QUESTION:  Can one of the founding board members of a newly formed 501(c)(3) exempt organization take a tax deduction for personally paying most of the organization’s startup expenses during its first year in operation?

QUESTION:  Can one of the founding board members of a newly formed 501(c)(3) exempt organization take a tax deduction for personally paying most of the organization’s startup expenses during its first year in operation?

ANSWER:  Yes.  A donor may claim a deduction for contributions made “to or for the use of” a charitable organization.  The organization should acknowledge receipt of the payments and state in writing that no goods or services were received in return (assuming that is accurate) so that the donor has the donation acknowledgment letter if ever audited by the IRS.  Another option is for the founding board member (with board approval) to treat the payments as a loan to the organization which will get repaid at a later date when the organization has sufficient funds to repay the loan.  Such a loan transaction should be documented and, to minimize conflict of interest, private inurement, and “excess benefit transaction” risk, the loan should either be interest-free or at a nominal, below market interest rate.