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 Post subject: Affiilates, foundations, "Friends Of" for rail non-profits
PostPosted: Wed Nov 23, 2022 12:14 pm 

Joined: Tue Jan 25, 2005 4:03 pm
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Or -- the value of creative corporate non-profit partnerships?

While not unheard of in rail preservation, it is a topic I've never seen discussed broadly.

There exist various "Trusts," "Friends of" and "Foundation" groups have been started to better the mission, vision, operations, and fundraising of an existing non-profit entity. For instance, the "Friends of the East Broad Top" is not the East Broad Top, and the California State Railroad Museum Foundation is an affiliate/sponsoring organization for the California State Railroad Museum, and Steamtown National Historic Site, and the Iron Horse Society, etc.

This level of corporate structure and partnership is usually justified by wanting to better or properly allocate resources (financial or otherwise), work around state or federal restrictions (i.e. Steamtown) and a matter of playing to one's strengths (i.e. your railroad may be a good operator or own equipment, but is not great at management, promoting, administration, etc.)

This is different from having a fiscal sponsorship where in an existing 501c3 lends its charitable status to an up-and-coming but not yet legally recognized non-profit, though that type of arrangement also shows progressive partnerships.

Who or what are other great examples and how are they structured – or are there more perilous examples where lessons can be learned?

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Kelly Lynch
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Fort Wayne Railroad Historical Society, Inc
http://www.fwrhs.org


Last edited by nathansixchime on Wed Nov 23, 2022 2:40 pm, edited 1 time in total.

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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Wed Nov 23, 2022 2:01 pm 

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nathansixchime wrote:
Who or what are other great examples

Friends of Cumbres and Toltec Scenic Railroad


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Wed Nov 23, 2022 2:04 pm 

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Chris, do you have insight on the contractual relationship between the two entities? How is it managed?

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http://www.fwrhs.org


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Wed Nov 23, 2022 2:35 pm 
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Location: Pac NW, via North Florida
I've wondered how these groups get involved?
I ask this only because I know of a guy who many years ago bought a railroad station in his hometown before it was to be torn down, and had it moved onto his property.
Then, about a year into slowly restoring it back to its glory, he heard there was a 'friends of' group that was taking money for memberships, devoted to his own property.
He'd never heard of them, heard from them and nobody from the group contacted him to assist in any way. He emailed them from the website and called their ph #, but nobody ever contacted him. He even went to a press conference by them to literally step in front of the cameras and say he was the owner of the depot and that they had no connection to the depot nor him and have not helped in any way to do anything to support their supposed mission.
They vanished soon after, he said.

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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Wed Nov 23, 2022 3:18 pm 

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Location: New Franklin, OH
Good topic. I’m interested in how these “Friends of” organizations work and whether or not there is benefit to both orgs. All ears.

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Turner of Wrenches, Drawer of Things


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Wed Nov 23, 2022 5:22 pm 

Joined: Sat Aug 25, 2007 12:45 am
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nathansixchime wrote:
Chris, do you have insight on the contractual relationship between the two entities? How is it managed?
I cannot speak for them, but I will share what I know about them.

The Friends of the C&TS is a non profit 501(c)(3) while the railroad itself is owned by the states of New Mexico and Colorado. The Cumbres and Toltec Scenic Railroad Commission governs the railroad; its four Commissioners are appointed by the Governors of Colorado and New Mexico. This document on the Commission's website may answer some of your questions:
Policies and Practices Manual C&TSRR Commission Adopted March 29, 2012 Revised October 28, 2017

An excerpt from page 14 of the PDF:
Quote:
Relationship with the Friends of the C&TSRR

In order to implement its historic preservation policies, the Commission has established a strategic relationship with the Friends of the C&TSRR, delegating to that organization responsibility for the museum functions of the railroad. The Commission’s policy is for the Friends to be the custodian of all historic non revenue assets of the C&TSRR with primary responsibility for the care, preservation, restoration, record-keeping, and interpretation of such assets, as well as the operation of these museum functions; all subordinate to the overall authority of the Commission.

For further information on the relationship between the Commission and the Friends and the rights, duties, and obligations of each party, please refer to Appendix XIII, Memorandum of Understanding between the Commission and the Friends, May 13, 2017.
That Memorandum of Understanding is on Pages 71-73 of the PDF.

You may also want to call the Friends' office in Albuquerque.

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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Wed Nov 23, 2022 5:35 pm 

Joined: Sun Aug 22, 2004 11:54 pm
Posts: 2367
nathansixchime wrote:
Or -- the value of creative corporate non-profit partnerships?

While not unheard of in rail preservation, it is a topic I've never seen discussed broadly.

