Can a nonprofit corporation be organized for the purpose of benefiting a single individual, and, if so, what are the tax consequences? I understand that donors could not claim a deduction for any gifts given to this type of nonprofit. But if all of the money coming into the nonprofit is donations/gifts, will the corporation have to pay income tax on those donations/gifts? Or, because they are gifts/donations being used for a charitable purpose, is the nonprofit excused from paying income tax on them?
A nonprofit corporation can be formed for any lawful purpose in most, if not all, states. A nonprofit corporation for the benefit of a single person would therefore be permissible, but would not qualify for federal charitable tax exemption. Donations to it would be legal, but not deductible for federal income tax purposes. If it did not qualify for any other exemption, it would be subject to payment of federal income tax and filing of income tax returns without regard to how it used the funds. A corporation does not have to pay income tax on gifts that it receives but it would be taxable on other income (at federal and probably state levels), including any interest it generated on the gifts held in the bank. An individual donor who gave more than $14,000 in any year would face gift tax consequences on the contribution.
This is just another example of “What Do We Mean When We Say Nonprofit”?
Tuesday, May 20, 2014
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