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On-line stores, should we worry about tax problems?

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On-line stores, should we worry about tax problems?

I am the president of a 501(c)(3) educational organization. I would like to use an online store to sell items for a profit so that we may raise funds to assist students in attending conferences who cannot afford to do so now. Our Executive Director is concerned about tax problems connected to our income and competing with businesses that might sell these items themselves. Is this a problem? Our national CFO seems to feel it is not.

The key question is whether the sale of the items will be “substantially related”, other than raising income, to your charitable and educational purposes. If so, the sale will not produce unrelated business taxable income and you should have no problem with your federal tax exempt status. If not, you can have substantial tax problems. (See Ready Reference Pages: “Nonprofits Often Worry About UBIT”.)

Wednesday, April 18, 2007
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