Can a 501(3)(c) organization buy "thank you" gifts for outgoing board members?

- quote -

> I was just elected to the board of a small 501(3)(c)
> organization in Seattle.
> We want to buy "thank you" gifts for the retiring board
> members.
> Can we use funds from our treasury to purchase these gifts,
> or must we take up a separate collection?
> Our new treasurer says: 'According to this IRS statement
> about requirements for 501(3)(c) organizations "none of its
> earnings may inure to any private shareholder or individual"
> I think we most all feel a debt of gratitude for their
> service to ECS. ECS can't reimburse them for their
> services, but members can certainly give to a separate
> special gift fund."
> Is that correct? Would we be in violation of the law if we
> were to use funds from our treasury to purchase token "thank
> you" gifts?

Your treasurer is reading 501(c)(3) too literally. If "none
of its earnings may inure to any private shareholder or
individual" is taken completely literally, then a charitable
organization would never be permitted to pay a salary to an
employee or to make a distribution to help a needy person.

Board members contribute a great deal of time and energy to
the organizations that they serve, usually on a volunteer
basis. In fact, from the IRS's perspective, the
oraganization could actually pay board members a salary, as
long as the salary was reasonable based on the director's
work for the organization. If board members are paid
nothing, then the value of a token parting gift would mean
that they received nothing plus the $20 (or some other
reasonable amount) spent on the gift in exchange for their
hours and hours worth of work. The IRS is not going to
challenge this as long as the value of the gift is
reasonable considering the amount of time and effort that
the director gave to the organization.

See the intermediate sanction rules under Code section 4958
for more information on this.

A related issue, however, is whether the gift is taxable
income to the director. For purposes of the intermediate
sanction rules state that you can ignore any compensation
that would be disregarded as a nontaxable fringe benefit
under Code section 132, and you should be able to apply this
same rule to whether a gift is taxable to a director. If
the gift is relatively modest and is not cash or a cash
equivalent, then the exclusion for "de minimus fringe
benefits" should apply and keep the gift from being taxable.

--Chris

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- quote -

> I was just elected to the board of a small 501(3)(c)
> organization in Seattle.
> We want to buy "thank you" gifts for the retiring board
> members.
> Can we use funds from our treasury to purchase these gifts,
> or must we take up a separate collection?
> Our new treasurer says: 'According to this IRS statement
> about requirements for 501(3)(c) organizations "none of its
> earnings may inure to any private shareholder or individual"
> I think we most all feel a debt of gratitude for their
> service to ECS. ECS can't reimburse them for their
> services, but members can certainly give to a separate
> special gift fund."

If your treasurer's theory were advanced to its logical
absurdity, then employee's of charitable organizations could
not be paid salaries.

- quote -

> Is that correct? Would we be in violation of the law if we
> were to use funds from our treasury to purchase token "thank
> you" gifts?

No. If the token gifts are valued at more than $25 then the
outgoing director has taxable income.

If you take up a separate collection for these gifts, THEN
the people giving the money do NOT have a tax deduction.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >

I was just elected to the board of a small 501(3)(c)
organization in Seattle.

We want to buy "thank you" gifts for the retiring board
members.

Can we use funds from our treasury to purchase these gifts,
or must we take up a separate collection?

Our new treasurer says: 'According to this IRS statement
about requirements for 501(3)(c) organizations "none of its
earnings may inure to any private shareholder or individual"
I think we most all feel a debt of gratitude for their
service to ECS. ECS can't reimburse them for their
services, but members can certainly give to a separate
special gift fund."

Is that correct? Would we be in violation of the law if we
were to use funds from our treasury to purchase token "thank
you" gifts?

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >