Accountability of "Subsidiary" Covered by a Tax Exempt Letter

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Subject Author Date Accountability of "Subsidiary" Covered by a Tax Exempt Letter Bill Brown 02-04-2009  Re: Accountability of "Subsidiary" Covered by a Ta... Stuart A. Bronstein 02-04-2009
Posted by Bill Brown on February 4, 2009, 4:57 pm Please log in for more thread options What requirements are there for accountability and control of a "satellite" organization by the tax exempt organization providing umbrella exempt status? Example: Suppose these facts: There is a church with tax exempt status under IRC Section 501(c)(3). The church houses a day care center which has tax exempt status under the umbrella of the church's exempt status. Payroll of day care employees (and related withholding remittances and payroll tax return filings) are handled by the church treasurer using a day care center checking account established for that purpose. Other day care operating expenses are paid out of a second checking account by the day care director. The day care director also controls distributions of day care funds to the payroll account and for the expense sharing arrangement with the church. The director also handles all receipt of and accounting for fees paid by parents. Internal control weaknesses notwithstanding, what, if any, legal requirements exist for the church to exercise oversight and/or control of the financial resources of the day care center in order to protect its tax exempt status under Section 501(c)(3)? Would the requirements be different if the top organization was the central committee of a friends of the library group and the "satellites" were separate FOL groups for each of the branches in the city's public library system? -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Stuart A. Bronstein on February 4, 2009, 5:22 pm Please log in for more thread options > What requirements are there for accountability and control of a > "satellite" organization by the tax exempt organization providing > umbrella exempt status? The umbrella organization is supposed to be sure that any money collected for its satellite is used for the umbrella's exempt purpose. > Example: Suppose these facts: There is a church with tax exempt > status under IRC Section 501(c)(3). The church houses a day care > center which has tax exempt status under the umbrella of the > church's exempt status. I'm not sure they can do that. Tax exemption for a day care center would have a different exempt purpose than the church, so they might be required to get theirs separately. > Internal control weaknesses notwithstanding, what, if any, legal > requirements exist for the church to exercise oversight and/or > control of the financial resources of the day care center in order > to protect its tax exempt status under Section 501(c)(3)? Assuming it's a proper umbrella/satellite relationship, the umbrella is not required to control the satellite's spending. They just have to take all reasonable precautions (whatever that means) to be sure their assets are used for the proper exempt purposes. > Would the requirements be different if the top organization was > the central committee of a friends of the library group and the > "satellites" were separate FOL groups for each of the branches in > the city's public library system? Again, the satellite must spend its money and use its resources for the exempt purpose of the umbrella. If they have different exempt purposes, they should use a different umbrella organization. Aside from that, they're probably ok. Stu -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Tax Effects of Dividends From Wholly Owned Subsidiary September 28, 2008, 6:58 pm Capital Loss on a covered call position June 12, 2007, 1:06 am covered calls on ESPP stocks and tax situation.. March 27, 2008, 12:00 am Covered Equity Call Option Reporting? February 23, 2009, 6:26 pm irs agreement letter January 11, 2007, 1:07 am CP2501 letter February 11, 2008, 7:39 pm Got this letter today June 30, 2009, 9:01 am IRS Estate Tax closure letter October 31, 2006, 1:28 am Massachusetts efile letter November 24, 2006, 11:34 pm Got Letter From IRS For Audit - Need Advice Please March 20, 2007, 3:24 pm