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The Foundation of a Charitable Status

posted by User Not Found | Aug 21, 2014

In Iowa, the REALTOR® Foundation of Iowa is a program that allows brokers to direct the interest made from trust accounts into the foundation instead of the state’s general fund. The foundation is able to use the proceeds to benefit real estate programs, other Iowans, and local charities who need it. However, due to its status as a 501(c)(3) nonprofit tax exemption, there are a few rules to know before recommending or requesting assistance through the foundation or any charitable foundation.

One big issue foundations come in trouble with is who can benefit from the foundation. There are certain people who are disqualified from receiving benefits which include directors, officers, trustees, foundation managers, and substantial contributors. A substantial contributor is one who in a year contributes over $5,000 and the amount contributed is more than 2% of the Foundation’s total contributions. (I.R.S. Rulings and Agreements (16 March 1999)). Not only can the foundation not provide benefits to the above named people, they cannot give to their family members including: parents, grandparents, spouses, children (and their spouses) and grandchildren (and their spouses). To provide any benefit would be considered “self-dealing” which carries a penalty and can put the foundation’s status with the IRS at risk.

For the REALTOR® Foundation of Iowa, this means that we are not able to provide funding and assistance to anyone related to the foundation board members, Realtors®, or private individuals. The Foundation is set up to provide for the benefits of the community, therefore able to give to other charitable organizations, help fund community projects, and even help local Iowans as long as there is a third-party donation site.

There are times when a charitable organization does give to a group of people which causes an incidental benefit to a member. In the instance of an incidental benefit, the IRS does not penalize the organization if it does not occur frequently and that it is not “repugnant to the idea of an exclusively public charitable purpose”. (GCM 35701, 1974 GCM LEXIS 371 (I.R.S. 1974)). Simply put, the IRS does realize that there are times when a foundation or charity will be giving to a larger group which may cause a member a benefit, however because the giving by the foundation is both charitable and within the guidelines of the IRS and their own bylaws, it does not jeopardize their own tax exempt status.

When a foundation is involved in giving grants and other benefits to a community they must insure that they are (1)  not self-dealing by providing benefits to disqualified members; (2) providing benefits for the community as a whole, not just specific people; and (3) insure that they follow the bylaws and regulations set by the IRS and Foundation itself.

For more information on the REALTOR® Foundation of Iowa, including application forms, please click here.