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Should I notify the IRS of $1 million grant?

Your Legal Questions Answered

Should I notify the IRS of $1 million grant?

I took the cheap easy path to charity with a 1023-EZ application for exemption, and I'm in business with a great mission and a great project.  I take my idea to one of the big box stores, begging for scraps for a build.  They take my presentation to corporate and suddenly I have a million dollar grant nomination.

I contacted legal for guidance and got scolded for starting out with 20X the $50,000 limit I swore I wouldn’t exceed when I filed the 1023-EZ.  I don't even have a bank account, nor am I guaranteed a million dollar grant. But if offered, I feel it is a duty to the mission to attempt the proposed solution.  How should I deal with the IRS proactively? I assume that everyone, including the lawyers, will say “Don’t call the IRS."

On this one, I agree with “everyone.”  Don’t call the IRS.  First, you aren’t assured you will actually get a $1 million grant.  And even if you were assured, the IRS wouldn’t do anything about it.  You will have to disclose what you actually get on the first annual Form 990 return you file after you exceed $50,000 in gross revenue in a year.  You can explain your good fortune on the return.

You may have another issue, however.  If virtually all of your income comes from the box store in your first five years, you may not continue to be a public charity, and could be flipped into being a private foundation, with all of its limitations on your work.  You can avoid being flipped by assuring that you have significant other contributed income, by reducing the amount you take from the store, or by decreeing that the store grant is an “unusual grant” that should not be considered in the public support calculation.  (See Ready Reference Page: “Calculating Public Support Percentage”).  If the $1 million is actually possible, work with someone who understands the issue to be sure you are safe.  In the meantime, just keep working on your great mission.

Tuesday, February 20, 2024

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