There exist various "Trusts," "Friends of" and "Foundation" groups have been started to better the mission, vision, operations, and fundraising of an existing non-profit entity. For instance, the "Friends of the East Broad Top" is not the East Broad Top, and the California State Railroad Museum Foundation is an affiliate/sponsoring organization for the California State Railroad Museum, and Steamtown National Historic Site, and the Iron Horse Society, etc.

This level of corporate structure and partnership is usually justified by wanting to better or properly allocate resources (financial or otherwise), work around state or federal restrictions (i.e. Steamtown) and a matter of playing to one's strengths (i.e. your railroad may be a good operator or own equipment, but is not great at management, promoting, administration, etc.)

This is different from having a fiscal sponsorship where in an existing 501c3 lends its charitable status to an up-and-coming but not yet legally recognized non-profit, though that type of arrangement also shows progressive partnerships.

Who or what are other great examples and how are they structured – or are there more perilous examples where lessons can be learned?


I think this response should be filed under "perilous examples".

1.) The terms Mr. Lynch applies in quotes have specific legal meanings uinder the tax code; although there are public charities that use the term "foundation" in their name. Trusts have all sorts of meanings; from the arrangements pilloried by "trust busters" over a century ago, to special beneficial arrangements for minor or special needs children (aka "trust funds", to prominent foundations and charities that call themselves trusts. If something can mean anything, it means nothing...

https://www.mossadams.com/articles/2021 ... -confusing?

Worse, if you fail certain support tests; you can be considered a Section 509(a)(3) Supporting Organizations or more restrictively, a Private Foundation and they have requirements that don't apply to 501(c)(3) charitable organizations.

The TL;DR is that you need to understand what sort of organization you are in/dealing with; the name is not indicative of the legal status. it's generally best in terms of flexibility if you can organize and operate as a public charity, but you'll need public support for an an exempt purpose.


2.) If you are going to be operating as an affiliated/friends group, you should not be operating like the group described by p51, you should have a formal understanding with that group you purport you are affiliated with. If the group you want to be chummy with is governmental, there will likely be a formal process and agreement specifying the nature of the relationship and the mutual responsibilities and unless you have that in hand, you probably shouldn't be identifying yourself as a "friends" group. The Iron Horse Society was organized in 2015, received its tax exmpt status in 2016, but wasn't the Steamtown Friends group until an agreement was signed in 2017. Although people concentrate on federal tax status; you also have responsibilities to comply with state law if you hold yourself out as a charity. Those requirements should be met with the guidance of an attorney who practices in that area. I have absolutely no doubt based upon what's described that the group was an out and out fraud. Hopefully, the state regulatorof charities (in Pennsylvania, is part of the Secretary of State's office.) was able to find and prosecute.

https://www.dos.pa.gov/BusinessCharitie ... fault.aspx

Scammers claiming to be charities are as common as scammers claiming to be "Tech Support" or Microsoft, unfortunately and have just as many youtube videos exposing them, if you are interested in their nature or methods.

3.) As for this "lends its charitable status to an up-and-coming but not yet legally recognized non-profit", I'm not sure what Mr. Lynch means by that. While it isn't a federal requirement to be incorporated-a public charity could be "Corporations, and any community chest, fund, or foundation" (not sure if they mean foundation that meets the requirements to be a public charity, and I have no idea what a "community chest" is outside a Monopoly game piece). However, if you aren't a distinct entity and haven't (yet) subitted you 1023; I think you are a interest group.

For the "lender" the purposes of the up and comers need to comply with their exempt purpose. If your purpose is very specific: "the preservation, restoration, display and operation and display of former Dead Horse Gulch Railroad No. 99" and you lend yoyur status to a group attempting to acquire and restore an SD-40, then you need to revise your exempt purpose, perhaps filing an amendment to your articles of incorporation (see an attorney) and I would aergue that would be a "substantial" change, requiring notice to the IRS.

Pro Tip: make your exempt purpose as broad as possible. "The promotion of public appreciation and understanding of railroads, thir operations and history" is simple, sweet and can accomodate just about anything with a flanged wheel.

See Item 6 of this sort of oddly entitled guide.

https://www.irs.gov/pub/irs-tege/How%20 ... Status.pdf

Secondly, if you do "lend" your support, even without the sort of issues raised above, you need to be conscious of the possibility of internal friction or resentment ocer "mission drift".


