Q: What does our ministry need to know about affiliated organizations?

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. For additional information, read Brotherhood Mutual’s article, “Affiliated Organizations Can Help Protect Ministry Assets.”

*Important information: Brotherhood Mutual is pleased to provide Legal Assist as a complimentary resource. The services we offer through Legal Assist are intended to provide general legal information to our current and prospective policyholders.

The information we provide is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Accordingly, no attorney/client relationship is created through this process, and no legal advice will be provided. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.