Is timing 'all,' in non-profit reporting?

[TaxCPANY]

New client received 20K grant from 501(C )(3) to found new "service enterprise (SE)." Client accepts grant personally. One month later, he funds now-incorporated SE with 18K remaining (after spending 2K fully in compliance with grant terms).

Can I finesse this by declaring on 1040 line 21 that grantor's 1099 'really belongs' to the EIN of the SE instead of client's SSN --- as works when vendees erroneously issue 1099s to individuals instead of their EIN'd partnerships and S corporations?

It's the 501(C )(3) source that baffles me -- despite 'running' several nonprofits for some years; it's the first time I've encountered such mis-timing.

All astute, experienced remarks welcome. VTY, TaxCPANY

[samingeorgia]

I have a few questions: 1. Is the new entity intended to be tax-exempt? 2. Has the new entity filed the paperwork asking for recognition of exemption? 3. To whom was the check from the first 501-C-3 made payable? 4. What are the terms of the grant? 5. The guy who received and spent the first $ 2,000 -- what is his relationship to the first organization -- officer, director, what?

I agree it looks like they got the cart before the horse, here.

[TaxCPANY]

1. No; the new entity is a for-profit corporation -- so, 2. N/A. 3. Grant made in client's personal name + that of SE, deposited in client's Sched C bank account. 4. Haven't seen the grant terms yet; have asked for a copy. 5. Gal -- actually -- is independent of grantor.

Much obliged for your interest, samingeorgia.

TaxCPANY

I have a few questions: 1. Is the new entity intended to be tax-exempt? 2. Has the new entity filed the paperwork asking for recognition of exemption? 3. To whom was the check from the first 501-C-3 made payable? 4. What are the terms of the grant? 5. The guy who received and spent the first $ 2,000 -- what is his relationship to the first organization -- officer, director, what?

I agree it looks like they got the cart before the horse, here.

[samingeorgia]

Well, it looks to me that the $ 20K is taxable to the recipient, maybe some of the first $ 2,000 is deductible as ordinary & necessary business expense, depending on our old friend "facts and circumstances". The 18K is just invested in the client's new corp.

The fact that the money came from a 501-C-3 doesn't enter into it. If you received an audit fee of 20K from a nonprofit client, spent 2K on expenses and invested the rest in the stock market or a CD, wouldn't it be the same thing? The good news is that the client has 18K basis in the new entity, which might stand her in good stead if she elects S status....