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Charitable organizations and foundations cannot carry on an unrelated business. However, the law allows charitable organizations and foundations to carry on a related business. A related business is a revenue-generating activity that is either related to a charity’s purposes, or is run mainly by volunteers.
If an organization earns income from selling goods or services on an ongoing basis these activities must be described in detail. The goods or services offered must be listed as well as the percentage of the organization’s total resources that will be devoted to the sale of goods or services.
The percentage of the people who are involved in selling goods or services who are volunteers must also be listed. How these activities are related to the organization’s charitable purpose must be explained.
The same rules apply if an organization uses an asset to generate revenue. For example, if a church rents out parking spaces in the church parking lot.
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