Not-For-Profit Lawyer Chicago IL
For-Profit and Not-For-Profit Subsidiaries
The tax-exempt status is not black and white, and should often be looked at as if it were a spectrum. On one end of the spectrum is not-for-profit, 501(3)(c) organizations, such as a religious organization, that operates tax-free. In the middle may be another 501(3)(c) nonprofit that also pays UBIT for profit made by selling posters, for example. Then, at the other end of the spectrum, there are the for-profit organizations that pay state and federal taxes.
With the growth of some nonprofit organizations and the many different organizational structures along this spectrum, it may be essential to have an experienced Chicago non-profit attorney to ensure that both for-profit and nonprofit subsidiaries are operating in a lawful manner according to Illinois and federal nonprofit laws.
For-Profit Parent Organization
Some for-profit organizations in Illinois may decide to conduct not-for-profit activities. Typically, in these cases, the for-profit parent will create a separate corporate foundation that gives money to charitable organizations that the parent organization supports.
On the other hand, for-profit organizations are not very likely to create a separate nonprofit, 501(3)(c) organization. In fact, for the latter organization to gain its tax-exempt status, it must be headed by an independent board of directors and draw its funding and support from the public. Conflicts of interest between a for-profit parent organization and the nonprofit may occur, making it increasingly difficult for the nonprofit to maintain IRS compliance. It is for this reason that highly experienced legal counsel is almost critical whenever a for-profit parent organization wants to create a not-for-profit subsidiary.
It is for this reason that highly experienced legal counsel is almost critical whenever a for-profit parent organization wants to create a not-for-profit subsidiary.
Not-for-profit organizations that receive tax-exempt status can create a for-profit organization. Generally, this is referred to as Unrelated Business Income Tax (UBIT), and nonprofits must pay regular taxes on any activities conducted outside of the nonprofit’s principal activities. A good example of this is a nonprofit museum that sells posters in the gift shop.
When a not-for-profit organization wishes to create another nonprofit subsidiary, it is often because the nonprofit needs/wants to conduct charitable activities that significantly differ from the parent organization’s original mission.
Contact Chicago’s Leading Non-Profit Lawyer Today
Creating a for-profit or not-for-profit subsidiary is a legally complex matter; however, it is feasible with the guidance and counsel of a leading Chicago nonprofit attorney. With decades of experience, lawyer James C. Provenza has helped numerous organizations expand their reach and further their activities, whether the activities are for a profit or a divergent, not-for-profit activity. To remain in compliance with the IRS as well as Illinois and federal laws, call Chicago nonprofit law firm James C. Provenza & Associates, PC at (847) 729-3939. Free consultations are available.