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Nonprofit Law/Non Profit Booster Club purchasing equipment for the gym

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QUESTION: Our gymnastics academy is owned by a 501c3 non-profit corporation. Therefore the gym falls under the umbrella of this non-profit health system. Our Booster Club is a separate entity, and also a 501c3 non-profit.
Since both organizations are 501c3 non-profit, is it appropriate for the Booster club to make a monetary donation for the purchase of equipment for the gym?
I know it would be inappropriate for the non-profit booster club to purchase equipment for a "for profit" gym. Would our situation make it ok?

Thank you for any information you may provide,
Kristi

ANSWER: There are two types of 501(c)(3) organizations and one type is a private foundation and the other type is a public charity.  Normally booster organizations are public charities.  If the 501(c)(3) gymnastics academy is also a public charity then the booster organization may grant funds to that gymnastics academy either when the grant is not earmarked for any particular expenditures or when the grant is for something designated, like equipment.

You wrote, "Therefore the gym falls under the umbrella of this non-profit health system".  I hope that you have checked on the IRS site at https://goo.gl/CSf9OL because it does not necessarily follow that, if a 501(c)(3) organization has a subsidiary, that subsidiary is itself a 501(c)(3) organization or part of the group exemption that the health system has.

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 so much for the quick response yesterday! I have a W9 noting the foundation name in box 1 and subsidiary name in box 2. I looked up the tax ID# at the IRS site suggested and that tax ID# entity is listed as a Public Charity. So to confirm, it would be legal for the 501c3 public charity booster club to grant funds to the 501c3 public charity foundation or subsidiary listed on the same W9.
Is that correct?

ANSWER: The grant may be given by the 501(c)(3) booster organization to the organization with that tax id, which shows on the IRS site as a public charity. On the IRS site it will give the name of the organization with that tax id. It appears, from what you wrote, that the tax id is of the health system.  Line 2 on the Form W-9 is for "Business name/disregarded entity name". https://www.irs.gov/pub/irs-pdf/fw9.pdf

Therefore, the healthcare system is stating in the W-9 that the gymnastics academy is either not a subsidiary (it is simply a dba of the health system) or that the gymnastics academy is a separate entity but, under proper interpretation of IRS regulations, its separate nature is disregarded. I have not seen two different non-profits having such a relationship before.  

You did write yesterday "the gym falls under the umbrella of this non-profit health system." What people refer to as "umbrella" is what the IRS calls "group exemption". Group Exemption is discussed starting on the bottom of the middle column of page 8 of IRS Publication 557 at
http://www.irs.gov/pub/irs-pdf/p557.pdf

and at length at:
http://www.irs.gov/pub/irs-pdf/p4573.pdf

Before you send the money, you would want evidence of the relationship of the subsidiary as part of the parent's group exemption and that is something that the parent should be happy to supply to you.  It may also be in the parent's Form 990 which is available online through https://www.citizenaudit.org


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: I am so sorry, reading all of those tax documents makes my head spin a little. Are you saying that simply listing an entity as "dba" in block 2 on the W9 does not automatically mean the organization named in block 2 is also an exempt public charity like the parent organization listed in block 1?

I do intend to ask the parent organization to provide evidence as stated in your previous response. Thanks so much for your time!

Answer
I am not going to depend upon someone's vague statement.  The statement in line 2 may be referring to two different situations and I would want to find out which it is.  Yesterday you wrote that the gymnastics academy was "owned" by another organization, not simply a "dba" used for business purposes by another organization.

To answer your specific question, the answer is there are not two different organizations when a "dba" is being used.  There is only one organization.

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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