My husband earns 50K per year working at a local software company. We have 18K in credit card debt and 22K in student loans.
We are currently helping some friends run a non profit charity that is in the process of filing for a 501C3 tax exemption. What we do is we live in one on their charity-owned homes and teach the resident(s) of the two spare rooms [that are not occupied by us or our kids] about how to be mentally, emotionaly, spiritually and physically healthy.
A different close friend of ours is about to win a major settlement in the amount of 3 million dollars and wants to donate the funds ($300,000) for us to have our OWN charity house and continue doing what we are doing to help people. (yay!)
My question is: how should we go about this [giving and accepting of the money] to minimize the tax implications and maximize our effectiveness with our dreams of having our own “Tranquility House” -without subjecting ourselves to the whims of the charity board we are currently under?
Is it possible for our donator’s attorney to contact our friends charity and require that the donation be used to A) pay off our current debt so we can better tend to our current project of running their “tranquility house” and B)to buy us a home where we can run our own program -including selling the home [if necessary] and purchasing another if we want to move our non-profit to another area.
(My parents plan to move to Montana within the next ten years to retire and we will want to be near them when that time comes)
For the sake of helping us, you can assume that each party (the current charity’s founders and board, and the donater mentioned) want us to receive and maximize the effectiveness of the money… with us and the donator losing as little to taxes as absolutely necessary.
since 501C3 tax exemptions are not easy to get, we want to utilize the umbrella of our friends soon-to-be tax-exempt charity to encorporate the purchase of… but not necessarily the on-going management of our own charity.
Dear Alissa Joy,
Well it is a bit problematic. If you run the money through your friend’s charity there may be some audit issues with the permissible purpose of the nonprofit. I would suggest before you do anything like that you consult with the organizations nonprofit tax advisor and make sure they are willing to stand behind the transaction if audited. I’m not saying there is anything wrong with doing it that way but it is potentially very problematic when the nonprofit funnels money through it and someone receives the benefit.
It seems to me that the cleanest way is to start working on forming your own nonprofit group now. When I started the nonprofit I founded I actually used this book and help from a specialized lawyer.
The key issue of nonprofits that you need to be aware of is they are public non-stock corporations. Meaning, you will be just an employee of the company, you have no equity in it and any assets purchased or given to the company then belong to the nonprofit.
Nonprofits are very difficult to navigate these days and the personal liability for doing it wrong can be huge. There is no doubt that the best course of action is to find a nonprofit tax attorney in your state and consult with them to make sure you get it right. Besides, you’ll also need to register and open the underlying state nonprofit corporation to file with the IRS.
You said, “For the sake of helping us, you can assume that each party (the current charity’s founders and board, and the donater mentioned) want us to receive and maximize the effectiveness of the money… with us and the donator losing as little to taxes as absolutely necessary.” But that matters little. What is the most important is how the IRS will view the transaction. The IRS will issue a written opinion if you ask them about such a transaction before you do it.
Please post your responses and follow-up messages to me on this in the comments section below.