Nonprofit Law/Non profits


QUESTION: My board is looking at forming a basketball league as a not for profit subsidiary of our 501 c 3 which is a amateur sports organization.  Can this be done? And does it have to utilize the same name?

ANSWER: By subsidiary I am assuming that you mean that the new organization will be having the directors appointed by the existing organization.  That is certainly allowable. A subsidiary is a separate entity and could not, therefore, have the same name as the existing organization.  

The new basketball league would need to also comply with regulations relating to 501(c)(3) organizations.

If you want to ask me any follow-up questions, please confirm that you are referring to having two Oklahoma Nonprofit Corporations.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    

---------- FOLLOW-UP ----------

QUESTION: Thank you. I'm sorry, yes two separate entities, and by the same name I mean using part of the name with the words basketball league in its title.
So am I to understand if we form this corporation we will have to apply for a separate 501 c 3 or could the original corporation be utilized as a fiscal sponsor to new organization/league?

The new corporation would need to apply for 501(c)(3) organization status with the IRS unless the existing corporation obtains group exemption.

The IRS exemption organization fee page has, for the 4th item, that
the fee is $3000 for an organization to apply for the group
exemption determination so that they could then have subordinate
organizations as exempt without the subordinates filing with the

I am assuming that you don't want to have group exemption because of the cost.  As for "fiscal sponsor", that is up to your existing organization, which would then be responsible to the IRS to make sure that the activities of the new organization are 501(c)(3) organization activities.

In that one paper, from 1994, at
the IRS states, on page 16 "Fiscal sponsorship is an area of
current concern for the Service... fiscal sponsorship occurs when
one or more charities choose to financially support another charity
or nonexempt project."  One page 17 the IRS elaborates, "A
nonexempt project, as used in this context, is a charitable
activity of an organization that does not have an IRS determination

Therefore, you would be running a "nonexempt project" funded by an
exempt organization.  The arrangement is by contract.

Continuing on page 17:
--- Start of Excerpt ---
Improper conduit arrangements often arise where grants or
contributions are "earmarked" for separate, secondary
organizations. Conduit situations always involve three players: a
donor, an intermediary grantee through which earmarked
contributions pass, and the actual recipient. A community
foundation is improperly used as a conduit when it is merely an
intermediary grantee acting as a channel through which earmarked
gifts are passed.
---End of Excerpt---

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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