Can a 501(c)(3) nonprofit enter into a business activity in competition with previously established for-profit businesses?
Yes, but you need to be careful. The first question you ought to ask is whether the "business" is an "unrelated" business activity for the 501(c)(3) charity. If it is part of the charitable mission and not an unrelated business, the charity should be able to enter into the business without federal income tax problems. If it is unrelated, it will generate unrelated business taxable income which will be subject to tax. Too much unrelated business activity can cause the charity to lose its exempt status. (See Ready Reference Page "Nonprofits Often Worry About UBIT.") In Pennsylvania, if it is unrelated, it may be subject to being enjoined by a small business with which it competes. (See Ready Reference Page "Act 55 Defines 'Charity' Eligible for Exemption.")
With pressure mounting on nonprofits to consider affiliations with other organizations, this workshop is designed to help you better navigate the world of mergers, acquisitions and affiliations. Unlike the corporate world, there are no financial "matchmakers" to help nonprofits identify successful partners for a merger. Learn more in our pre-recorded webinar.
Weekly question and answer
Notice of each full edition
and its free stories
Report on 501(c)(3) electioneering
What our readers say about Nonprofit Issues
Once again you've tackled a tricky question and explained it so we all can understand the issue.--M.V.
Thank you for your informative and keen advice on nonprofit matters. I believe it's a unique and concise place to get answers to this often wispy area called nonprofit. --R.T.
Have a question?
Other ways to
Talk to the Editor
Next Conference Call:
Wednesday, April 23, 2014
Participate in this bi-monthly telephone seminar conference call and ask your questions directly to Editor Don Kramer.
Access the entire site
($9.95/24 hours, $17.95/3 months).
Full Day Program
A well-received full-day program that covers the current hottest topics in nonprofit law. Qualifies in Pennsylvania for Continuing Education credits.
Don is available for programs and speaking engagements ranging from a one-hour presentation to a full-day primer on nonprofit law. Contact us if you are interested in having him speak at your program.