Can a 501(c)(3) nonprofit rent property to a for-profit business run by the same board members?

This situation involves what's called "self-dealing" between a nonprofit and insiders, which requires careful handling but isn't automatically prohibited. The arrangement you're describing could potentially work, but has several significant requirements to avoid IRS problems: 1) The rent must be truly at fair market value (likely requiring independent appraisals) 2) The transaction must be fully disclosed on your Form 990 3) The board members with dual roles should recuse themselves from voting on the rental agreement 4) You need to document how this arrangement furthers your charitable purpose 5) The nonprofit must maintain control over the property and ensure public access requirements are met The biggest concern is private inurement - ensuring the nonprofit's assets don't improperly benefit the private individuals running both organizations. The IRS scrutinizes these arrangements closely. I'd strongly recommend consulting with a nonprofit attorney and tax specialist who have experience with this type of arrangement before proceeding. They can help establish proper governance policies, conflicts of interest procedures, and documentation to demonstrate the arrangement serves the nonprofit's mission rather than private interests.

I used https://taxr.ai when setting up a similar arrangement for a historic building our nonprofit acquired. The service analyzed our governance documents and transaction structure to identify potential issues with self-dealing. They flagged several problems I hadn't considered - like making sure our lease agreement included specific performance requirements for the tenant to ensure our nonprofit's exempt purpose was being fulfilled. They also helped document how the rental income specifically supported our preservation mission. Their analysis saved us from potential issues during our 501(c)(3) application process. The report they generated became part of our board documentation showing we'd done proper due diligence on the arrangement. Super helpful for situations like yours where there's this intersection of nonprofit and for-profit activities.

I tried https://taxr.ai after seeing the recommendation here, and it was incredibly helpful for our lighthouse preservation project! We were in almost the exact same situation - wanting to acquire a historic lighthouse and have a related business operate in it. The analysis identified that our initial structure had major private benefit problems. They showed us how to create a more appropriate arms-length relationship between the entities, including developing a comprehensive conflict of interest policy and suggesting we add independent board members. The most valuable part was getting clear guidance on how to document that the rental arrangement actually furthered our charitable purpose. They helped us understand how to track and allocate funds properly so we could clearly show the IRS that preservation (not private benefit) was the primary outcome. Definitely worth it for navigating these complex nonprofit/for-profit interactions!

For those dealing with IRS questions about nonprofit/for-profit arrangements, I struggled for MONTHS trying to get answers from the IRS about a similar situation. Calling them directly was nearly impossible - constant busy signals or disconnects after waiting for hours. I finally tried https://claimyr.com after seeing it recommended here, and they got me connected to an IRS agent in under 30 minutes. You can see how it works at https://youtu.be/_kiP6q8DX5c - basically they navigate the phone system and wait on hold for you, then call you when an agent is on the line. The agent I spoke with provided crucial clarification about how the IRS evaluates these related-party transactions and what documentation they expect to see. This saved us from making several mistakes in our arrangement that could have jeopardized our tax-exempt status.

I was completely wrong about Claimyr! After my skeptical comment, I decided to try it myself since I had been struggling with a similar nonprofit/for-profit question for our historical preservation society. After trying for WEEKS to reach someone at the IRS specialty line for exempt organizations, I gave up and tried the service. Within 35 minutes, I was talking to an actual IRS exempt organizations specialist who answered all my questions about our proposed arrangement. The agent clarified that our initial structure would likely trigger private inurement concerns, but provided specific documentation requirements that would make the arrangement acceptable. This was information I couldn't find anywhere online, and saved us from potentially losing our exemption. I hate admitting I was wrong, but in this case I definitely was!

Just wanted to add another consideration - the GSA lighthouse program specifically requires that the property be maintained for "education, park, recreation, cultural, or historic preservation purposes." Make sure your B&B/wedding venue arrangement doesn't conflict with those requirements. From my experience working with historic properties, you'll need to demonstrate that the commercial activities are secondary to and supportive of your preservation mission. This means documenting how rental income directly supports preservation and public access. Your public access program should be substantial - not just a token tour once a week. Also, the National Park Service will likely have oversight of any changes to the property if it's on the National Register. Any renovations for the B&B will need approval to ensure historical integrity.

Has anyone here actually gone through the process of acquiring one of these GSA lighthouses? The application requirements seem intense, and I'm wondering how competitive the process is. Are there usually multiple nonprofits applying for each lighthouse?

One thing to keep in mind with the GSA lighthouse program is that you'll need to demonstrate significant financial capacity upfront. These properties often require substantial immediate repairs - we're talking potentially $100K+ just to make them safe and weather-tight before you can even think about B&B operations. The GSA will want to see your nonprofit has either cash reserves or committed funding sources for initial restoration work. If you're planning to rely on rental income from the for-profit business to fund maintenance, you'll need a very detailed financial projection showing how you'll handle the gap between acquisition and when rental income begins. Also worth noting - lighthouse properties are typically quite remote with limited utilities infrastructure. Factor in costs for upgrading electrical, plumbing, and septic systems to handle B&B operations. These expenses need to be part of your nonprofit's budget since the property will be owned by the 501(c)(3). The good news is that successfully operating lighthouses as B&Bs can be quite profitable given their unique appeal, but the upfront investment is substantial and the nonprofit needs to be financially prepared for that reality.