Stuart A. Bronstein <spamtrap[at]lexregia.com> wrote:
- quote -

I and, I suspect, many others here have acted as a conduit for
a not-for-profit, e.g., collecting money for group outings,
group dinners, group purchases. The problem is not the "for
the use of" language, but rather the IRS looking at a taxpayer's
return and seeing a series of credits and debits related to a
not-for-profit AND seeing the taxpaper may have intemittently
made personal use of these funds before replacing them. If
intermittent personal use does not occur, there is no problem.

The very simple solution is to open an escrow account and run
all transactions through it. Banks like non-interesting
bearing escrow accounts and escrow accounts cause auditors to
leave sooner.

This is a good recodkeeping situation where you dot the i's
and cross the t's. Auditors love good recordkeeping.

Dick

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Katie <katiej_1958[at]yahoo.com> wrote:
- quote -

That reminds me of something. We were recently discussing Dick's
issue of the deductibility of travel expenses when he's representing
a nonprofit. The statute says something like, deductible gifts can
be made "to or for the use of" the nonprofit.

The courts have interpreted the "for the use of" language to mean
money or property given in trust to be held for the nonprofit. Isn't
that the kind of thing that's happenning in this case? The one
downside is that gifts given in this way are limited in deductibility
to 20% of the donor's gift basis (or whatever they call it).

Stu

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On Jul 5, 4:03*pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -


Well, I think most groups wouldn't do it because I don't see any way
to salvage the deductibility of the donors' contributions that were
paid to Mr. X.

However, hearing Dick's story, I have to admit that papering these
transactions over after the fact may or may not be effective if
questioned by the IRS. The vulnerable party here is not the nonprofit
but Mr. X, who may be determined to have gross income in the amoount
of the "contributions" and nondeductible expenses. The kind of
documentation I suggested may protect him, but I wouldn't make any
guarantees. I also suggested in a private e-mail to Christopher that
the Board adopt a resolution authorizing Mr. X's receipt of the
contributions on its behalf and the expenditure of the funds for its
benefit.

I also suggested, in that e-mail, that there may be facts here that we
are not privy to that could affect the analysis. Maybe something
underhanded was going on here, who knows? If so, certainly all bets
are off.

Katie in San Diego

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Mark Bole <makbo[at]pacbell.net> wrote:

- quote -

WoW, this known as "commingling funds" which is the Eighth
Deadly Sin. It is ordinary income to the recipient and
has been known to raise hell at an audit.

A Law firm collected over $25,000 for a charity dinner and
paid the exact amount to the charity. Unfortunately the
checks were made out to either an attorney or to the Law
firm and, instead of depositing the checks into an escrow
account, they deposited the checks into the firm's account.

I knew the Manager of the IRS office that audited them.
He said on one day the firm's account was below $20,000
and they got taxes and interest. The penalty was waived
because they admitted they were wrong and signed a cease
and desist order to avoid publicity.

Dick

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Christopher wrote:
- quote -

Not to detract from Katie's thorough reply, but turn it around for a
moment: if it was that easy, wouldn't a lot more organizations simplify
things by just having a member pass everything through his or her
personal checking account?

-Mark Bole

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On Jul 5, 10:41*am, Christopher <chrismewh...[at]hawaiiantel.net> wrote:
- quote -


Is this organization eligible to receive tax-deductible contributions
under IRC Sec. 170? If so, the donors lost their charitable
contribution deductions by making their checks payable to Mr. X rather
than the organization.

You can't just ignore his receipt of the funds. If it isn't an
advance to him from the organization, it's income to him. Also, the
vendor payments are nondeductible personal expenses to him unless he
can document that they were paid for the benefit of the
organization.

I think the only alternative to the solution I proposed above is to
treat all of the receipts as "other income" on Mr. X's return and to
deduct both the amounts paid to the vendors (assuming they can be
documented as paid on behalf of the nonprofit) and the cash paid to
the nonprofit as charitable contributions. He should give the
nonprofit a detailed accounting and documentation of the payments he
made, and the nonprofit should give him a letter acknowledging receipt
of those amounts, plus the balance deposited to its account, as
charitable contributions for which no other benefit was received. And
both the contribution and the expenses should be recorded on the
organization's books.

I think I'd still do as I suggested above -- make an adjusting journal
entry on the nonprofit's books crediting revenue and debiting advance
to Mr. X for the amounts he received from the donors, and a second
entry crediting the advance and debiting the appropriate expenses and
cash. Of course Mr. X must furnish the nonprofit with a detailed
accounting and documentation of the funds expended to back up the
second entry.

Either way, the revenue and expenses must be recorded on the
organization's books and included in its 990.

Katie in San Diego

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On Jul 5, 3:59*am, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -

There were no funds transferred from the non-profit. Members of the
public made out checks to the individual, he deposited them in his own
bank account. He wrote checks to various vendors from his personal
bank account. The only time the non-profit was involved was when he
deposited money into the non-profit bank account.

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Christopher wrote:
- quote -


- quote -

What would you call the funds transferred *from* the non-profit?

-Mark Bole

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On Jul 4, 7:24*pm, Christopher <chrismewh...[at]hawaiiantel.net> wrote:
- quote -


I can't cite anything, but it seems to me the nonprofit got the
benefit of the revenue and the expenses and they should all be
reported on its books and on the 990. I think I'd record the revenue
as coming in and going out immediately to the member in the form of an
advance on expenses (like petty cash, though in this case maybe not so
petty <G> ). Then the member turns in the leftover cash with all of
the receipts for the expenses he paid. He has no charitable
contribution deduction, but he also has no income or expense arising
from these transactions.

And I trust you have read the riot act to the Board and the individual
so that this will never happen again!

Katie in San Diego

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The client is a non-profit 501(c)3 filing Form 990 each year. In 2007,
an individual member accepted substantial income of the non-profit in
his own name, and deposited it into his personal bank account. From
this personal bank account, the individual member paid expenses of the
non-profit. Near the end of the year, he determined he had an excess
of non-profit funds in his personal bank account and deposited the
excess into the non-profit bank account.
I am inclined to exclude the financial transactions of the individual
and merely report the funds transferred to the non-profit as a
donation. The Board and the individual insist that all the
transactions should be reported on the Form 990. Opinions? Cites?

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