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Started By
Message
Private Benefit vs Donation
Posted on 8/28/24 at 8:49 am
Posted on 8/28/24 at 8:49 am
Discussion at work that I thought had a simple explanation/solution, but would like others' thoughts on this. I used to work in public accounting (now industry) and people tend to come ask me these types of questions.
Coworker's son is playing on a travel ball team this fall. Coworker is in charge of collecting money, fundraising with sponsorships, etc. Each player is required to pay dues of $300 to the organization (organization is a registered 501(c)(3). One of the parents secured a donation from a large corporation of $2,000. The parent is saying that the donation covers his son's dues and the remainder is for the organization to use.
My coworker's question is basically asking if this is legal/permissible under the tax code.
My thought is that if they were to allow the $2,000 donation to cover dues, $300 of the $2,000 would be considered a private benefit and not tax deductible for the corporation. I wouldn't think they should allow the parent to get away with not paying dues under the basis he secured a larger donation.
To me, there is no difference of the corporation giving the parent the money and him using at a bar, groceries, gas, etc. I think they should tell this parent to kick rocks.
Coworker's son is playing on a travel ball team this fall. Coworker is in charge of collecting money, fundraising with sponsorships, etc. Each player is required to pay dues of $300 to the organization (organization is a registered 501(c)(3). One of the parents secured a donation from a large corporation of $2,000. The parent is saying that the donation covers his son's dues and the remainder is for the organization to use.
My coworker's question is basically asking if this is legal/permissible under the tax code.
My thought is that if they were to allow the $2,000 donation to cover dues, $300 of the $2,000 would be considered a private benefit and not tax deductible for the corporation. I wouldn't think they should allow the parent to get away with not paying dues under the basis he secured a larger donation.
To me, there is no difference of the corporation giving the parent the money and him using at a bar, groceries, gas, etc. I think they should tell this parent to kick rocks.
2
Posted on 8/28/24 at 9:20 am to geauxtigahs214
quote:
My thought is that if they were to allow the $2,000 donation to cover dues, $300 of the $2,000 would be considered a private benefit and not tax deductible for the corporation. I wouldn't think they should allow the parent to get away with not paying dues under the basis he secured a larger donation.
Eh idk. If the corporation received no benefit, then their $2,000 should be deductible. It’s up to the organization to determine how they use their proceeds. I think it would only be murky if the parent worked for said corporation or something that wasn’t arm’s length.
I also think the organization can tell the parent they’re still responsible for their own dues, but that may not be a worthwhile exercise to cut off $1,700 in excess donations down the road.
This post was edited on 8/28/24 at 10:11 am
Posted on 8/28/24 at 10:03 am to geauxtigahs214
The travel ball team is a 501(c)(3)?
Posted on 8/28/24 at 10:42 am to Brummy
I think it is one of those things where there is a parent organization that has a bunch of teams using their name. So I am assuming that parent organization is a 501(c)(3).
Don't have kids, so I am not familiar with the travel ball scene (other than the OT roasting travel ball constantly)
Don't have kids, so I am not familiar with the travel ball scene (other than the OT roasting travel ball constantly)
Posted on 8/28/24 at 11:33 am to geauxtigahs214
quote:
I think it is one of those things where there is a parent organization that has a bunch of teams using their name. So I am assuming that parent organization is a 501(c)(3).
That seems like it would fall under 501(c)(7) but I'm not familiar with it either. It doesn't seem like one would be allowed to deduct "donations" to a travel ball team/organization as a charitable contribution.
Assuming it is a 501(c)(3), I think the issue would be the lack of control by the organization over the $300. If the company is allowed to effectively pay that parent's dues on their behalf I don't think the company would be allowed to deduct that portion. You can't claim a deduction for a payment to an individual simply by running it through a charitable organization - the organization has to retain some level of discretion on how the funds are spent.
I think as far as whether or not it is allowed to be done that way would be at the discretion of the organization. Did the company state that the parent's dues were being paid or is the parent simply claiming that is the case?
This post was edited on 8/28/24 at 11:37 am
Posted on 8/28/24 at 12:00 pm to Brummy
I'm honestly not sure how they got the 501(c)(3) designation either. Seemed odd to me.
The way I understand it, the company that donated the money is donating to the organization directly, and did not provide any direction as to how the money is used - the company did not donate with the intent of paying for the player's dues. I think the parent is claiming that since he secured a donation, the dues should be taken out of that.
I do appreciate the responses. Your thoughts are falling in line with what I was thinking. It seems as if the organization went ahead and said "okay, we exempt you from dues since you secured the donation" that would be okay but seems a little murky.
The way I understand it, the company that donated the money is donating to the organization directly, and did not provide any direction as to how the money is used - the company did not donate with the intent of paying for the player's dues. I think the parent is claiming that since he secured a donation, the dues should be taken out of that.
I do appreciate the responses. Your thoughts are falling in line with what I was thinking. It seems as if the organization went ahead and said "okay, we exempt you from dues since you secured the donation" that would be okay but seems a little murky.
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