Thanks to Ryan Peak, Staff Counsel of Asiatico and Associates who wrote this article for churches with multiple outreach ministries:
As integral parts of their community, churches often have numerous local outreach programs: day care centers, schools, athletics programs, prison ministries, homeless shelters, food pantries, and the like. Each of these organizations comes with inherent risks of liability for which a church may not be adequately prepared or protected. Churches should consult with legal counsel to ensure a comprehensive risk management and liability protection plan is in place. This should include consideration of whether the church will be better protected if the outreach programs are operated as separate tax-exempt corporations, thus shielding the church from the risk of operating these programs. Tax-exempt organizations that are affiliated with and supported by a church may be recognized by the IRS as integrated auxiliaries of the church, despite their status as independent corporations, which allows them to receive the key benefit of this status – exemption from the annual requirement to file an annual information return with the IRS, Form 990.
In order to qualify as an integrated auxiliary of a church, a tax-exempt public charity must be affiliated with a church. The IRS looks at several facts and circumstances to determine this affiliation, none of which is dispositive:
- Does the organization share common religious doctrines, principles, disciplines, or practices with the church?
- Is the church authorized to appoint or remove at least one of the organization’s directors or officers?
- Does the organization’s name indicate an institutional relationship with the church?
- Does the organization annually report its financial and general operations to the church?
- Upon dissolution, are the organization’s assets distributed to the church?
Additionally, an organization must be internally supported to qualify as an integrated auxiliary. To meet this test, an organization must not offer admissions, goods, services, or facilities for sale to the general public except on an incidental basis, and it must normally receive less than 50% of its support from a combination of government sources, public solicitations of contributions, and receipt from sale of admissions, goods, or services. Certain organizations are exempt from this requirement – men’s and women’s organizations, seminaries, mission societies, and youth groups.
Although you may have never heard of an integrated auxiliary, it is an important and beneficial entity which can provide significant liability protection for your church and lessen your reporting requirements to the IRS. If you are interested in finding out more about integrated auxiliaries, please contact Ryan Peak at Asiatico & Associates.
Tags: church day care, food pantries, Form 990, homeless shelters, integrated auxiliaries, internal controls, nonprofit organizations, Nonprofit tax status, outreach ministries, prison ministries, tax reporting rules