501(c)(3) Organization Question

[Aviator]

Would anyone offer input on whether there is any problem with a 501(c) (3) organization lending money to a "C" corporation on a short term note where both organizations share the same officers? I can find no cite that addresses this issue either way. Please advise on source(s) I can research.

Appreciate any help.

Thank you in advance.

Aviator

[Bees Knees]

You have the Section 4958 penalties that apply when an excess benefit is provided to a disqualified person who is a person that has substantial influence over the organization's affairs. The IRS could consider a loan from the organization to be an excess benefit if it is out of character for a 501(c)(3) organization to be in the loan business.

If you went to the United Way and asked them to grant you a loan because you are short on cash, would they do it? Why not? Because they are not in the business of loaning money.

So is your particular 501(c)(3) organization willing to loan money? Would they loan me money? Or do they only loan money to a corporation that just so happens to be owned by the same person?

[ballscientist]

Yes, they can loan to their subsidiary.

[Ballscientist]

Assuming that C corporation was owned by that nonprofit organization,........

[Aviator]

501 (c) (3) Organization Question

Thank you for your responses. I am now certainly better informed.

As always this board is an excellent source for information.

Aviator

[Gretel]

You have the Section 4958 penalties that apply when an excess benefit is provided to a disqualified person who is a person that has substantial influence over the organization's affairs. The IRS could consider a loan from the organization to be an excess benefit if it is out of character for a 501(c)(3) organization to be in the loan business.

If you went to the United Way and asked them to grant you a loan because you are short on cash, would they do it? Why not? Because they are not in the business of loaning money.

So is your particular 501(c)(3) organization willing to loan money? Would they loan me money? Or do they only loan money to a corporation that just so happens to be owned by the same person?

I think it depends. Couldn't you view the loan as a good investment for the non-profit. The will invest somewhere if they have enough cash. Wouldn't it depend on the interest rates and the documents.

If C-Corp. pays ordinary interest rate, they don't have any benefits. Or maybe, just a little better than bank, otherwise, why would they not go to the bank right away. So, let's say they pay interest of 7%, it's quite a good investment rate.

[JON]

Is that their stated purpose-making loans?

Unrelated income and if it is not paid off with the note terms-do not expect it to be accepted.