501(c)3 'donation'?

[Margaret CPA in OH]

A very tiny nonprofit wants to donate/give money to a production company to make a film/documentary or something about a book owned by the np to further education about the topic.  The production company is for profit.

I am not finding outright bans against this but see something about a possible joint venture leading to unrelated business income if, in fact, the idea is profitable.  I don't see where this would qualify as a grant or any kind of scholarship.  I would anticipate a loss but also am uncertain as to how to report the use of this money.  I know there will be an argument.

Ideas?

[Patrick Michael]

Not an expert, but if the film promotes the purpose of the NP, and any "profit" was used to further the NP mission,  I don't think there would be an issue.  I worked for a NP that received donations and also were paid (they would send out invoices) to promote a variety of causes, via PSA's, for other NP's and they outsourced most the production to for profit companies and never had any issues.

[Margaret CPA in OH]

Thanks, Patrick Michael.  This is helpful.  My concern is that any 'profit' would not be only to the nonprofit but maybe some allocation, although I don't know that at this time.  I wonder if your NP filed a 990-T.  It would seem that it was receiving funds (program?) then using those funds to promote the NP or other cause so may have unrelated business income if it was not a program as defined in their 1023 rather business income.  My head hurts.....

[DANRVAN]

1 hour ago, Margaret CPA in OH said:

donate/give money to a production company to make a film/documentary

Sounds to me like they are hiring the production company to provide services for the benefit of the NP.

1 hour ago, Margaret CPA in OH said:

I know there will be an argument.

With who?

[Lion EA]

Is the NP paying a production company to produce a marketing tool to promote the NP or a book they own? That would be an expense, not a donation.

Is the NP then selling the book? If to provide funds for the NP's mission, isn't that still allowable income?

I don't think it matters that the production company is for-profit. My church hires a for-profit printer to print our letterhead and bulletin covers, all items we use in the administration of our mission.

You'll want to read the TE organizational paperwork, such as Form 1023, and their bylaws, as well as the contract between the NP and the production company. Take it step by step to see if it results in any Form 990-T type business income. But that's not forbidden, it just requires tax reporting.

[DANRVAN]

7 minutes ago, Lion EA said:

I don't think it matters that the production company is for-profit.

Not at all. NPs hire accountants, lawyers, contractors, web designers......all the time.

[Margaret CPA in OH]

Thanks all for rearranging my perspective.  The client used the term 'donation' to the producer and I didn't think through the issue.  I will be back in touch to confirm the likely scenario described by Lion EA which I think is correct.  The fact that the producer is a personal friend of like mind and wants to help should not color the situation.

Yes, my church (treasurer here) uses a for profit company owned by a member for printing materials.  I just have too many things rattling around in the brain at this time.  This forum is such a gem!