFutureTaxPro (talk|edits) said: | 10 February 2009 |
| Two separate non-profits are organized by a group. Non-profit1 (NP1) is self sustaining, but Non-profit2 (NP2) is not. NP1 regularly provides NP2 with cash infusions so that it can pay for normal expenses such as salary, rent, etc.. NP1 does not expect to be re-paid due to the financial situation of NP2. How should this be accounted for? Could these cash payments be considered contributions from NP1 (income to NP2)? Any thoughts or suggestions would ne greatly appreciated? | |
| 10 February 2009 | |
| Both non-profits can lose their tax exemption if they continue to do business as you describe.
There are strict compliance rules as to financial transactions involved in organizations that transact business frequently like that, if it wasn't disclosed in their application to IRS Form 1023. There are even a number of questions on the Form 990 that need to be answered describing why and how one organization financially supports the other - and if their charter even permits it. | |
| 11 February 2009 | |
| This seems like one of those questions where a lot more detail needs to come out before a helpful answer can be given. Uncle Sam's response has me intrigued, as I'm not aware of any "strict compliance rules" that pertain to the frequency of transactions between related or unrelated organizations. If there are such rules, I'd surely want to find out more about them.
As far as I know there is nothing wrong with one 501(c)(3) giving regular support to another in the form of an annual "bailout." I'm not sure which question on the 990 addresses whether the corporate charter permits making supporting donations to another. It does ask about transactions with other "non-charitable" exempt organizations. And the new 2008 990 has added Schedule R to disclose transactions with other organizations. It can be a problem if a c3 is donating to a c4 which then uses the money to lobby. Or if a c3 is giving money to a for-profit. I don't know everything, so I'm open to being educated about this. I can imagine that if NP1 is giving so much money to NP2 that it is curtailing its own programs, this could be a problem and might require disclosure to the IRS. | |
| 15 June 2009 | |
| I am still wrestling with this issue? What kind of additional detail would be helpful? Can these be considered donations? Does anyone else see any problems? | |
| June 16, 2009 | |
| It would be helpful if we knew what type of organizations you are referring to. Is management related? If so, how? What are the missions of each? | |
| 16 June 2009 | |
| NP1 (self-sustaining) is a church and NP2 (org. receiving cash infusions) is a daycare facility/private school.
Mission of the daycare facility/private school is to carry out programs for childcare and education for persons in the community, provide resources to assist the elderly, distressed, and underprivileged, and establish programs to provide safe and affordable housing for the elderly and underprivileged. Mission of the church is to help the lost develop a relationship with Jesus Christ. Yes, management is related. | |
| June 16, 2009 | |
| Actually, I think this is probably a common situation. It sounds like tuition needs to be raised. In the meantime, however, I think it is okay for the church to make donations to the school. I would just make sure that school funds are being used for bona fide school expenses and not excessive salaries or other outrageous benefits for management. | |
| 16 June 2009 | |
| I completely agree with Natalie. And, since both are 501(c)(3) organizations, there should be no issue with the public support percentage of the day care / school. As long as both organizations are truly organized and operated for a bona fide exempt purpose I see no issues. The church is simply making a cash contribution to a related (c)(3). That's it. Good to ask these questions though. | |
| 20 June 2009 | |
| "Mission of the church is to help the lost develop a relationship with Jesus Christ." Yes, and they are going to stay lost if they keeping taking money from Jesus' pocket! MERCY!
What you are describing ATL is a new take on the old Bible saw "Robbing Peter to pay Paul." You can't do it! Have the kids grow vegetables, or sell cookies at busy intersections. Better yet, don't feed them for a few days, and then turn them loose to scavange. God will provide. | |
