I have been on the road for the past few days without my password so I have only been able to follow this discussion not participate. My two cents worth.

First, I am not an attorney and am not attempting to offer legal advice. Second, in a forum such as this, only the broadest brush can be applied to the subject, your legal and tax advisors need to fill in the details. Third, someone commented that we don't often seek proper legal council on issues (probably because of the expense). One of the first things I did as President of TVRM was to set aside funds in the budget for the legal, accounting and audit advice we might need.

Even before the possiblity of freight service came along, TVRM had to face the issue of Unrelated Business Income. This was when TVRM carried the liability insurance for the NS steam program and the "income" from this activity needed to be classified as either related, or unrelated income. As with many things two different CPAs instructed us to handle this two different ways. In the end, becuase it met a number of tests, it was treated as unrelated income.

When we first looked at freight operations ten years ago we did alot of research. Included in the research was another not-for-profit that took on a frieght operation to preserve their connection to the outside. they set up a for profit, common carrier subsidiary to handle this. Their President told me that he makes sure they make money every year, just not much. At that level of net income the tax rates are pretty low. As I once said to our President at the time, "Would you like to pay 10-15% of something, or 0% of nothing".

We were also put in touch with a Washington based attorney who practiced in front of the STB. Through our contact, a detailed list of questions and scenarios were outlined. The attorney responded with some sound legal advice. When the need to lease the NS Belt line to ensure our connection to the outside we were ready, and set up a for profit common carrier (the East Chattanooga Belt Railway Company) to handle the limited business on the line. When our employees have to perform switching on this line they clock into our subsidiary and we pay them seperately with Railroad Retirement withheld (and yes we have file all of that paperwork)

Meanwhile we have handled a limited number of cars for an online customer under a contract arrangement. In this case there is a three way private side track agreement with the Class I saying that when they place the care on the sidetrack it is considered placed at the customer even though it still needs to move a mile over TVRM to the actual siding. Demurrage starts when the car is placed. We were able to structure this the way we did because the line was abandoned and the previous common carrier obligation had been severed.

Our attorney later went to work for the STB and we were able to persue a number of issues with them. Included in this was the issue of contract vs common carriers, how many shippers etc, etc. From this came our for-profit, contract carrier, the wholly owned Hiwassee River Railroad Company. In this case the private side track is 43 miles long. We handled the unit trains under contract to the owner of the material being shipped.

In retrospect, and after considerable discussion (and $$$) with a corporate attorney specializing in not for profits, we would probably set up both ECTB and Hiwassee as "supporting organizations". In general terms a corporation set up to support a not-for-profit can gain a not-for- profit status if certain conditons are met.

In all cases the seperate subsidary was set up to shield TVRM from potential liability, although our attorney and insurance agent would say that a plaintifs attorney would make some effort to pull TVRM in anyway.

Now, we recently moved a $1.5 million transformer over the Hiwassee District and chose to use TVRM as the carrier, rather than the Hiwassee River Railroad Company. This was the result of several tax and liability factors. We did secure (and the shipper paid for) property insurance for this move which went into the low to mid five figures. The agreement with the shipper clearly stated that our liability was limited to the insured amount and that we were making this move as a favor to his customer and his company.

So I guess the bottom line is that don't expect one solution to magically appear for all circumstances. Take advantage of legal and tax advice and choose a path that will benefit your organization and the bottom line. If you have to pay something to the IRS, that's actually good, it means you are making money for your organization as well.

And remember, as it was once said "Not-for-profit; a corporate structure, not a business plan".

If you have any questions please feel free to contact me.

Tim Andrews
TVRM
Chattanooga, TN