CATEGORY

Nonprofit Tax

Is it Time to Form a For-profit Subsidiary?

Tax-exempt Organizations engaging in social enterprise or other active business pursuits often worry that a growing stream of unrelated business income could threaten their tax-exempt status. This concern is related to the prohibition against tax-exempt organizations engaging in more than an insubstantial amount of activity unrelated to their tax-exempt purpose. Unfortunately the term insubstantial is undefined. Based on court cases, it appears that gross unrelated business income receipts of 5 percent or less is always safe while over 20% is probably too much.

When unrelated business endeavors take off, the success of the business can threaten a 501(c)(3) organization’s tax-exempt status. To protect their tax-exempt status, many tax-exempt organizations with successful unrelated business ventures move their unrelated business activities into a taxable for-profit subsidiary.

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Revocation of Exemption
Nonprofit Tax

A Reprieve for Small Nonprofits?

Monday was the deadline for small nonprofits to file overdue Form 990s or face loss of tax-exempt status. Notwithstanding Monday’s deadline , Internal Revenue Service (IRS) Commissioner Doug Shulman said the agency will do what it can for small charities to keep their exemptions in a statement released on Tuesday.

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Private foundations and public charities
Nonprofit Tax

Private Foundations and Public Charities

Private foundations are subject to a more strict regulatory regime than public charities. There are penalties for “self-dealing” transactions, failure to distribute sufficient income for charitable purposes, holding concentrated interests in business enterprises, making risky investments, and for making certain types of expenditures.

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