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Exempt Organizations Annual Reporting Requirements - Form 990, Schedule R: Meaning of "Control" for Organizations With Owners

In deciding if an organization is related for purposes of Schedule R, Form 990, how is control defined for nonprofit organizations and organizations with owners or persons with beneficial interests?

There is control if one organization (the parent) owns more than 50 percent of the other organization (the subsidiary), as follows:

  • More than 50 percent of the stock (measured by voting power or value) of a corporation;
  • More than 50 percent of the profits or capital interest in a partnership (or limited liability company (LLC) treated as a partnership); or
  • More than 50 percent of the beneficial interests in a trust.

There are also several special rules for treating a partner or member (the parent) as controlling a partnership or limited liability company ("LLC") (the subsidiary):

  • An organization that is one of three or fewer managing partners or managing members is deemed to control that partnership or LLC;
  • An organization that is one of three or fewer general partners in a limited partnership is deemed to control that limited partnership; and
  • The sole member of a disregarded entity controls the disregarded entity (for example, a single-member LLC).

In the first two situations, control in fact typically exists regardless of the level of economic ownership in the entity.

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