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Will purchase of founder’s books create private inurement?

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Will purchase of founder’s books create private inurement?

I am founder of a new 501(c)(3) nonprofit offering classes and services to help people better themselves, in both career and life. I will be one of a seven-member board.  I will also be the executive director, initially being paid $300/month. I have written some books over the last 15 years that will help the students succeed, and the board wants to include two of them in the learning programs. My understanding is that as long as the NFP buys the books below market value, determines that no equivalent books exist, purchases only what is needed for the actual number of students enrolled, and I myself am not a part of the vote, there should be no "inurement" in the eyes of the IRS.  Is that correct?

You are right to be concerned about the IRS looking for private inurement from a charity purchasing the founder’s books. They fought for years with L. Ron Hubbard about his book Dianetics that was the basis for the Church of Scientology.

It doesn’t sound as though you are in the same position (yet), and I agree that you should treat the purchase as you would any other potential excess benefit transaction. (See Ready Reference Page: “Charities Must Avoid Excess Benefit Transactions”) While private inurement is not exactly the same as an excess benefit, the excess benefit rules were created to give the IRS an intermediate sanction to avoid having to remove the exempt status of the organization because of inurement.

In addition to the items you mention, you also need to consider whether the charity’s use of your books will turn you into a best selling author from unrelated purchasers. That could be considered private inurement. But I would worry about that only if it ever seemed to be happening. There are a lot of things you can do to minimize the risk of IRS trouble at that time.  In the meantime, you seem to be on the right track.

Monday, September 19, 2016

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