List, and OCBC trustees:

This issue of volunteer shop credit and tax implications has come up periodically for us. I remember reading tons of IRS publications during our request for determination, and recall that the question was answered satisfactorily -- perhaps in a phone call with the IRS agent assigned to our determination, because I could not find it in a quick search of relevant pubs. on IRS.gov/EO.

So I called the IRS. The Agent I spoke with, #0196396 also could not point me to anything specifically addressing this situation, but agreed with me that, as I described OCBC's policy to him, the credit we give volunteers is insubstantial, so not an issue of concern:

It could jepordize our exempt status if the credit given is more than "insubstantial", as in pub. 4221pc:

"Private Benefit and Inurement
A public charity is prohibited from allowing more
than an insubstantial accrual of private benefit to
individuals or organizations.This restriction is to
ensure that a tax-exempt organization serves a
public interest, not a private one. If a private ben­-
efit is more than incidental, it could jeopardize the
organization’s tax-exempt status. "

The other issue is whether credits could be construed as income, and therefore taxable for the volunteer, and require reporting by us.

The instructions for form 1099 intro seems to say that we'd have to
report shop credit:

"File Form 1099-MISC, Miscellaneous Income, for each person
to whom you have paid during the year:
...
• At least $600 in rents, services (including parts and
materials),(my emphasis) prizes and awards, other income payments , medical
and health care payments, crop insurance proceeds, cash
payments for fish (or other aquatic life) you purchase from
anyone engaged in the trade or business of catching fish, or,
generally, the cash paid from a notional principal contract to an
individual, partnership, or estate;"

However, later in the doc it seems to explain this as paying (cash) for goods and/or services:

"Examples. The following are some examples of payments to
be reported in box 7.
...
• Payment for services, including payment for parts or
materials used to perform the services if supplying the parts or
materials was incidental to providing the service."

The agent agreed that was the case, so not applicable, as we are not paying cash, and the amount of credit ($5/hour) is insubstantial. 

However, to avoid even the appearance of impropriety, OCBC is still considering creating a shop credit donation policy whereby those vols with lots of credits can transfer them to a pool for use by others who can't volunteer for whatever reason (disability, hardship, etc.), or some mechanism to otherwise account for the "redonation" of credits. Other options would be to "zero-out" credits periodically or at some threshold, like $600.

This is not an issue for the majority of credits used, by (mostly poor) folks who just use credit to get a bike: this is part of our exempt purpose activity, and explained on our 1023 application. The issue is for vols who have amassed lots of credit they could potentially use to acquire a significant amount of (donated) stuff (OCBC shop credits can't be used for anything we purchase).

I cc the OCBC trustees for our treasurer to chime in, and as this discussion may be of interest at our upcoming annual meeting.

Jim Sheehan
Director, Ohio City Bicycle Co-op
1823 Columbus Rd
Cleveland, Ohio 44113
216 830 2667
OhioCityCycles.org


On Wed, Jun 9, 2010 at 3:32 PM, Davis, Andrew <ADavis@akronohio.gov> wrote:

Has anyone ever checked out the IRS regs on work trade or shop credit for volunteer time. We are working on a new bike co-op in town, and this question came up. They thought it was bartering and subject to taxes. Any help?

 

Andy – Akron,OH


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