On October 25, 2019, George Constantine was quoted in CEO Update on pitfalls associations should avoid when leveraging a related foundation to boost revenue and advance their mission.
According to the article, trade groups incorporated under Section 501(c)(6) of the tax code may establish separate 501(c)(3) foundations to receive donations for educational, charitable, or scientific purposes. Associations formed as a 501(c)(3), such as many professional societies, usually do not create a separate legal identity. The rules of the road for related foundations are well established, but associations still sometimes veer off track.
Trade groups that establish a connected foundation must maintain a certain level of separateness in governance and operations. Otherwise, the Internal Revenue Service (IRS) might say the 501(c)(6) rules for trade groups apply to the entire enterprise, Constantine said.
"People tend to overstate that separateness requirement from time to time to suggest that they can't be connected at all, and that's not the case," he said. "You can have shared services, shared space, shared employees…The key is to document all that to make sure it's being tracked properly."
"Trade groups also run a big risk if programs benefit members or the industry and not the general public. The IRS will say that industry-focused activities, such as market research that could help members boost sales, are a better fit for the parent trade group," Constantine said.