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Does recreation charity risk exemption by helping hungry?

The mission of our nonprofit corporation is to support our community by holding concerts and events in township parks for the recreation and enjoyment of our residents. We have a considerable surplus in our fund balance, and with the food insecurity people are experiencing, we would like to do something to help. Would we be able to do this without jeopardizing our 501(c)(3) tax-exempt status?  

I doubt that you would risk your federal charitable exempt status by expanding your purpose from local recreation to include helping the hungry.  The Tax Code says you can qualify for exemption if you pursue one or more charitable purposes and for exemption purposes they all qualify equally.

If you are thinking about possibly selling food at a sharply discounted price or in some other way generating earned income from the activity, you might want to notify the Internal Revenue Service of your expanded activity if your exemption is based only on the recreational activity. Unrelated business income tax (“UBIT”) is based on net income from a trade or business that is regularly carried on and unrelated to the purpose for which the organization is exempt. (See Ready Reference Page: “Nonprofits Often Worry About UBIT”). You want to be sure that if you are generating income it comes from an activity within your exempt status.

A state law challenge might be more legally sound, depending on the purpose clause of your articles of incorporation.  We write the purpose clause to be “exclusively for charitable purposes,” “including in particular” the principal anticipated charitable purpose.  (See Ready Reference Page: “Articles of Incorporation Establish Basic Form of Nonprofit Corporations”)  Not all articles of incorporation are written that way and not all states will allow them to be written that way.  Many articles spell out only a specific limited charitable purpose.  Check your articles to see whether your new work would be permitted.

The state Attorney General, voting members of your corporation (if you have them) or dissident members of your board would have legal authority to sue to try to prevent you from helping individuals who are food insecure if that is not within your permitted purpose.   It would take a particularly insensitive type of person to sue to cut off food for those who need it, but they do exist.

Keywords
charitable tax exemption
UBIT

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