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Fri Nov 25, 2022 3:06 pm 

Joined: Tue Jan 25, 2005 4:03 pm
Posts: 925
superheater wrote:

3.) As for this "lends its charitable status to an up-and-coming but not yet legally recognized non-profit", I'm not sure what Mr. Lynch means by that. While it isn't a federal requirement to be incorporated-a public charity could be "Corporations, and any community chest, fund, or foundation" (not sure if they mean foundation that meets the requirements to be a public charity, and I have no idea what a "community chest" is outside a Monopoly game piece). However, if you aren't a distinct entity and haven't (yet) subitted you 1023; I think you are a interest group.



To be more specific regarding "fiscal sponsorships."

https://www.councilofnonprofits.org/too ... nonprofits

Quote:
A fiscal sponsor is a nonprofit organization that provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects.

Fiscal sponsorship is often used by newly formed nonprofits that need to raise money during the start-up phase, before they are recognized as tax-exempt by the IRS. Using a fiscal sponsor enables a program or organization that does not itself qualify as tax-exempt to attract funding for its operations that will -- through the fiscal sponsor - be tax-deductible to donors. Therefore fiscal sponsor arrangements benefit organizations or programs that are not tax-exempt by providing a flow-through pathway for revenue that the organization may not otherwise be in a position to receive.



I've gotten a few PMs back channel and have learned that a good many of the "Friends of" and cooperating orgs don't have much more than handshake agreements among them.

The document and quotes provided by Mr. Webster up above show good practice in at least formally documenting symbiotic relationships.

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Vice President
Fort Wayne Railroad Historical Society, Inc
http://www.fwrhs.org


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Fri Nov 25, 2022 7:39 pm 

Joined: Wed Sep 25, 2013 12:36 am
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Location: Anchorage, Alaska
When our organization was formed we had a "fiscal sponsor." The web page linked above reflects our the relationship and our experience. For the benefit of them accepting all of the funds under the umbrella of their status as a tax-exempt non-profit and allowing a deduction for donors, they took a fee which wasn't insubstantial on all income, including for a couple of five and six figure grants, while doing little more than accepting, holding in trust, and dispersing funds. The also processed requests for matching fund disbursements under one grant. Several grants were requested and received in their name for the benefit of our organization, but they didn't do much more than review the request that we wrote and forward it with their cover letter.

Something to be aware of. When the funds that the fiscal sponsor held in trust were used to pay invoices for goods that we we purchased the items we received are considered to be in-kind, reportable income by the IRS. Despite assurances from the fiscal sponsor that their tax-exempt status meant we didn't have to report this income or complete a tax return, a high powered pro-bono attorney who assisted us in applying for our 501(c)(3) verified that it was income, we must file a tax return, and this income must be included.

I have mixed emotions on the value of the fiscal sponsor. They allowed us to accept a major grant immediately after we incorporated and before we were approved by the IRS as a 501(c)(3). This allowed the donor to give to a valid charity and have some peace of mind that a new organization wasn't weren't going to take the money and run.

Without a lot of additional resources they could have served as an incubator for a new organization by providing guidance on how they could become independent and educate on the status with the IRS and IRS requirements before being approved as tax-exempt. My perception was that they were more interested in remaining as a fiscal sponsor indefinitely. It was only due to considerable research on my part that we pursued a 501(c)(3) and filed a tax return for our first year of operation. Without my impression that something didn't seem quite right in the advice we were getting, there could have been a very messy situation between the organization and the IRS.


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Fri Nov 25, 2022 9:21 pm 

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The Stewartstown Railroad has an affiliated "Friends" group, I believe composed of mostly the same volunteers who operate the railroad. I am not an expert on the history of the two, but as I recall: around twenty or so years ago George Hart in his will bequeathed the SRR, which he owned, to a historical society in Stewartstown thinking they would responsibly maintain it, but the historical society cared more about money than history and pushed to scrap the railroad. During that time the railroad was shut down, but the Friends group was looking after it and agitating for it to be restored. Eventually the historical society sold the railroad, I believe to members of the Friends, but the Friends group continues, and they own some of the equipment themselves, including an ex-Reading m.u. car being restored that is nearing completion. To me it appears that all of the restoration is done through the Friends (including track), while operations, ticketing, safety, etc. are done through the railroad.


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Fri Nov 25, 2022 9:53 pm 

Joined: Thu Feb 26, 2009 3:07 pm
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Location: B'more Maryland
PMC wrote:
I am not an expert on the history of the two, but as I recall: around twenty or so years ago George Hart in his will bequeathed the SRR, which he owned, to a historical society in Stewartstown thinking they would responsibly maintain it, but the historical society cared more about money than history and pushed to scrap the railroad.


This is inaccurate.

He bequeathed his estate to the Bucks County Historical Society (or another Philadelphia area group, I might have the name wrong). Included in his was a loan to the Stew that he was not collecting on.

