Bill Brown <brownwp[at]longwood.edu> wrote:

- quote -

The umbrella organization is supposed to be sure that any money
collected for its satellite is used for the umbrella's exempt
purpose.

- quote -

I'm not sure they can do that. Tax exemption for a day care center
would have a different exempt purpose than the church, so they might
be required to get theirs separately.

- quote -

Assuming it's a proper umbrella/satellite relationship, the umbrella
is not required to control the satellite's spending. They just have
to take all reasonable precautions (whatever that means) to be sure
their assets are used for the proper exempt purposes.

- quote -

Again, the satellite must spend its money and use its resources for
the exempt purpose of the umbrella. If they have different exempt
purposes, they should use a different umbrella organization. Aside
from that, they're probably ok.

Stu

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What requirements are there for accountability and control of a
"satellite" organization by the tax exempt organization providing
umbrella exempt status?

Example: Suppose these facts: There is a church with tax exempt status
under IRC Section 501(c)(3). The church houses a day care center which
has tax exempt status under the umbrella of the church's exempt
status. Payroll of day care employees (and related withholding
remittances and payroll tax return filings) are handled by the church
treasurer using a day care center checking account established for
that purpose. Other day care operating expenses are paid out of a
second checking account by the day care director. The day care
director also controls distributions of day care funds to the payroll
account and for the expense sharing arrangement with the church. The
director also handles all receipt of and accounting for fees paid by
parents.
Internal control weaknesses notwithstanding, what, if any, legal
requirements exist for the church to exercise oversight and/or control
of the financial resources of the day care center in order to protect
its tax exempt status under Section 501(c)(3)?

Would the requirements be different if the top organization was the
central committee of a friends of the library group and the
"satellites" were separate FOL groups for each of the branches in the
city's public library system?

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >