A nonprofit used donated money to buy property. A few years later, the nonprofit wants to sell that land to a board member for her private use. I heard that the nonprofit may only sell the property purchased with donated money to another nonprofit. The board member is trying to buy the land for LESS than the nonprofit paid for it. Is this legal?
I have never heard of a rule that says a nonprofit organization may sell property only to another nonprofit, whether or not the property was acquired with donated funds. Unless there was some highly unusual provision about disposition of the property in a gift agreement, I would be very surprised if it could not be sold to someone else.
It is legal to sell property to a member of the board, but if the organization is a 501(c)(3) charity or a 501(c)(4) social welfare organization, it has to worry about selling the property at less than fair market value. Neither the organization nor the purchaser wants to be involved in an excess benefit transaction. (See Ready Reference Page; “Charities Must Avoid Excess Benefit Transactions”)
A sale at significantly less than the purchase price a few years ago would be highly suspicious. The organization should definitely obtain a current fair market appraisal to assure that the price is fair, that nobody will be liable for an excess benefit tax, and that the directors won’t be in breach of their fiduciary duty to assure a fair deal for the organization.