IBA Compliance Connection

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How should we set up ‘benefit’ accounts that are established for the benefit of someone else (such as raising money for a friend’s medical bills)? Should we require that these customers have trusts? What happens if the customer dies and there is a dispute over the account ownership?

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We recommend requesting that the individuals or groups opening these accounts obtain separate EINs for the accounts, rather than using an individual’s social security number. For example, the IRS EIN application expressly states that the following types of groups or organizations may obtain EINs, in addition to trusts: Block/Tenant Associations, Community or Volunteer Groups, Memorial or Scholarship Funds, PTA/PTO or School Organizations, Social or Savings Clubs, Sports Teams, and more. If an individual or group does not fit into one of those categories, it can fill in an “Other” designation on the EIN application.

Also, certain charitable activities may trigger a requirement to register with the Illinois Attorney General. As part of the account opening process, you should inquire about the individual or group’s activities, and if it appears that a registration requirement has been triggered, you should request a copy of the accountholder’s registration. For example, if a group or individual will be holding more than $4,000 for a charitable purpose, it must register with the Attorney General Charitable Trust Bureau as a charitable trust. Additional reporting requirements also may apply based on the type of trust (such as a trust for the benefit of a minor or a person with a disability).

In addition, groups that will be soliciting donations from others must register with the Attorney General Charitable Trust Bureau. However, several exceptions may apply. For example, registration is not required for persons requesting contributions “for the relief or benefit of any individual, specified by name at the time of the solicitation, if the contributions collected are turned over to the named beneficiary, first deducting reasonable expenses for costs of banquets, or social gatherings, if any, provided all fund raising functions are carried on by persons who are unpaid, directly or indirectly, for such services.”

These types of accountholders are not required to operate under trusts.

For resources related to our guidance, please see:

  • IRS Online EIN Application Assistant (Permitting organizations to apply for EINs as Block/Tenant Associations, Community or Volunteer Groups, Memorial or Scholarship Funds, PTA/PTO or School Organizations, Social or Savings Clubs, Sports Teams and more, under “Additional Types.”)
  • Charitable Trust Act, 760 ILCS 55/6 (“Every trustee subject to this Act who has received property for charitable purposes shall file and register with the Attorney General, within 6 months after any part of the income or principal is received for application to the charitable purpose . . . .”)
  • Charitable Trust Act, 760 ILCS 55/2 (“This Act applies to any and all trustees, as defined in Section 3, holding property of a value in excess of $4,000.”)
  • Charitable Trust Act, 760 ILCS 55/3 (“‘Trustee’ means any person, individual, group of individuals, association, corporation, not-for-profit corporation, estate representative, or other legal entity holding property for or solicited for any charitable purpose. . . .”)
  • Attorney General Charitable Trust Rules, 14 Ill. Adm. Code 480.20(c) (Defining “charitable purposes” as including “without limitation any funds which are to be applied for the benefit of an indefinite number of people to provide them with: (1) Education, (2) The benefit of religion, (3) Relief from poverty, sickness or disease, (4) A means of establishing themselves in life, (5) Public building or recreational activities, or (6) Services which lessen the burden of government.”)
  • Solicitation for Charity Act, 225 ILCS 460/2(a) (“Every charitable organization, except as otherwise provided in Section 3 of this Act, which solicits or intends to solicit contributions from persons in this State or which is located in this State, by any means whatsoever shall, prior to any solicitation, file with the Attorney General upon forms prescribed by him, a registration statement, accompanied by a registration fee of $15, which statement shall include the following certified information: . . . .”)
  • Solicitation for Charity Act, 225 ILCS 460/3(b)(3) (Exception from registration requirement for “persons requesting any contributions for the relief or benefit of any individual, specified by name at the time of the solicitation, if the contributions collected are turned over to the named beneficiary, first deducting reasonable expenses for costs of banquets, or social gatherings, if any, provided all fund raising functions are carried on by persons who are unpaid, directly or indirectly, for such services.”)