The Nonprofit FAQ

Can you get a tax deduction for a gift to 'your own' nonprofit?

Someone wrote this question early in 2001: "Am looking for information I couldn't seem to find. In one situation you donate to a NPO and you get a tax credit. OK, now what if you 'own' the NPO, run the NPO, are one of the officers, and you out your funds into it? Do you still get the same tax credit? Even though it is your NPO? Putnam Barber answered: Well first of all, you obviously can't "own" a nonprofit. To be eligible to be recognized as a tax-exempt entity and receive tax-deductible donations, the organization must be a nonprofit corporation under the laws of some state. Those laws unsually set strict limits how ownership is defined and managed. But more loosely, there are people who make huge contributions to organizations they have founded or have developed a personal commitment to. People who incur unreimbursed out-of-pocket expenses or make cash gifts to eligible nonprofits are entitled to take a tax deduction on Schedule A when they file their personal income taxes. See http://www.nonprofits.org/npofaq/18/61.html The IRS regulations about substantiation apply, of course, which means that any gift over $250 must be acknowledged in writing by the organization. I think some other officer or senior staff member should sign such acknowledgements, to avoid any appearance of self-dealing in the transaction. And it would seem sensible to be very careful that there is no suggestion that the claimed deductions are more for personal benefit than a genuine effort to create a public asset through the nonprofit's work. There are some rules that can affect the nonprofit's status if the gifts are very large; these rules differentiate between private foundations and public charties. Public charities must receive a significant proportion of their support from a wide range of sources; having just one major donor support most of an organization's work will, in the end, lead to a determination by the IRS that it is a private foundation (and hence has to operate under different and slightly more burdensome rules). "Major donors" are "disqualified persons" under the Intermediate Sanctions rules, which means that stringent standards must be met in situations where a conflict of interest might arise. For more about this subject, see http://www.nonprofits.org/npofaq/18/13.html. Posted 4/11/01; revised 11/8/04 -- PB