garfield Posted October 30, 2011 Share Posted October 30, 2011 Again, not nit-picking just making this clear: You are stating that (hypothetically) YEA could open a non-related taxable for-profit aircraft fueling depot as a subsidiary like Star had, then do away with *All* other sources of income, and YEA could receive 100% of their income from "that" taxable business if they so desired, and that would be completely legal? Yes Quote Link to comment Share on other sites More sharing options...
garfield Posted October 30, 2011 Share Posted October 30, 2011 (edited) Don't forget that the non-profit entity we're talking about here is DCI. DCI doesn't generate income from non-related business, the LLC's under it do. Further, those unrelated businesses have a mission to serve the non-profit's interest. No individual(s) outside of DCI's mission will profit from those business. They are aligned with the mission of DCI. I met with a business attorney today to discuss this very subject. His example of a non-related business was an anti-gambling addiction charity owning shares in a casino and generating a "substantial" percentage of their income from that business. Non-related business income is more identified by the mission of the LLC than whether they derive income from gambling addiction centers. That the casino makes others wealthy who aren't connected with the charity's mission is the center point of the IRS's argument about losing tax-exempt status. He also gave the example of a charity whose sole income comes from soliciting contributions (begging). It's not rational to think that all of the business missions of all of the donors is aligned with the business of the charity. If the rule were focused on "related", few charities at all would survive. Edited October 30, 2011 by garfield Quote Link to comment Share on other sites More sharing options...
Stu Posted October 31, 2011 Share Posted October 31, 2011 Yes Thank You!!!!! Why couldn't Danielray and Whitedawn answer that simple question as you did; with a simple yes!?! Quote Link to comment Share on other sites More sharing options...
garfield Posted October 31, 2011 Share Posted October 31, 2011 Thank You!!!!! Why couldn't Danielray and Whitedawn answer that simple question as you did; with a simple yes!?! I suppose that, as in my industry, there is very little black and white with which to answer your question, and I'm sure there are lawyers out there who would argue with what my lawyer said today. The only black and white is what a judge would say and, so far, the case evidence is clearly on the side of the simple "yes" (as long as the mission issues are addressed....see, more gray area). To take your example of YEA (or any other corps or even DCI) one step further, let's presume that YEA generates enough revenue from the refueling business to eliminate member dues entirely, thereby reducing the amount that the corps produces "organically". Even in that example the income would be considered related because the mission would be to provide free marching for members. That YEA receives ALL of it's income from the fueling business makes the fueling business even more "related" to drum corps. Quote Link to comment Share on other sites More sharing options...
Stu Posted October 31, 2011 Share Posted October 31, 2011 (edited) Don't forget that the non-profit entity we're talking about here is DCI. DCI doesn't generate income from non-related business, the LLC's under it do. Further, those unrelated businesses have a mission to serve the non-profit's interest. No individual(s) outside of DCI's mission will profit from those business. They are aligned with the mission of DCI. I met with a business attorney today to discuss this very subject. His example of a non-related business was an anti-gambling addiction charity owning shares in a casino and generating a "substantial" percentage of their income from that business. Non-related business income is more identified by the mission of the LLC than whether they derive income from gambling addiction centers. That the casino makes others wealthy who aren't connected with the charity's mission is the center point of the IRS's argument about losing tax-exempt status. He also gave the example of a charity whose sole income comes from soliciting contributions (begging). It's not rational to think that all of the business missions of all of the donors is aligned with the business of the charity. If the rule were focused on "related", few charities at all would survive. Ok; then not only was Bill Cook way ahead of his time he was also completely correct on the *best* way to fund DCI as well as the various corps. Now this begs another question: Since the revenue a non-profit collects must go toward its mission, how can the non-profit use their current revenue income to open taxable subsidiaries; or would DCI, or a corps for that matter, have to find outside investors to specifically fund the opening of those taxable subsidiaries? Edited October 31, 2011 by Stu Quote Link to comment Share on other sites More sharing options...
garfield Posted October 31, 2011 Share Posted October 31, 2011 (edited) Ok; then not only was Bill Cook way ahead of his time he was also completely correct on the *best* way to fund DCI as well as the various corps. Now this begs another question: Since the revenue a non-profit collects must go toward its mission, how can the non-profit use their current revenue income to open taxable subsidiaries; or would DCI, or a corps for that matter, have to find outside investors to specifically fund the opening of those taxable subsidiaries? Because the purpose of making the investment is to generate income that benefits DCI. Interestingly, "dividends" are excluded from inclusion in the non-related calculation. So Star could have been completely funded by the income from an investment in Phillip Morris, and those dividends would not be considered as unrelated. EDIT: Oh, and yes, Bill Cook was way ahead of his time, which is, I suspect, one of the reasons why he lost patience with the way DCI was (is) run. Edited October 31, 2011 by garfield Quote Link to comment Share on other sites More sharing options...
Stu Posted October 31, 2011 Share Posted October 31, 2011 Because the purpose of making the investment is to generate income that benefits DCI. Interestingly, "dividends" are excluded from inclusion in the non-related calculation. So Star could have been completely funded by the income from an investment in Phillip Morris, and those dividends would not be considered as unrelated. EDIT: Oh, and yes, Bill Cook was way ahead of his time, which is, I suspect, one of the reasons why he lost patience with the way DCI was (is) run. You have been very helpful, but would you also please address this question which I posed earlier: Since the revenue a non-profit collects must go toward its mission, how can the non-profit use their current revenue income to open taxable subsidiaries; or would DCI, or a corps for that matter, have to find outside investors to specifically fund the opening of those taxable subsidiaries? Quote Link to comment Share on other sites More sharing options...
garfield Posted October 31, 2011 Share Posted October 31, 2011 You have been very helpful, but would you also please address this question which I posed earlier: Since the revenue a non-profit collects must go toward its mission, how can the non-profit use their current revenue income to open taxable subsidiaries; or would DCI, or a corps for that matter, have to find outside investors to specifically fund the opening of those taxable subsidiaries? A non-profit would not be required to seek outside investors although it might be helpful to do so. If DCI has the money to fund an outside venture whole sole mission is to support DCI, there's no problem. Quote Link to comment Share on other sites More sharing options...
garfield Posted October 31, 2011 Share Posted October 31, 2011 I think that Bill Cook was ahead of his time because he knew from personal experience (and his philanthropy) that arts ventures rarely pay for themselves. He could have the kids doing car washes and bake sales but, to make a million dollars, you need something external. Somewhat like BD's System Blue, certainly like Crown Tickets, and something like YEA's USSBA. Quote Link to comment Share on other sites More sharing options...
Stu Posted October 31, 2011 Share Posted October 31, 2011 (edited) A non-profit would not be required to seek outside investors although it might be helpful to do so. If DCI has the money to fund an outside venture whole sole mission is to support DCI, there's no problem. Ok; let's take three instances: 1) DCI, 2) an existing corps like Jersey Surf, and 3) an upstart group attempting to create a corps. Where would each of these three entities secure the capital to actually create taxable subsidiaries (especially since most of the current income they receive has to be targeted to the mission and not targeted to creating subsidiaries). Edited October 31, 2011 by Stu Quote Link to comment Share on other sites More sharing options...
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