Q: Can my Non-Profit pay me?
I am a independent contractor for grant writing and other services. I am starting a non profit. Can the non profit pay me a independent contractor when I get a grant approved for the non profit?
A:
Why not? If you have a contract to perform work for the company, you should be paid for the work.
Good luck to you.
A:
Your question raises the questions of "private inurement" and "self-dealing." One can be taken care of with careful planning, one could result in major penalties from the IRS.
You mention that you are grant writer, which leads to me believe that your potential nonprofit will be a 501(c)(3). Not all nonprofits are tax-exempt, and not all tax-exempt nonprofits are 501(c)(3) charities. But "grants" to nonprofits are usually given to 501(c)(3), so let's assume that this is what you will have.
The IRS classifies all 501(c)(3)s as either "public charities" or "private foundations." They assume that a 501(c)(3) is a private foundation unless it can demonstrate that it should be treated as a public charity.
If a public charity engages in a financial transaction with one of its founders, the IRS will look at those transactions to be sure that they are not "excess benefit" transaction. Imagine that a charity buys a vehicle from its founder, and pays twice the fair market value of the vehicle. The charity's money has just been funneled into the founder's pockets, and the IRS will penalize the charity, and the founder, and any member of the board of directors who approved that transaction. These are called "intermediate sanctions." You can avoid intermediate sanctions by making sure that the public charity only pays you, the founder, or any other insider the fair market value for your services.
If a private foundation engages in a financial transaction with one of its founders, the IRS will call that an act of "self-dealing." There is no such things as a fair market value for self-dealing. Even if the charity pays you the fair market value for your services, this is an action that will result in severe penalties from the IRS and could cause the IRS to revoke the charity's tax-exempt status.
Talk with a lawyer who works with nonprofits to try to avoid private inurement or self-dealing.
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