I really hate these types of threads, because they are inevitably cause well meaning, but unqualified people to offer hyperbolic and incorrect opinions. Googling an IRS publication, (which has no force of law and is only a general overview of an underlying set of voluminous, complex and mutilayered set of law and regulations) isn't a substitute for the professional training and education required to apply them to a specific set of circumstances.

Here's one with no particular prejudice directed at the poster, especially since the individual is associated with one of the more dynamic groups around:

Using museum funds and volunteers to work on them - BIG NO NO AND ILLEGAL!
Doing this will cause your museum to lose its tax exempt status permanently. It's called 'Private Inurement' and the IRS will catch wind of this and audit the books. Keep in mind that the Directors and Officers of the museum can (and most likely will) be held liable to repay monies spent along with fines and fees.

Here's some IRS info about Inurement:
http://www.irs.gov/charities/charitable ... 97,00.html


First, whenever a tax-exempt does business with its directors or officers, it CAN be problematic, but its not AUTOMATIC. However lets assume somebody has a locomotive owned privately and sits on a BOD of some museum. Assume the museum wants to use/display locomotive.

IF there's a LEGITIMATE lease in place and the terms require things like insurance, maintenance and repair, that's not unreasonable. Assume the museum can run a excursion and the going rate daily rate for that model is $150.00. That's not prohibited inurement. Now if the deal is to replace the prime mover in return for a allowing the locomotive to be used over a weekend, that's going to be an issue, because its not a fair market value (FMV) exchange. That's what the IRS is looking for, is a 501(c)(3) making UNREASONABLE, ABOVE MARKET payments to insiders, not any payments.

As for VOLUNTEERS, they are just that. They are free agents. If they want to rewire some other members GP-7 with Exane and paint it with IMRON, there's nothing wrong with that. Its hard enough to get volunteers to work on organization equipment and I can't imagine some group ordering its volunteers to work on some insider's personal equipment without receiving a symphony of single-fingered salutes. Its not worth worrying about, because its not going to happen.

Directing EMPLOYEES to perform the same tasks, and compensating them from the tax exempts coffers, or conditioning future employment on doing "volunteer" activities -yeah, that's PI. Having them use the TE's money to buy materials, same thing if there's nothing of fair value received in return.

One other point. The IRS has several other tools that it can use long before it revokes the exemption. They'll take into account, among other things, the knowledge of the group that it was benefiting an insider, the amount and the persistence in doing it.

There is something to be said for erring on the side of caution, and obviously establishing a market price for antique railroad equipment isn't like looking up the price of a share of Apple Stock. I seem to recall an auction being held a few years ago where the asking price was $2 million and the best offer was like $200,000. So what's the value?

Ultimately, the original post is useless, because any seemingly small and insignificant change of fact could radically alter the outcome. Assuming it was worth the fee and the wait, one could request a Private Letter Ruling (PLR) to see how the IRS would regard any given situation.

Get licensed professional help. CPA's Enrolled Agents (EA's) and Attorneys are the only professionals authorized to practice before the IRS.

That having been said, if the situation described existed, it could only do so with really bad governance and might have other compliance issues that would run afoul of state incorporation law. Not being an attorney, I can only offer concerns.

I think Mr. Superheater is correct. If you have a question, seek the advice of professionals. Many issues regarding legal and tax issues are very fact-intensive.

Sometimes bad museum governance doesn't necessarily run afoul of the law.

You payin? LOL


Yes they are, so you better start learning.
Haters gonna hate. No one will do anything for you if they think you are just a hater.
That is why You need to know exactly what you are talking about when you talk to the IRS. So take the time and KNOW. This also means conceding when they are not doing anything wrong. You have to be happy to concede CREDIT WHERE CREDIT IS DUE!

You have to sound like a reasonable man. And that means you need to only talk about things where you really are right.



Exactly why you need to know the difference!!!!!!!!!!111

The simplest and fairest solution is that taken by Pennsylvania Trolley Museum, and no doubt others.

Privately owned rolling stock is not permitted on the property.

As I look around at a number of museums, large and small, its apparent something different has to be done. There have been too many posts here on RyPN on any number of cars and locomotives that have recently been lost to the torch or are just being scraped by mother nature herself. While I do firmly believe in full ownership of a museum's collection by the museum, is this always feasible? They say the definition of insanity is doing the same thing over and over and expecting a different outcome. Something has to change. Perhaps private ownership is a concept to be explored rather than shot down. Perhaps its an opportunity, not a negative. The Car 57 people come to mind as a success story. Even at one museum I was part of for many years, key pieces were privately owned and it worked out quite well for all involved.

I would really prefer a discussion here on how to make it work. Something constructive as I am personally tired of seeing stuff cut up or rotting away.

J.R.

Mr Superheater is quite correct. Accountants lawyers etc are the only real source of factual info. I was providing my info based on the facts presented in OPs post and my info comes from dealings with just such subjects in current and previous organizations.

The group which im affiliated with put an accountant on retainer last year because we wanted to make sure what we were doing was exactly right. It hurts to cut a check to the guy, but knowing everything is done right is a big relief and allows us to concentrate on more important things like raising funds, saving artifacts, and restoration projects.

Russ

I can cite two examples of failed private ownership, albeit with good intentions - no bashing meant here - recently discussed on RyPN: the PCC collections in Windber and Uniontown, PA.

We have both over-collected the commonplace (see PCC collections above) and under preserved the good stuff (constructed barns and sheds). Sadly, the scrappings will only increase in the coming years as future generations lose interest and collections compete for ever dwindling financial resources necessary for their care.

