Tax Planning and Compliance for Tax-Exempt Organizations, 6th Edition

CHAPTER 22Relationships with Other Organizations and Businesses

• 22.1 Creation of (c)(3) by (c)(4), (5), or (6)
  • (a) Form of Relationship
  • (b) Category of Public Charity
  • (c) Donation Collection System
  • (d) Grants to and from the (c)(3)
  • (e) Creation of a Triumvirate
• 22.2 Alliances with Investors
  • (a) Exempt Organization as General Partner
  • (b) Ongoing Evolution of Standards
  • (c) Trouble-Free Relationships
  • (d) Unrelated Business Income Aspect
• 22.3 Creation of a For-Profit Corporate Subsidiary
  • (a) Maintaining Separate Corporate Identity
  • (b) Subsidiary Pays Its Own Income Tax
  • (c) Sharing Facilities and/or Employees
  • (d) Individual or Outside Shareholders
• 22.4 Active Business Relationships
  • (a) Criteria for Approval
  • (b) Factors to Evaluate Reasonableness
  • (c) Net Profit Agreements

As a nonprofit organization gains maturity and complexity, its board and/or its staff may wish to undertake an activity not appropriate for the organization itself, but suitable for another form of organization. To accomplish that objective, there are two classic types of reorganizations or spin-offs: One is to form a title-holding company¹ or a supporting organization² to hold assets and/or to raise funds to hold for the benefit of the organization. The other common step is for an Internal Revenue Code (IRC) §501(c)(3) organization to form a §501(c)(4) organization to conduct lobbying activities that would be impermissible for a charitable organization for the reasons outlined in Chapter 23.

A new ...