Our 501(c)(3) nonprofit wants to form a new nonprofit tax-exempt subsidiary that will engage in activities that, while related to our mission, will be somewhat different. The parent provides housing, education and supportive services to people in recovery from drug and alcohol addiction in an urban setting. The subsidiary will be a treatment center for inpatient and outpatient services, with a holistic approach incorporating things like yoga, nutrition, and natural medicine in a rural setting and using a different corporate name. Should we get a new EIN for the new organization and do we have to file for a new tax-exemption or can we use the parent's status to fundraise for the new nonprofit?
Unless you plan to create the new entity as a single member limited liability company solely owned by the existing nonprofit, you will have to get a new EIN and file for a separate recognition of exemption. A single member LLC owned by a charity is considered a “disregarded entity” by the IRS and all of its activities are considered for income tax purposes as those of the parent owner. There is no need to obtain a separate recognition of exemption for a single member LLC.
But if the new LLC is conducting business activities that are unrelated to the exempt purpose of the parent, the resulting unrelated business taxable income could be enough to jeopardize the exemption of the parent if the parent does not expand its exempt purposes. The LLC is a separate entity for state law purposes and for most liability issues but basically does not exist in the eyes of the IRS. Even if you use a single member LLC, however, you will need a separate EIN if you have employees or need to pay certain excise taxes.
In view of the different character of the operations of the new entity and the intended use of a different name, it probably makes sense to set up a separate corporation and obtain a separate recognition of exemption.
In either case, you may be able to add the name of the subsidiary on the parent’s state charitable solicitation registration forms as an additional organization for which the parent raises funds, but some states may require separate registrations for each.