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Nonprofit Law/state nonprofit and 50(c)(3) interaction

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QUESTION: Scenario - A state nonprofit (but not federally tax exempt) organization and an unrelated 501(c)(3) organization want to merge in some fashion.  Can the state nonprofit become the sole member of the 501(c)(3) and continue to operate the 501(c)(3) in a tax exempt fashion?

Also, is there any scenario pre-merger in which the 501(c)(3) could donate to the state nonprofit without violating its tax exempt status?  (in our situation the state nonprofit conducts boat racing and the 501(c)(3) is also present at the state nonprofit's racing events to raise money for children).

thank you in advance very much for your time and thoughts on this.

ANSWER: 1. I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. Your question "Can the state nonprofit become the sole member of the 501(c)(3)" is only based upon state law issues.  Even though this forum is not for such state law issues, if you give me some more information, I may be able to give you some leads that you could not reply upon until you have a local attorney confirm.  Please confirm that the 501(c)(3) organization is an Ohio nonprofit corporation. If it is not, then let me know what type of entity it is.  Also send me a copy of the articles of incorporation and bylaws of the Ohio 501(c)(3) organization because those documents will indicate whether it is a membership organization.  If you do not send me those copies, you can inform me whether there is any prohibition in the articles of incorporation or bylaws for membership by a "state nonprofit", which will also assume is an Ohio nonprofit corporation, unless you advise me otherwise.
After you give me that information I will reply further.

2. A 501(c)(3) organization may not donate funds to an non-exempt entity (like the "state nonprofit").

In any case, I can work with you on the drafting of the required papers for the merger.  I have in my profile in my forum at http://bit.ly/NonprofitLaw that the free service that I offer is only for general questions directly related to IRS exempt purpose issues of 501(c)(3) organizations.  Therefore, I would be charging for the drafting work. If you want to hire me for the merger work, send me an email directly to my email address below and I will quote you my fees.

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

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. For me to consider your individual situation and how the law applies, I would need to gather more information.


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

QUESTION: thank you.

for question 1 - the state nonprofit is an Ohio entity.  the 501(c)(3) is a Florida nonprofit corporation.  The Articles for the 501(c)(3) contain the basic 501(c)(3) provisions required by the IRS for tax exempt status.  nothing further.  they are very broad and basic. they list initial 3 directors and 3 incorporators. they speak of members in terms of members in terms of needing 2/3 vote of members to amend articles.  let me know if you still need a copy of articles and i can scan.  i do not have the regulations.  

i will send you an email to obtain the merger quote to pass that along to my client - thanks.

Answer
You can consult the Ohio Nonprofit Corporation law, revised as of 2015 at http://goo.gl/NB0KfD and specifically, section 1702.13(E) provides:
--- Start of excerpt ---
If permitted by the articles or the regulations of a corporation, another nonprofit corporation ... may become a member of the first mentioned corporation.
-- End of excerpt ---

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

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Harvey Mechanic

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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 Harvey108@hotmail.com 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 "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

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.

Education/Credentials

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

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


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