I have recently opened a nonprofit Christian coffee house and worship center and obtained 501(c)(3) status. We sell coffee, muffins, bagels, etc. Many ladies from the community would like to help with this mission outreach by providing their home-baked pies and other foods. Can we treat this the same as a bake sale we have for the youth group of a church? Also can we sell soup and sandwiches at lunch for a suggested donation?
It is interesting that you have obtained a charitable exemption for this organization because the IRS has denied exemption in similar situations.
The idea that you would “sell” your food for a “suggested donation” is a contradiction in terms. If I cannot get the food without making a donation, then it is a sale and not a donation. If I can receive the food without giving anything, it may not be a sale, but it would be a charitable contribution only to the extent the amount given exceeds the value of the food.
The IRS does not normally view the provision of food in a coffee house as religious activity, however, even where used as an outreach to attract participants for the religious activities. The IRS usually considers the sale to be unrelated business activity generating unrelated business taxable income. If the sale of food at the coffee shop is a substantial part of your activities and the IRS takes a look, you may find your exemption in jeopardy.
If all of the food is available free whether or not the patrons make a contribution (and if the IRS believes you), you may have a better chance of retaining your exemption, although the IRS could still consider it a substantial unrelated activity, even if not an unrelated business activity. An organization can lose its charitable exemption for any substantial non-charitable activity.
You raise an interesting question about treatment of the donated baked goods. The women who give you baked goods would be able to claim a charitable contribution deduction (assuming you retain your exempt status) for the cost of the ingredients in their foods, but not the value of the goods or the value of their personal services. Although revenue from the sale of the baked goods at an occasional fundraising event might not be subject to unrelated business income tax because the bake sale is not “regularly carried on,” you could not treat the revenue from the sale of these goods in the same way if the work of your coffee house is “regularly carried on.”
You ought to check with a knowledgeable lawyer about your specific situation.
Comments
This was interesting.
Information i needed
I am still pending approval for my nonprofit. Can I collect donations or am I limited by any means?
Yes, you may. See our previous answer on this topic - https://www.nonprofitissues.com/to-the-point/can-group-accept-donations-while-application-pending
Add new comment