Earned Income Tips and Traps for California Nonprofits (Audio Only) (Update)

Increasingly, charities are exploring and utilizing ways to raise revenues through vehicles other than traditional fundraising. Creating commercial subsidiaries, partnering with for-profits, crowdfunding, and broadening target markets for existing sales continue to rise in importance as part of the nonprofit sector's earned income strategies. Nonprofits create taxable subsidiaries when the amount of their unrelated business activities threaten their tax-exempt status, but such determinations should be made with an understanding of the underlying laws. When charities enter into other types of relationships with taxable entities for the purpose of generating revenues, other requirements and issues are triggered that depend in part on the particular type of relationship (e.g., joint venture, commercial co-venture).

Charitable crowdfunding has been regulated relying on mostly laws that predate online technologies, but legislators and regulatory bodies are actively considering passing new laws and regulations. The laws regarding unrelated business income tax (UBIT), which have always been complex, changed substantially as a result of the Tax Cuts and Jobs Act. These laws are generally triggered by regularly carrying on a business unrelated to furthering a nonprofit's tax-exempt purpose, which may be the result of serving a broader market to generate revenues rather than to serve targeted beneficiaries of a charity. Failing to understand and observe such laws can result in substantial penalties and even loss of exempt status.

This audio-only course, taught by Gene Takagi, a Principal of NEO Law Group, a firm focused on the practice of nonprofit and exempt organizations law, reviews the legal issues that should be considered when reviewing a nonprofit's planned or existing earned income ventures and offers practical guidance on best practices for both in-house and outside counsel.

Learning Objectives:

1. Discuss how to assess an existing or planned profit-making venture for corporate and tax law compliance
2. Distinguish between businesses that are considered related or unrelated to a charity's tax-exempt purposes
3. Review when UBIT gets triggered and the new rules for calculating UBIT
4. Assess when a subsidiary or affiliated entity may be of use and what legal forms (including hybrid forms) such an entity may take