Our school is a 501(c)(3). If we have a parent organization that raises funds for our school, should it have its own EIN for its checking account or use ours?
This is a frequently asked question for parent organizations, hospital auxiliaries, and other types of charity-related fundraising groups. It is symptom of a much more complex question.
The basic issue is whether the organization is a separate entity. Is it incorporated separately? Is it an unincorporated association? If it is a separate entity, it should have its own bank account, its own tax-exempt status, and its own insurance (which may be covered on the charity’s policy). If it is an unincorporated association, it may want to incorporate to limit the potential personal liability of the individual members and avail itself of the comparatively clear rules of governance and liability for nonprofit corporations.
If it is not a separate entity, it is probably operating as a committee or volunteer group on behalf of the charity. In that case, it can use the charity’s EIN and benefit from the charity’s exempt status. It may have a separate bank account, on which its officers are authorized to draw funds, but the owner of the account should be the charity. But if it is operating as a committee, the charity is ultimately responsible and liable for it actions. Is the charity paying attention to what it is doing? Are the organization and its members covered on the charity’s insurance?
When dealing with a group like this, ask yourself who would be sued, and who would ultimately be liable, if someone were injured at a fundraiser managed entirely by the fundraising group on behalf of the school. If the relationship is not clear, you are running a big risk for trouble.
Friday, March 2, 2007