Has your nonprofit ever engaged in joint activities with a business, perhaps with resulting revenues? Such arrangements are increasingly common for many Section 501(c)(3) organizations. A key legal requirement is that the tax-exempt organization maintain control of the project, so that its charitable resources will be “exclusively” used in furtherance of tax-exempt purposes, as required by the Internal Revenue Code. What does “control” mean for IRS purposes, and what happens to resulting revenues? Careful planning is essential to answering these questions for optimal tax compliance.
May a nonprofit that makes loans to private individuals and businesses qualify as a Section 501(c)(3) organization? Or is making a loan a “business,” not suitable for public charity status? In the world of microfinance—making small loans to those who lack ready access to funds— the IRS allows for such public charity qualification, albeit within restrictive parameters. Charitable microfinance activities are well grounded in historical practice, they can provide significant societal benefits to disadvantaged communities, and thus they can fulfill tax requirements for “charity.”
Does your nonprofit owe income tax on multiple “silos” of unrelated business taxable income (UBTI)? This has been a difficult question for many tax-exempt organizations to answer due to the lack of guidance on what constitutes one unrelated trade or business, or one “silo.” On August 21, 2018, the Internal Revenue Service (“IRS”) issued Notice 2018-67 (“Notice”), providing interim guidance, and greatly needed clarity, on how to identify separate trades or businesses in connection with unrelated business income tax (“UBIT”) liability. This article provides six of the most notable take-aways from Notice 2018-67.