Michael Gochfeld gochfeld at
Thu Jan 24 08:40:32 EST 2002

To follow up and perhaps modify Ron's illustration of the church butterfly

If the church identifies social service and education as its mission then the
butterfly park would be included under that mission and the profit would not be
taxable. I don't think the church would even have to modify its by-laws or
inform the IRS.  They could perhaps post a slogan like "come and witness the
wonders of creation", and have it as much as an integral part of its community
activity (no there's an idea I could encourage).

There are, however, certain limitations on how much net income could be allowed
before it becomes suspect.  But if the "profits" are ploughed back into the
other church activities then the whole would be tax exempt.  If it went to buy
the minister a third sports car or a summer retreat it would be suspicious. If
it did the same for a suffering parishioner who had no car at all and was
homeless----quien sabe.  If it went to provide travel to a resort to attend a
conference on international religions, it would certainly be tax exempt. If the
attendance lasted for a month beyond the conference date, that would arouse IRS

The exempt status lies in how the goals of the organization are delineated and
how the "profit" is used. It obviously can't go into the deacons' pockets, but
whether it could help pay for the minister's retirement package would be

Finally, the by-laws of a 501(c)(3) must stipulate that if the organization
self-destructs, its remaining assets must be distributed to other tax exempt

A person I know created a 501(c)(3) to support their research activities.  When
he decided to close down the "foundation" after a decade he donated the money
to an organization and was listed as a benefactor, even though technically the
money was not his.  I always thought that was a bit sleazy---but the receiving
organization was certainly happy and deserving.


Ron Gatrelle wrote:

> There are all kinds of non-profit orgs.  Under 501(c)(3) there are lots of
> different structures - from private foundations and public corporations to
> churches, bingo parlors, and co-op utilities.  Non profit simply means that
> its operating objective is not for profit and is thus granted certain
> privelages by the IRS -- it does not mean the entity can not make a profit.
> Different types file different types of reports to the IRS, or none - and
> some pay some taxes.
> Non profits can also create and deal in what is called an "unrelated
> business".  This is where the non profit starts a for profit venture
> outside its main charter.  This type of business is run and taxed just like
> any other business because that is what it is -- it just happens to be
> owned by a non profit entity.  For example, the Methodist Church could
> purchase and operate Playboy (I know I like absurdity), the circus, or a
> local shoe store.  Now depending on how the Church communicated with the
> public, one may or may not know of the relationship.  The Church could also
> start a for profit Butterfly Park and call it the United Methodist
> Butterfly Park.  Depending on how much access anyone had to the specific
> articles of incorporation they may just assume the "park" is non profit as
> it is _technically_ part of the non profit Church.  It would be a part of
> the non profit -- but as an unrelated business operated for profit.  Unless
> someone actually reads the fine print, we have no idea what is really going
> on in any number of ventures.  Two words:  PTL, ENRON
> Ron Gatrelle
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