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.")
Planned giving sounds complicated, with its CRUTs and CRATs, CLUTs and CLATS, and CGAs. It can be incredibly complicated, but it needn’t be. Keeping it simple may be the best way to start a planned giving program for a charity that hasn’t already put one in place.
This webinar offered a review of major planned giving instruments and a discussion of ones that make the most sense to emphasize in starting a planned giving program. It discussed the advantages of integrating planned giving into an existing development program, targeting the best prospects, getting buy-in from the board that is likely to generate results, and setting a structure to make it all happen.
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