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How much can one nonprofit transfer to another in one year?

Your Legal Questions Answered

How much can one nonprofit transfer to another in one year?

It is my understanding that one nonprofit organization can donate/transfer assets to another nonprofit.  Is there a cap of $5 million per year? The person who completed our Form 990 stated that there was a cap. The donating organization was a school that had two divisions, the school and a housing department. They transferred unrestricted assets/housing assets to another nonprofit that was solely housing services. Because the transaction was going to exceed $5 million, it was donated in two fiscal years. Is there a cap per year on a transfer between one nonprofit and another?  

I am not aware of any cap on the amount of assets one nonprofit may transfer to another.  Your tax preparer was probably thinking of the reporting requirement on Schedule N of the Form 990 tax information return that requires disclosure of a “sale, exchange, disposition or other transfer of more than 25% of the Organization’s assets.”  But this is a disclosure requirement based on a percentage of total assets, not a prohibition or a limitation on the total amount.

The Form excludes certain transfers, such as a turnover in publicly traded stock held in as investments, sales of inventory made in the ordinary course of business, distribution of grants in the ordinary course, such as United Way distributions from its annual drive, and transfers to a disregarded entity of which the organization is the sole member.  Your distribution, however, does not seem to meet any of those exceptions.

Making the gift over two years may not eliminate the requirement for disclosure.  The instructions say the disclosure requirement applies to “a series of related dispositions” and measures the percentage against the value of the assets at the beginning of the first year of the distributions.

I am not sure why you would not want to disclose the activity.  You have plenty of space on the Schedule to explain why it is helping the community.

Tuesday, October 6, 2020

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