Our 501(c)(3) museum is leasing shop space to a for-profit business. Can the for-profit business make donations of money or time to our nonprofit in addition to the rental payments? Is there a conflict of interest since we have a financial relationship? Could these activities be seen as business income?
I don’t think any problems are likely here. Assuming that the rental payments are at fair market value, they should not be a problem. If the for-profit is owned by officers or directors or others who are disqualified persons with respect to your museum, it could be an excess benefit if the rent is below fair market value. You don’t suggest that either of these situations are present here, however.
Rental of real estate does not generate unrelated business taxable income that becomes subject to unrelated business income tax (“UBIT”) unless the rented property is subject to acquisition indebtedness, generally in the form of a mortgage, or is leased along with the provision of significant personal services to the tenant. (See Ready Reference Page: “Nonprofits Often Worry About UBIT”) You don’t suggest that either of these situations is involved.
It doesn’t normally create a conflict of interest for a charity to accept gifts of money or services from people who are buying goods or services from the charity. Hospital patients make gifts to hospitals, students and alums give to their alma mater, and opera patrons make gifts to the opera company all the time without raising a conflict of interest question.
If the rent is significantly below fair market value or merely a license to have space in your gift shop and the for-profit tenant is not a disqualified person, an IRS examiner might try to recharacterize some of the cash contribution as rent, which could conceivably affect your public support percentage. (See Ready Reference Page: “Calculating Public Support Percentage”). But even if that were to happen, it is unlikely that the difference would be so big as to affect your public charity status.
It is always wise to consider conflict of interest issues when you have multiple dealings with an individual or entity, but it doesn’t appear that you have a conflict issue here.