Wesley

"My Imaginary Fictional RR Museum" has made one thing clear to me

You probably don't need to 'ban' private owned equipment, but you damn well better make sure you got a clear agreement, in writing, with full disclosure, making it very clear the costs, the expectations, and what can and can not be done, and where it will be stored, and who fixes it and why, and run through a smell test and a legal test. Then make sure anyone and everyone who has anything to do with it has a clear understanding-including volunteers and members. At MIFRRM private equipment was critical to excursions that were run, but mistakes that ranged in severity from "man, that wasn't right" to "Oh God, we're set up for a full IRS smackdown" ripped a gash right through the membership that drove off dozens of people. Sadly the lessons were NOT learned-or they just don't care, and MIFRRM continues to run the same way today.

Robert

I feel it proper to point out that sometimes, in rare instances, even the professionals, or even the rule-makers themselves, don't have any darned clue what they're talking about. Ever see the stories that get floated about about how the people you call at the IRS to get answers about your tax questions give out wrong answers? In the alcohol-regulation trade, we joke that you can ask five different liquor control officials the same question about some obscure interpretation of a "gray area" of the law, get six different answers, and some superior or judge will find all of them wrong.

This isn't to say that you shouldn't pay a professional. A pro in the field will tell you flat-out "what you're doing will be perceived as wrong-doing by the IRS," or conversely think of things you won't. And if the IRS questions you, you can at least point to the guy you paid and blame him/her!

You're operating on a misconception. That the reader is going to take ANY writer's comments at face value. That is not true, not even for yours. So some poster is wrong. Let him be wrong. Don't stand silent but don't worry about it either.

Some readers only want their pre-conceived notions confirmed. Others will be cautious, will research for themselves, breadcrumbing off what everyone says. So add breadcrumbs and not noise. What's more helpful?
http://www.google.com/search?q=inurement
http://www.google.com/search?q=hire+a+professional


THAT.
THAT RIGHT THERE. Is the primary value of a professional. It takes a load off and lets you concentrate on your cash-generating bread and butter.


You honor us with your candor on that subject.

It is a serious issue and it's a reason you need to understand all this law and tax stuff. You NEED to know if your professional is over his head. That DOES happen and HAS happened to me.


Absolutely true. BTDT.


The law agrees. THAT is another usefulness of professionals. But again here, you can do 99% of the work, the professional simply signs off on it, saying "that looks right". One guy quoted me $12,000 to form a Type II Supporting, the other guy $2000 simply to adjust and file the work I had already done. So I just paid myself ten grand for a dozen evenings of research and writing.

I think we are comparing apples to oranges here. I am talking about equipment that is privately owned, but on long term lease to a museum. The WW&F #9 project comes to mind as an example. I know of several other examples of either locomotives or rolling stock which fell under similar arrangements and all worked out quite well. This is a process that has worked quite well. It should not be ruled out today.

There are also examples of pure private ownership that have worked well or are still working well today. The Car57 folks are one example. If I recall correctly, isn't EBT privately owned? Yes, it doesn't always work, but often times, the concept, good or bad, buys time for the equipment.

I suppose what I have been exploring for a number of years is how to combine the two concepts. For example, a museum has several pieces of equipment that are just about on the verge of being scrapped due to condition, lack of funds, lack of interest. Can that item be sold to an individual for some small fee with an agreement that he will maintain the equipment in at least its current state (stabilization, keeping it covered) while planning and executing a restoration plan using his own money? In return, the equipment can stay on the museum grounds for a small monthly storage fee. The equipment now has a hero, it is now stabilized, the museum receives a bit of income, and a plan is now in place for its restoration.

The monthly storage fee is key in my mind as it helps ensure the continued interest by the new owner. If he defaults in the payment, then the equipment ownership goes back to the museum. Similar perhaps to a Public Storage agreement.

Again, it has to be handled legally and properly, but seems like an option that might help save some of the threatened equipment.

J.R.

Without repeating too much of what has been said before

There are three issues to watch out for:

1) Conflict of interest by the new owner of the artifact, particularly if he/she is a BOD member. IRS now requires you to disclose on your 990 whether you have a conflict of issue policy.

2) Income from the non profit inuring to an individual. Most non profit have bylaws clauses that prohibit this and as has been already mentioned, from IRS's side of the table it's a big no no.

3) What happens if things go wrong, for example the restoration effort falls flat on it's face?

Clearly, the BOD of the non profit should seek professional advice from someone well versed in these type of issues.

A better solution, to me at least, is to request donations /grants restricted to restoring the artifact. To para-quote the famous line from the movie Field of Dreams, "if you ask they will give !"

Note that a common technique is to have about half the money lined up before you announce the campaign.

Bob H

I can't see why I would purchase a item like a railcar or locomotive from a non-profit, to restore to display. First, you loose the tax advantages, so it takes more money. You loose the volunteers, so it takes hiring people. And what benefit do I get out of the deal? Many peices are landlocked-can't make interchange, and easily so big that road transportation is very costly. So I would own it, get to fix it, get to pay rent for the storage space, and not get to do anything more with it then a common museum guest and volunteer?! This kind of plan might work better with cars, boats, planes-or other items, things I can drive/carry off and use, or just relocate if I need to. I suppose if I had a railcar I could tag along on an excursion if the museum has operations? Would I pay for that too? And in the end, your estate likely donates it back to the museum after they find out it would take 5 or 6 digits of cash just to move it, or continued rent to park it?

Robert