4116 / Who may control a 501(c)(9) trust (“VEBA”) in order for it to maintain its tax-exempt status?
The association must be controlled by (1) its membership, that is, by its participants, (2) independent trustees, or (3) trustees, some of whom are designated by or on behalf of members.1 Requisite control was held lacking where trustees were appointed by a self-perpetuating board of directors, new members of which were appointed by current members from among a group only indirectly selected by employees.2 A bank may not necessarily be considered an independent trustee.3
1. Treas. Reg. § 1.501(c)(9)-2(c)(3).
2. American Assn. of Christian Schools v. U.S., 663 F. Supp. 275, 87-1 USTC ¶ 9328 (M.D. Ala. 1987), aff’d, 850 F.2d 1510, 88-2 USTC ¶ 9452 (11th Cir. 1988).
3. Lima Surgical Assoc., Inc. v. U.S., 20 Cl. Ct. 674, 90-1 USTC ¶ 50,329 (U.S. Claims Court 1990), aff’d on other grounds, 944 F.2d 885, 91-2 USTC ¶ 50,473 (Fed. Cir. 1991).