More Q&A

Questions we have received recently...

Question:
Executive Director salary justification - who do we submit this report to? What are examples of how to justify the salary and is it only for the Executive Director?

Answer:
The intermediate sanctions requires that the board be able to show that they did proper research to determine that the salary of the exec is not excessive. The minutes should verify that some kind of salary survey was conducted that compared the salary being offered with organizations of similar size and type. The board needs to justify to itself that the salaries it offers top level staff, board members, contractors, etc. are not excessive.

The regulation applies to all salaries (mostly top level salaries), contracts, income paid to board members, any "insiders". More information on Intermediate Sanctions can be found here.

Question:
What is the deal with UBIT?

Answer:
From the Nonprofit Times enewsletter:

Finance...

Getting hammered with UBIT

Many nonprofit organizations embark on ventures that cross over into the for-profit world, sometimes by design and sometimes by accident.

The Internal Revenue Service (IRS) has strict regulations governing Unrelated Business Income Tax (UBIT), which can be regarded as money a nonprofit makes that is not part of its nonprofit operations.

In her book Something Ventured, Something Gained, Laura Landy offers several options for a nonprofit that has 15 percent or more of its total income that is unrelated income.

Those options are:

-- Revise the charter of the organization. Depending on the nature of the business, the nonprofit can file with the IRS to amend its charter.

-- Alter the business to make it related. Although possible, this course of action is not recommended.

-- Stabilize or reduce the income to below 15 percent. This may be counterproductive, since the point of a nonprofit and a for-profit is to raise as much money as possible.

-- Sell the business. Caution is needed here, because the income from the sale may be unrelated and thus taxable.

-- Establish another nonprofit organization in which the business activity is related. A cooperative partnership can be established under which the second nonprofit donates its profits to the parent nonprofit.

-- Establish a separate profit-making corporation. This can be complicated, but often it is the best course of action.

Also check the links to the right for more info on UBIT.

Latest Boot Camp Event Info

The latest info is on the CAN website, click the title of this post to get there.

Latest questions from a Boot Camp

Can a 501 (c) 3 donate to a 501 (c) 6?
If the missions are similar then we think yes, it should not be an issues. You said if I remember rightly that it was some old office equipment. If all the items to be passed on are fully depreciated then it really wonÂ't be a problem either way since there is technically no book value moving between the organizations.

Is a home office deductible if used for a charity?
Unfortunately no, just the cost of materials used (paper, ink, staples and such).

Have there been any changes to SFAS 116?
No new changes, it is still in effect.

Anybody have different answers?