Prohibited transaction?

Prohibited transaction?

Forum topic posted in Forum on 18 December 2008| 3 comments
audience: | last updated: 18 December 2008
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Joined: 01/30/2003
Points: 30
Is there anything inherently wrong with a pre school center established as a 501(c)(3) organization, that is not as a private foundation but rather established as a public charity, leasing its premises on which it is situated from the President and Board of Director of the 501(c)(3) organization. This has gone on many years. The organization has always filed a 990 and Schedule A which discloses this fact along with a statement that the lease is for FMV, which it probably is. He intends to sell the premises and then transfer control of the 501(c)(3) to the buyers of the building who will then go on as the new board. Prior to transferring control of the 501(c)(3) the board intends to pay the manager of the pre-school center (who is not a director or officer) a large bonus and what remains will be kept in the coffers to pay ongoing rent and wages of the school. I don't pretend to know anything about this area but something doesn't smell right about this and the deal is scheduled to close at the end of the month. Thank you for any advice you can give me. Stephen E. Greer Anchorage, AK (907) 561-5520 greer@ak.net

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Offline
Joined: 11/18/2002
Points: 45
Prohibited Transactions
Weren't there two issues here. The first is the allowability of leasing the building from the President of the Board. I've seen free rent show up as an in kind contribution by the property owner who was a Disqualified Person, but not seen FMV rent approved. Is it allowable? If so - to carry that point further out, would it be allowable for the Disqualified Person to collect the FMV and then donate that cash back to the charity for a tax deduction? In kind donations have no tax impact but this certainly would.
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Joined: 01/20/2000
Points: 30
prohibited transaction
The large bonus to the manager could be an issue if it would result in excessive compensation for this type of position. The service is paying much closer attention to the reasonability of management compensation of charitable organizations.
Offline
Joined: 01/09/2003
Points: 30
prohibited transaction
Your analysis would be under the excess benefit transaction rules. It is always best that a disqualified board member defer decision making authority for the transaction
7520 Rates: October 2.2% September 2.4% August 2.4%

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