The historical society, however, legally had to settle his estate which included the loan. The most straight forward method was liquidating the railroad.

Luckily, funds were found to pay off the loan and everyone and everything lived happily ever after.

There was nothing nefarious about it.

But there IS an important lesson in it. If you have someone give your organization money, make SURE it really IS a gift and not a loan. If it's a loan, you CANNOT expect whoever inherits handles your benefactor's estate to "take your word" that they said "I never expect this to be paid back".

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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Fri Nov 25, 2022 10:59 pm 

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Ed Kapuscinski wrote:

But there IS an important lesson in it. If you have someone give your organization money, make SURE it really IS a gift and not a loan. If it's a loan, you CANNOT expect whoever inherits handles your benefactor's estate to "take your word" that they said "I never expect this to be paid back".

THIS is inaccurate, he didn't just loan a random, unaffiliated railroad money, he OWNED it. That is how a set of trucks from one of the cars in Stewartstown ended up under a car at his operation in Jim Thorpe, and why a former Cof NJ car sat on wood blocks in the Stewartstown RR's yard since then. It may be that he had shifted money around from one to the other using the SRR as collateral, but he still was running it. I actually am a member of the Friends of the Sewartstown Railroad group (most of the time, when I can remember to send in the dues), even though I live over 3k miles away and have never visited it, I mostly took an interest both because my grandfather was from eastern Pennsylvania but also because of my support for the effort to keep it from being torn up, and then to restore it to operation.


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Sat Nov 26, 2022 2:12 am 

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Location: Somewhere east of Prescott, AZ along the old Santa Fe "Prescott & Eastern"
Since I've heard numerous conflicting narratives on what actually transpired, please do an all-out analysis of what happened, over its history, between the Friends of the East Broad Top and the railroad (then privately owned) it was formed to support.

There are probably a lot of lessons to be learned there.


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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Sat Nov 26, 2022 12:43 pm 

Joined: Thu Feb 26, 2009 3:07 pm
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Location: B'more Maryland
PMC wrote:
Ed Kapuscinski wrote:

But there IS an important lesson in it. If you have someone give your organization money, make SURE it really IS a gift and not a loan. If it's a loan, you CANNOT expect whoever inherits handles your benefactor's estate to "take your word" that they said "I never expect this to be paid back".

THIS is inaccurate, he didn't just loan a random, unaffiliated railroad money, he OWNED it. That is how a set of trucks from one of the cars in Stewartstown ended up under a car at his operation in Jim Thorpe, and why a former Cof NJ car sat on wood blocks in the Stewartstown RR's yard since then. It may be that he had shifted money around from one to the other using the SRR as collateral, but he still was running it. I actually am a member of the Friends of the Sewartstown Railroad group (most of the time, when I can remember to send in the dues), even though I live over 3k miles away and have never visited it, I mostly took an interest both because my grandfather was from eastern Pennsylvania but also because of my support for the effort to keep it from being torn up, and then to restore it to operation.


Ah, thanks for the clarification. I stand corrected!

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 Post subject: Re: Affiilates, foundations, "Friends Of" for rail non-profi
PostPosted: Mon Nov 28, 2022 1:39 pm 
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Friends of groups are particularly valuable when working with a government owned railroad (or house museum etc…) Governments have rules, written to manage their bureaucracies, which can be a problem when running museums, or can have funding and spending models which have narrow scope.

A private 501c3 group can raise funds for projects around the museum’s government funded scope… a good example being the Friends of the Cumbres & Toltec Scenic railroad. The tourist railroad operation does not see the value of preserving freight equipment or mile posts… so the Friends were created, and help with the preservation component of the line.

Government agencies have rules managing items being disposed of… aka “Surplus Property disposal rules” which might work when selling off old police cars, but doesn’t work well when disposing of historic artifacts. The CSRM foundation can accept a collection of objects or books, transfer to the Railroad Museum those the museum wants to add to their collection, then the foundation can sell the rest to benefit the collection… If the State Museum did the same, surplus property laws would require that the funds be given to the state’s general fund.

At the Nevada State Railroad Museum in Boulder City, the Friends were able to purchase items not covered by the state budget. They also could serve as purchasing agents... Nevada has a very strict purchasing program, including a process to become a vendor which is long and complicated… which works well when buying office supplies or fuel, but doesn’t work when you want to have an obsolete brake valve rebuilt… so we would issue a PO to the friends for the work, they would have the brake valve rebuilt, and we would then receive the rebuilt valve, and the Friends would be paid.

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Director, Nevada State Railroad Museum, Boulder City, Nevada, Retired
http://www.nevadasouthern.com/
https://www.facebook.com/FriendsOfNevadaSouthernRailway


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