501c3 Acceptable Donations?

[needadvice2098]

My 501c3 wants to allow a local music teacher access to our facilities for her classes. The teacher wants to "donate" a fee in return for use privileges at our site.

We want to maintain our 501c3 integrity, and my concern is that accepting a "donation" in return for providing the teacher space in which to conduct her classes (her company is a for-profit entity) would send up a red flag. She isn't really donating anything since we are providing "goods and services" to her in the form of classroom space. Is it a better idea (and the legal way) to require her to pay a fee for use of our space rather than call it a donation, or gift?

This situation takes place in California.

 

[tranquility]

Personal services are not a deductible "donation" except under certain circumstances. A teacher cannot take her usual and customary fees for her services as a donation. Alson, if a person receives value for a "donation" it is not a donation for the extent of the value. If she gives $100 and gets the rent of space worth $200, there is no donation. In the letter you *must* give her for her "donation" to be deductible, you will have to estimate the fair market value of the goods supplied for the donation.

 

[needadvice2098]

Thank you for the reply.

I appreciate your advice, and what you have described makes sense. If the teacher donates anything, that donation is only a donation if it exceeds the value of the goods we provide.

Do you know if there are any tax or finance-related restrictions or pitfalls to watch out for in terms of allowing outside business entities to conduct their operations on the site of a 501c3?

Since this teacher is providing a service in exchange for profit, and employs a number of other teachers who will also be on-site, do we as a non-profit have the ability to allow for-profit activities to be conducted at our location? How can we make sure that we are protected from any tax liabilities?

Thanks again.

 

[tranquility]

That is a far more complex question. You need to see an attorney for advice. At the minimum, written contracts negotiated at arms-length and for fair vaule would be required. I'd certainly put clauses in the contract making sure everyone knew there was not a relationship between the two of you and requiring the students of the person to sign a waiver of liability and an understanding you are not related for the orgainization. The 501c3 may have UBTI for certain activities not within the core of their purpose and the tax to be paid on that needs to be considered in the cost. Oh, and plenty of insurance both for the organization and for the board.

Even then, I'm just thinking out loud. See an attorney and spend a few hundred to start everything out right. It will be a lot cheaper than doing things wrong will be down the line.

 

[LdiJ]

Thank you for the reply.

I appreciate your advice, and what you have described makes sense. If the teacher donates anything, that donation is only a donation if it exceeds the value of the goods we provide.

Do you know if there are any tax or finance-related restrictions or pitfalls to watch out for in terms of allowing outside business entities to conduct their operations on the site of a 501c3?

Since this teacher is providing a service in exchange for profit, and employs a number of other teachers who will also be on-site, do we as a non-profit have the ability to allow for-profit activities to be conducted at our location? How can we make sure that we are protected from any tax liabilities?

Thanks again.

One of the key elements (for your organization) is whether or not renting out space is a primary fundraising activity...or a secondary/incidental activity that would require you to file a 990T and pay tax on the "profits". There are plenty of 501c3 organizations who rent out their "halls" as one of their primary fundraising activities. I prepare returns for several of them.

Do follow Tranqs advice and get a consult with a tax attorney. However, if you plan to rent out space on a long term basis, it may very well be a valid primary fundraising activity.