{"id":14159,"date":"2019-10-04T10:44:35","date_gmt":"2019-10-04T20:44:35","guid":{"rendered":"https:\/\/sfwpartnersllc.com\/?p=14159"},"modified":"2019-10-04T10:44:35","modified_gmt":"2019-10-04T20:44:35","slug":"avoid-excess-benefit-transactions-and-keep-your-exempt-status","status":"publish","type":"post","link":"https:\/\/www.sfw.cpa\/news-and-guides\/avoid-excess-benefit-transactions-and-keep-your-exempt-status\/","title":{"rendered":"Avoid Excess Benefit Transactions and Keep Your Exempt Status"},"content":{"rendered":"

<\/head><\/p>\n

<\/p>\n

One of the worst things that can happen to a not-for-profit organization is to have its tax-exempt status revoked. Among other consequences, the nonprofit may lose credibility with supporters and the public, and donors will no longer be able to make tax-exempt contributions.<\/p>\n

Although loss of exempt status isn\u2019t common, certain activities can increase your risk significantly. These include ignoring the IRS\u2019s private benefit and private inurement provisions. Here\u2019s what you need to know to avoid reaping an excess benefit from your organization\u2019s transactions.<\/p>\n

Understand private inurement<\/strong><\/p>\n

A private benefit is any payment or transfer of assets made, directly or indirectly, by your nonprofit that\u2019s:<\/p>\n

    \n
  1. Beyond reasonable compensation for the services provided or the goods sold to your organization, or<\/li>\n
  2. For services or products that don\u2019t further your tax-exempt purpose.<\/li>\n<\/ol>\n

    If any of your nonprofit\u2019s net earnings inure to the benefit of an individual, the IRS won\u2019t view your nonprofit as operating primarily to further its tax-exempt purpose.<\/p>\n

    The private inurementrules extend the private benefit prohibition to your organization\u2019s \u201cinsiders.\u201d The term \u201cinsider\u201d or \u201cdisqualified person\u201d generally refers to any officer, director, individual or organization (as well as their family members and organizations they control) who\u2019s in a position to exert significant influence over your nonprofit\u2019s activities and finances. A violation occurs when a transaction that ultimately benefits the insider is approved.<\/p>\n

    Make reasonable payments<\/strong><\/p>\n

    Of course, the rules don\u2019t prohibit all<\/em> payments, such as salaries and wages, to an insider. You simply need to make sure that any payment is reasonable relative to the services or goods provided. In other words, the payment must be made with your nonprofit\u2019s tax-exempt purpose in mind.<\/p>\n

    To ensure you can later prove that any transaction was reasonable and made for a valid exempt purpose, formally document all payments made to insiders. Also ensure that board members understand their duty of care. This refers to a board member\u2019s responsibility to act in good faith, in your organization\u2019s best interest, and with such care that proper inquiry, skill and diligence has been exercised in the performance of duties.<\/p>\n

    Avoid negative consequences<\/strong><\/p>\n

    To ensure your nonprofit doesn\u2019t participate in an excess benefit transaction, educate staffers and board members about the types of activities and transactions they must avoid. Stress that individuals involved could face significant excise tax penalties. For more information, please contact us.<\/p>\n

    \u00a9 2019<\/em><\/p>\n

    <\/body>
    \n<\/html><\/p>\n","protected":false},"excerpt":{"rendered":"

    One of the worst things that can happen to a not-for-profit organization is to have its tax-exempt status revoked. Among other consequences, the nonprofit may lose credibility with supporters and the public, and donors will no longer be able to make tax-exempt contributions. Although loss of exempt status isn\u2019t common, certain activities can increase your […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[],"class_list":["post-14159","post","type-post","status-publish","format-standard","hentry","category-not-for-profit-2"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14159","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=14159"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14159\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=14159"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=14159"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=14159"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}