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I am thinking of starting a new 501(c)(6) trade association and providing all of the initial funding, but I would like to get it back when the association is able to pay it. Someone told me that any payment to me would be considered a preferential payment and could jeopardize the organization’s exempt status. Is that true?
It is true that a trade association is subject to the same type of prohibition against “private inurement” as a charity. It cannot be used for the personal benefit or the personal profit of an individual or small group of individuals.
But I am not aware of any rule that says you can’t lend the start-up funds to the organization and get repaid when the organization is in a position to do so. You should be sure to document the loan fully, and when you put together the initial board, be sure that they ratify the loan so that there isn’t a question later.
4/6/2010
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