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Are there any federal tax implications for a non-profit (assuming they're federally registered as tax exempt) if they were to invest and take equity in a for-profit?

Christopher Webb's Profile

Answers

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Christopher,

Probably not. Not for profits often have excess funds lying around, and it is normal to invest them. Additionally, it is common for people to donate equity (both stock and warrants) into NFPs.

BUT

-It depends on your particular NFP.
-It depends on whether you turn a profit. Consistently profiting can be a problem. Check IRS circular 183.
-Generally related-party transactions will raise flags (presumption that a director is profiting indirectly from the investment in a company in which s/he has a material interest could be a bad thing).

So, check the rules on your flavor of NFP.

KP

EVELYN FRANKLIN
Title: CFO
Company: FRANKLIN ACCOUNTING & CONSULTING
(CFO, FRANKLIN ACCOUNTING & CONSULTING ) |

Also, if the non-profit "sales" anything, they may also be subject to their state and local taxing authority regulations. Check with your state and local authorities..

Evelyn

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I agree with Keith, there are no implications (assuming you meant in a negative way, like penalties, criminal sanctions, etc). There will be possible tax consequences (and Evelyn is also correct, check your State tax code as well), but managed correctly, it's a cost of doing business.

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