Hi all, another question for the group. Would there be any issues with a non-profit 501(c)(3) organization organizing a tournament with cash prizes?
I think this would be OK, but I’m not an accountant either.
I did some simple searching in the forum, but nothing jumped out at me. Please feel free to direct me to a previous thread if this has already been covered. Thanks all.
I hope it’s O.K. There’s no regulation against it that I’m aware of. The Massachussetts Chess Association is a 501(c)(3) and it pays cash prizes. I reported this to the IRS on the Form 990-EZs that I filed in previous years and they never questioned me about it.
A “Non-Profit” or Not-For-Profit organization is allowed to make a profit. However, there is some sort of limit on the amount of profit that can be made. I do not know the exact details, if you want to know ask a tax accountant who is up to date on all the IRS and in state rules.
-Larry S. Cohen
From watching VCF file tax returns in the past, the limit was $25,000 in business, or in this case $25,000 in entries. Once that was met, a longer filing form was needed. It wasn’t profit that was being monitored, it was the level of business which in the end does have an effect on potential profit
501(c) non-profit corporations organize major golf tournaments and give the bulk of the proceeds to charity while taking in money to pay prizes and defray general expenses. Non-profit chess orgs. should be in the same category.
Uh - not exactly.
A non-profit can have receipts exceed expenses. But the expenditures must be made for the non-profit purpose.
Non-profits can sponsor events with cash prizes. It happens all the time. A non-profit cannot sponsor events where the cash prizes primarily benefit insiders with the non-profit (called private inurement).
Non-profits file the IRS Form 990. There are different versions of the Form 990. There is a simpler version for entities whose receipts are less than 25,000 per year. Non-profits whose receipts exceed 25,000 a year must file a longer version of the 990. Non-profits who have taxable income (called unrealted business income) must file Form 990-T and pay income tax on that income which is not related tot he exempt purpose. This is prevent non-profits from competing with for profit businesses on unequal footing. so if the non-profit decided to raise money by opening a McDonalds franschise restaurant, then any net profit from the restaurant would be subject to the unrelated business income tax.
The current rules are that non-profits whose annual gross receipts are normally $50,000 or less can file a 990-N, non-profits with annual gross receipts of less than $200,000 and total assets of less than $500,000 can file 990-EZ, and non-profits with annual gross receipts of $200,000 or more or total assets of $500,000 or more must file the full 990. See http://www.irs.gov/pub/irs-pdf/i990ez.pdf.
An organization with concerns about this would be well advised to consult its own professional advisers (eg. tax and/or legal) rather than rely upon information posted by someone here, even someone with expertise in the subject.
Yes you are correct they raised it from 25,000 to 50,000 this year. One thing about tax rules is they can and do change. What applies at a certain time may be different the next year.
990-N is the “postcard” version of the form. Until just a few years ago non-profits with less than 25,000 in receipts did not have to file anything. The penalty for not filing can go up to revocation of non-profit status.
One thing that I think causes confusion is the term “non-profit”, but a 501(c)(3) is actually described as “tax exempt”. A lot of states will use the term “non-profit”, but it usually means something similar to tax-exempt. And that should serve as your clue to check your state’s laws which will certainly be different than federal.