“If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.” https://www.irs.gov/charities-non-profits/charitable-organiz...
One example would be putting staff members up at a hotel you own.
They can spend money on expenses and those expenses can benefit you. Having family members work for and be generously paid by such an orientation is a common example. Anytime you control a cash flow you can benefit from that cash flow.
The key to getting low single digit % tax burdens is adding in steps that allow you to add lots of % reductions and obfuscations because more overt methods tend to not be sustainable and in some jurisdictions (as in the UK) csn lead to the method being retrospectively classed as tax evasion and you end up paying the outstanding balance with interest.
Interesting point. One wonders if, hypothetically, I had $1B to donate to a charity, what those charities might offer up (under the table?) to be a recipient of that money.
I know, crazy conspiracy thinking.
If you don’t want any strings, then don’t ask for a handout from the taxpayers.
Of course, being tax-exempt is the opposite of a handout from the taxpayers: it’s exemption by the taxtaker.
Also, you dont need the pretext of non-profit to do this. There are plenty of ways to simply pay family a pre-tax salary and deduct the cost against your income.
You can do this with any corporation and dont need to do it through a charity.
The optimal approach is roughly donating appreciated assets such as stock so you not only get to avoid paying taxes on the sale but also reduce your income taxes elsewhere by the full amount. Aka if a stock is nominally worth 10 million but you would only get 9 million after tax if you sell it you still get to deduct the full 10 million from income taxes. Which beats the obvious idea of using a corporation to directly pay them.
For the full tax implications you need to consider the benefits of avoiding income tax and gift/inheritance tax for the donors as well as the recipient receiving benefits tax free as well as a portion of their salary at much lower tax brackets plus the impact of payroll taxes.
(Not a tax professional and loopholes change over time.)
I think (I don't know as i'm a UK citizen) that these are similar to trusts. It's fair to say that rich people avoid a lot of income tax when they fund these trusts, but the trusts themselves still then pay tax on income and expenditures. The main thing it allows is for wealth to remain in a family for longer periods of time with one big tax avoidance at the beginning (the recoup on income taxes)