501(c)(3) and Home office

A clergy client is in the process of starting a 501(c)(3): a religious community - an alternative to a traditional synagogue. She plans to start the organization by running it out of her home, specifically the basement (100% use), the kitchen and the dining room (occasional use). She’s asking me if she can receive any benefit for the use of her home. She will not be drawing a salary from the organization until there is adequate income. But even if she draws payroll, the home office deduction would no longer be an option anyways. Other potential options - 1. Can the 501(c)(3) pay her rent or would this be considered “self-dealing”? 2. Can she take a charitable donation for the business use percentage of utilities, homeowners insurance, etc? Other ideas? Thank you.

I'd vote for 2, once they have the (c)(3). Alter for Professor Lenny's comment below.

Better yet, why not get reimbursed? Much better choice.

I'd first check Rev Rul 69-473, especially its last sentence.

However, amounts the taxpayers would have expended had the woman not been in their household (such as the cost of rent, utilities, taxes, insurance, and similar items) are not charitable contributions under section 170 of the Code.

OK, professor. Nice work. So #3, reimbursement is the only option.

She may could take a percentage of the utilities as charitable contributions. See the Van Dusen case.
http://www.legalbitstream.com/scripts/i ... f8d/32/doc

Ah, yes, the cat lady. There, the court allowed some utilities expenses based pretty much on this.

Her utility bills would have been significantly lower because she would not have had to run a special ventilation system, do as much laundry, or dispose of as much cat waste.

That's easily distinguished from that sentence I excerpted from the 69 rev rul.

Isn't it interesting that the 69 rev rul says you can't take the expenses as out-of-pocket contributions, yet the home-office reimbursement is arguably part of an accountable plan?

I do wonder whether the religious community has the funds for a reimbursement.

Reimburse first is the rule in charity/church land...then housing if you qualify, then salary.

Okay. Thx everyone!