Paying a homeschool leader to start business and benefit the homeschool group

We are a new unincorporated nonprofit association and our Director has applied to become a notary. Can we use our fundraising funds to cover the cost for her to become a notary?

She would be offering complimentary notary services to all our members. We would charging a fee for notary services for people who are not members of our homeschool group. What are the legal ramifications for this?

Thank you for your time and assistance!

TA in Illinois

Dear TA,

Thank you for contacting me.

Your homeschool group should not pay for the Director to become a notary. That’s like your homeschool group paying for someone to attend medical school if they promise to give free physical exams to all members. No! Okay, that’s an extreme example, but you get the idea. 🙂

Your homeschool organization’s purpose is educational, not to fund someone’s business.

Becoming a notary is a business expense for an individual and your nonprofit should not be paying personal, business expenses for an individual.

The IRS could see this as “inurement” which is when the assets of a nonprofit (the money from fundraising) flows to benefit an individual. Sometimes it’s better called “private benefit” or “self-dealing.” Inurement is strictly forbidden by the IRS and could cause your organization to lose its tax exempt status. That’s a pretty serious legal ramification!

Don’t pay for the leader’s personal expenses to become a notary with the nonprofit’s funds.

Additionally, making money by charging nonmembers for services that are not related to your purpose (education) is called Unrelated Business Income and is subject to income tax. So that’s a financial ramification on your Director’s idea.

I discuss unrelated business income and the tax here: What is Unrelated Business Income Tax?

And in this podcast episode:
What is Unrelated Business Income Tax or UBIT? (podcast)

I hope that helps!

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

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