Supporting Organizations (Portfolio 459)

Description

Tax Management Portfolio, Supporting Organizations, No. 459, examines the supporting organization as defined in Internal Revenue Code §509(a)(3).

A supporting organization is an exempt charitable organization that “supports” one or more publicly supported charitable organizations described in §509(a)(1) or (2). Because of its strategic link with the supported public charities, a supporting organization historically has generally been exempt from the private foundation taxes under §§4940–4945, despite the fact that a supporting organization’s sources of support may be limited to a single donor or members of a single family. Under 2006 legislation, however, supporting organizations are now subject to the private foundation tax on “excess business holdings” under §4943. Contributions to supporting organizations qualify for the highest, public charity, deductibility thresholds. In light of concerns about potential abuse, the Pension Protection Act of 2006 enacted provisions designed to improve the accountability of supporting organizations and to subject certain supporting organizations, or distributions to certain supporting organizations, to excise taxes.

The supporting organization regulations have been described by a federal district court, justly, as “fantastically intricate and detailed.” This Portfolio reviews the “organizational,” “operational,” and “control” tests prescribed by those regulations, and discusses the nature of the supporting organization’s required relationship with the supported public charities: Type I (“operated, supervised, or controlled by”), Type II (“supervised or controlled in connection with”), or Type III (“operated in connection with”). The Portfolio also summarizes the regulations and rulings relating to the life-cycle of a supporting organization, its relationship with private foundations and exempt noncharitable organizations, the §501(h) election, and related issues.

This Portfolio may be cited as Treacy, 459 T.M., Supporting Organizations.

Table of Contents

I. Introduction
II. Overview
III. Organizational and Operational Tests
IV. Relationship Types
V. Control Test
VI. Transitional Rules
VII. Supported Organizations
VIII. Life-Cycle of a Supporting Organization
IX. Other Supporting Organization Issues