Re: Incorporation

At 13:15 -0700 on 8/22/98, James H. Moss mailed Re: Incorporation:
>
>"In the case of a corporation, you are generally not responsible
>for the negligence of another person who is acting on the corporation's
>behalf, you are only responsible for your own personal negligence."
>
>This goes for an association also.

I have always thought to the contrary, that the members of an association
are jointly and severally liable for its debts, including torts and breach
of contract by the association, exactly in like fashion as partners in a
general partnership. That is why I have always felt the insurance or
self-insurance offered by National is a deal and a half, and following the
rules in order to be able to lay claim to that insurance is very wise.

Whenever I have encountered a neighborhood association that wants to sue
someone, I have always advised them to incorporate first as a nonprofit
corporation in order to shield the members from any award of costs and
attorney's fees in the event the case is lost, and to afford some shield
from invasion of member's privacy during discovery. The new nonprofit
corporation needs to take steps to be adequately financed as well, which as
an attorney is important both to make the corporation legit and for it to
be able to pay me.

If one were to incorporate, that would create a new potential taxpayer, but
the association is already a potential taxpayer. The point is, that a Scout
troop IMHO is already an unincorporated association (standing in some
control relationship with the CO depending in reality on whether the CO is
really into the program, or is only offering a charter of convenience, sort
of like an American ship flying a Panamanian flag). A troop thoroughly
integrated into a CO may simply be a program arm of that CO. A troop which
even has to raise the money for the charter fee (and is told by the charter
'partner' now you have our signature we'll see you next year) is more
likely an independent association which has bought a flap of convenience.
The troop is already a potential taxpayer, but everyone including the IRS
generally pays no attention as it's small potatoes anyway you slice it.

The tax laws are a little more complex than folks generally believe in this
area. There are two questions, not one. The first is, does this association
or corporation itself have to pay income tax on its income? That is
answered by Section 501 of the Internal Revenue Code, and Scouting
organizations would generally fall within Section 501 (c) (3). 'Everyone'
assumes that that Section 501 status creates an answer to the second
question; it does not.

The second question is, may a person donating money to this association or
corporation deduct the donation? That question is answered by Section 170
of the Internal Revenue Code, and a Scouting organization would lay claim
to the charitable status offered to "education." Not having the Code in
front of me, I forget whether that's 170 (a) or (b) or (c) and whether it's
sub (2) or sub (3) of the relevant alphabet section. It may well be 170 (a)
(3) or (c) (3).

The bottom line is that for the quasi-independent troop, incorporation may
wave a red flag in front of taxing entities, but it doesn't really create a
wholly new exposure to the revenooers.

Hence it is indeed correct to consider the question as one of changing the
relationship with BSA or with the Chartering Organization, or as losing or
gaining insurance benefits. The tax laws are a bit of a red herring in this
consideration.

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