501c3 Alumni funding question

[ScienceGuy]

This is for one of my friend. He started an alumni in Virginia, for a college based out of India. He formed a 501c3 here in Virginia for the alumni, doing charitable work here on the education work. He received a request from an alumni batch in India to provide funding for their yearly get together.
So it seems like the non-profit here, may have to do fund drive in Virginia and send the money to India for their activity. What are the tax implications? Also since this is not a charitable work and it is to support the entertainment activity of that batch, is it legal?

Thanks in advance.

 

[FlyingRon]

Best to have an attorney look at the proposed expenditure and what the articles on the particular corporation is. Typically alumni associations do not even qualify for (c)(3). Funding events for the alumni themselves sounds very much like a disallowed private benefit though.

 

[Taxing Matters]

Typically alumni associations do not even qualify for (c)(3).

Not so. The typical alumni association does qualify for tax exemption under IRC § 501(c)(3). Organizations exempt under this section include more than just churches and charities. Take a look at IRS Publication 557, page 22, where it discusses what types of organizations qualify for exemption under § 501(c)(3). There it provides the following examples:

Examples. Qualifying organizations include: ​

• Nonprofit old-age homes,

• Parent-teacher associations,

• Charitable hospitals or other charitable organizations,

• Alumni associations,

• Schools,

• Chapters of the Red Cross,

• Boys' or Girls' Clubs, and

• Churches.


Funding events for the alumni themselves sounds very much like a disallowed private benefit though.

That depends very much the details of the event and what the alumni are getting from it.

 

[Taxing Matters]

This is for one of my friend. He started an alumni in Virginia, for a college based out of India. He formed a 501c3 here in Virginia for the alumni, doing charitable work here on the education work. He received a request from an alumni batch in India to provide funding for their yearly get together.
So it seems like the non-profit here, may have to do fund drive in Virginia and send the money to India for their activity. What are the tax implications? Also since this is not a charitable work and it is to support the entertainment activity of that batch, is it legal?

Thanks in advance.

First, in order for an alumni association to qualify for exemption under IRC § 501(c)(3), it needs to show the following:

An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. If your association doesn't have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs.​

​

See IRS Publication 557, page 26. It does not sound like your friend's association is subject to the control of the university of as to its policies and destination of funds. If is not subject to the control of the university as described it may not qualify for exemption under IRC § 501(c)(3). If it does nevertheless qualify then its spending must be to support and promote the welfare of the college or university. Spending for a private event of alumni that is not organized by the association and is not designed to promote the welfare of the university is likely not going to qualify as spending in furtherance of its exempt purpose. Spending for things that do not further the exempt purpose of the organization can put the exempt status of the organization at risk or subject the organization to penalties. I suggest your friend see an attorney who practices in the area of exempt organizations to ensure his association does indeed meet the requirements for IRC § 501(c)(3) as an alumni association and, assuming it does, get advice as to what activities it is permitted to fund that would further its exempt purpose.

 

[ScienceGuy]

Thank you very much everyone