January 29, 2014

Liability and Type I Supporting Organizations

Tax exempt public charities (Charity), such as schools, churches and hospitals, are subject to tort liability for accidents, etc. To help segregate liability, charities may consider owning the property in a separate entity, such as a Type I Supporting Organization.

The Type I Supporting Organization (TI-SO), organized as a separate corporation under state law, is described in Section 509(a) (3) of the Internal Revenue Code and in Treas. Reg. §1.509(a)-4(g) (1). The newly created TI-SO would be "operated, supervised, or controlled" by the Charity through its right of appointment of a majority of the TI-SO’s officers and directors. In fact, the Charity and the TI-SO can have identical officers and directors if desired. All of the TI-SO’s revenue can pass solely to the Charity, in a relationship equivalent to a corporate parent and its wholly owned subsidiary in a for-profit context.

This TI-SO design can shield the Charity from liability; if there is a lawsuit against the TI-SO arising from a tort on the property, the Charity's assets could be protected. In one case, even with identity of officers and directors, by itself, a plaintiff could not pierce the corporate veil and impose liability against the Charity. See, e.g., United States Fire Insurance Company v. Allied Towing Corp., 966 F.2d 820 (4th Cir.1992), where the Court held that, where "no other justification for piercing the veil appears in the record," the fact that the two corporations "effectively have identical officers and directors [is] alone insufficient to permit the piercing of the corporate veil."

Thus, a Charity can create a non profit corporation under state law to own property and seek IRS approval as a TI-SO to help protect the Charity's assets.

January 16, 2014

Tax Changes for Individuals 2013

The IRS summarizes important tax changes that took effect in 2013. Most of these changes are discussed in more detail throughout publication 17.  Click here....

January 09, 2014

Investment Funds Maintained by Charitable Organizations

Section 3(c)(10)(A)(ii) of the Investment Company Act of 1940 generally exempts a private investment fund from registering as an investment company if it is maintained by a charitable organization and is organized and operated exclusively for religious, education, benevolent, fraternal, chartable or reformatory purposes (“Permitted Purposes”) for the collective investment and reinvestment of certain assets.  Recently, the SEC provided new guidance to alleviate concerns related to the use of this exemption.... Read more.

January 04, 2014

Reinstatement of Exempt Status

New IRS released new procedures: Applying for Reinstatement of Tax-Exempt Status … Rev Proc 2014-11