A. The creation of an affiliated organization within the ministry's larger corporate structure can provide multiple benefits, but it also presents certain drawbacks.
Whether and how the creation of an affiliated organization will work for your ministry depends upon a number of factors, and should only be pursued after careful consideration and consultation with your ministry’s attorney and tax professional.
Two organizational classifications ministries frequently used for affiliated organizations are 509(a)(3) and 501(c)(2) organizations:
A 509(a)(3) organization is called a “supporting organization.” This type of organization supports the original charitable organization by providing services or funds entirely for the benefit of the original organization. A 509(a)(3) organization must also be qualified as a 501(c)(3) organization to be exempt from federal taxation.
A 501(c)(2) organization, also known as a “title-holding corporation,” is exempt from federal income tax, and exists to hold legal title to ministry property. The purpose of a 501(c)(2) corporation must be limited to holding property, collecting income from that property, and transferring all such income to the exempt parent organization.
Whether a ministry should form an affiliated organization is a decision that should be made in consultation with a local attorney and tax professional.
Posted 2017
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