The IRS recently published three Technical Guides on supporting organizations, one for each of the types describing the relationship between the supporting organization and its supported organization(s). A supporting organization (“SO”) is described in Section 509(a)(3) of the Internal Revenue Code as a category of 501(c)(3) organizations that does not fall within the definition of a private foundation. SOs are considered public charities and generally not subject to the private foundation laws, which makes them attractive where a 501(c)(3) organization cannot pass an applicable public support test but wants the more favorable public charity classification.
SOs are, however, subject to requirements and laws beyond those applicable to publicly supported public charities. The Technical Guides are very helpful for this reason.
The New SO Technical Guides
A Type I supporting organization is operated, supervised, or controlled by its supported organization(s). The distinguishing feature of this relationship is the presence of a substantial degree of direction by the publicly supported organization(s) over the conduct of the supporting organization. The relationship between the supported organization(s) and the supporting organization is like a parent-subsidiary relationship. A Type I supporting organization must satisfy an organizational test, an operational test, a relationship requirement, and a control test.
A Type II supporting organization is supervised or controlled in connection with its supported organization(s). The distinguishing feature is the presence of common supervision or control among the governing bodies of all organizations involved, such as the presence of common directors. The relationship between the supported organization(s) and the supporting organization is like a brother-sister relationship. A Type II supporting organization must satisfy an organizational test, an operational test, a relationship requirement, and a control test.
A Type III supporting organization is operated in connection with one or more publicly supported organizations. All supporting organizations must be responsive to the needs and demands of, and must constitute an integral part of or maintain significant involvement in, each of their supported organizations. While Type I and Type II supporting organizations are deemed to accomplish these responsiveness and integral part requirements by virtue of their governance structures, the distinguishing feature in Type III is that the supporting organization is responsive to, and significantly involved in the operations of, the publicly supported organization. Because a Type III supporting organization is not subject to the same level of governance by its supported organization(s), a Type III supporting organization must pass separate responsiveness and integral part tests, in addition to the organizational test, operational test, relationship requirement, and control test applicable to all supporting organizations. A Type III supporting organization is either “functionally integrated” or “non-functionally integrated,” depending on the manner in which it meets the integral part test.
Additional Resources
Supporting organizations: Requirements and types (IRS)
Type III Supporting Organizations – Functionally Integrated
Final Regulations: Requirements for Type I and Type III Supporting Organizations (effective on October 16, 2023)
Forms 990, 990-EZ and 990-N – 509(a)(3) supporting organizations (IRS)
Reliance criteria for private foundations and sponsoring organizations that maintain donor advised funds [regarding Type III non-functionally integrated SOs] (IRS)