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.
