501(c) Unrelated Business Income

Fund Raising a Non-Profit Organization, 501(c)

Each 501(c) organization holds their own fund-raising activities based on their specific goals and missions.  Fund-raising activities are organized and controlled by each 501(c) organization.  Most 501(c) organizations plan fund-raiser year in advance to help with the organization plan and decide on the method of the fund-raiser.

Most states have a limit on the number of fund raising events a 501(c) organization may have during a calendar year.  To allow the 501(c) to generate more income during a calendar year they must use a process call Unrelated Business Income (UBI).

UBIT Revenue (Unrelated Business Income Tax)

Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income.  The JNP works with the 501(c) organizations to generate additional income without having to classify the activity as a fund raising event.

UBIT is income

  • from a trade or business, The term trade or business generally includes any activity carried on for the production of income from selling goods or performing services.  Activities of producing or distributing goods or performing services from which gross income is derived do not lose their identity as trades or businesses merely because they are carried on within a larger framework of other activities that may, or may not, be related to the organization’s exempt purposes.
  • regularly carried on, Business activities of an exempt organization ordinarily are considered regularly carried on if they show a frequency and continuity, and are pursued in a manner similar to, comparable commercial activities of nonexempt organizations.
  • not substantially related, To determine if a business activity is substantially related requires examining the relationship between the activities that generate income and the accomplishment of the organization’s exempt purpose.

Conflict of Interest

Like all corporations, conflicts of interests can cause problems for nonprofits. Each state has some form of limit on nonprofit directors who are also “interested parties.” In other words, these laws restrict directors or executives from having their businesses perform services or sell products to the nonprofit–thus, using the nonprofit for their personal gain.

Laws and Risk

You need to consider all the laws and risks related to your organization and how to guarantee conformity and smart risk compliance. You should consider issues about intellectual property issues, permits, and insurance, employment issues, sales taxes, social media issues, licenses, among other things.

Also, if there are any insiders (anyone inside your organization, like its board members and officers) that stand to benefit personally from any business revenue earned by the organization, you should talk with a lawyer about conflict of interest issues. These issues may result in penalties, legal charges and sometimes even worse, a public relations disaster.

If an insider gets too much of a benefit without giving fair value back to the organization, it may be deemed private procurement and result in the revocation of the organization’s 501(c) status. This generally mean the end of the non-profit organization.

If it’s bad, but not so bad as to call for the organization’s exempt status, it may be looked on as an excess benefit transaction that results in penalties to the insider who illegally profited from the transaction and perhaps to board members who approved the transaction knowing it to be a problem.

There may be state law issues as well against self-dealing, where insiders are benefiting unfairly from transactions with the organization.

Joxall Non-Profit Program (JNP)

The JNP is a set of methods and strategies to help a 501(c) organization to generate additional income.  The JNP uses online internet marketing techniques to generate additional revenue   streams, unrelated business income, for a 501(c) organization.

The non-Profit Conflict of Interest Solution

To avoid the non-profit conflict of interest within a 501(c), the JNP requires you the 501(c) organization to become a member into the Joxall Marketing System (JMS) program.  The JMS is a program providing a methodology for  transparency and structure within the 501(c) organization explaining to all visitors and supporters how the system works, who is involved and who is the beneficiaries of any revenue generated.

Joxall Marketing System (JMS)

The JMS is a marketing system allowing for a 24-hour 365 day a year sales force. The JMS offers the option to sell general and specialized products through a primary online store and receive revenue from retail sales.

The following marketing methodologies and strategies within the JMS provided options for the 501(c) membership to generate additional streams of income.

Donate Button – Allows for visitor and support organizations to contribute to your organization.  Variable amounts may be set within the donate selection. Learn more about Donate Button

Affiliate Marketing – Affiliate marketing is a revenue-sharing venture between a website owner and an online merchant. The website owner places advertisements on the site to either help sell the merchant’s products or to send potential customers to the merchant’s website. This is done in exchange for a share of the profits.

Drop Shipping – Drop shipping is a product delivery method in which a seller accepts payment for an order, but the customer receives the product directly from the manufacturer. The seller’s profit in the transaction is the difference between the wholesale and retail price of the items sold. This process offers advantages to both retailer and manufacturer, but it’s not appropriate for every seller or product.

Sponsor Display – A sponsor display is a highlighted section of the page, with a specific background and border displaying information about your sponsor.  Allowing supporter or organizations to advertise within a page of your web site. The displays come in multiple sizes and layouts.  The sponsor displays may be page specific or multiple sponsors to a page. Page specific is refereed to as a sponsor page, multiple sponsors to a page is a refereed to as a sponsor ad.

Banner Ads – Banner Ads are advertising spaces located within your system allowing companies, sponsors or individual to advertise their products or services.  The 501(c) established the monthly advertising fee is collected by the 501(c).